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What's Driving The US Dollar Higher?

The US dollar was recently seen surging higher against a basket of currencies, which includes the Euro, Japanese yen, New Zealand dollar and the Australian dollar. The most important thing to note was the fact that the US dollar index broke the 2013 high of 84.75 to close above the 85.00 level. This is one of the best performances in the recent years by the US dollar. The reason behind this move is the improving economic conditions and the Fed tapering. The central bank has scaled down the asset purchases program, which is significant. One can say that the US dollar is heading towards or above the pre-QE levels. The Euro is down more than 1200 pips and other pairs such as NZDUSD and AUDUSD followed the same pattern. Can we say that this is going to continue for some time? Yes, it is possible, but we need to consider a fact that the US dollar surge is remarkable and without a substantial correction. So, this has increased the possibility of a short-term correction.

The recent releases in the US were very impressive like the US new home sales figure and building permits. The data was mostly in line with the expectation or above the expectation. There were a couple of important releases today as well like the US initial jobless claims, services PMI and durable goods orders report. The outcome was mixed, and this might give an opportunity to the US dollar sellers to take the greenback lower from the current levels.

US Services PMI

The US Services Purchasing Managers Index (PMI) was also released by Markit Economics during the NY session. The forecast was slated for a decline of 0.5 points from 59.5 to 59.0 in September 2014. However, the outcome was softer than expected, as the US services PMI declined from 59.5 to 58.5 in September. This does not mean that the outcome was not good, as the current reading is well above the neutral 50.0 threshold.

US SMPI

As mentioned earlier, the EURUSD pair had a major support around the 1.2820 level, which was breached by the Euro sellers recently. The pair traded as low as 1.2695 during the London session. Currently, it is consolidating losses, and there is a chance of a recovery in the short term. However, the upside should be limited and might find resistance around the 1.2760 level.