February has seen a period of trade on the dollar index that has broken the historical inverse correlation between equities and the greenback. History shows a 12-month link that runs around 90%, that on any given day would have S&P 500 moving in the opposite direction to the dollar index. Although equities have maintained bids at yearly highs, February has been a month of sideways movement in general on stocks, which is being mirrored in dollar index trade.
The dollar index remains firmly embedded around the 78.00 area, with no indication whatsoever that global market participants will allow an easy test of support at 76.00, with absolutely no indication that a move lower to 72.00 is going to be forthcoming. The path of least resistance for the dollar looks to be a continuation of the sideways crawl that has major global currencies holding ground against the dollar, albeit at a snail’s pace
Traders will be very much aware that most foreign exchange moves are coming at the opening of each regional equity market trade, and subsequently then in reaction to red -flag economic releases that are individually moving major currencies on any given day. The weighting of the dollar index leans heavily towards European currencies, with only 20% of the index value coming outside of the euro zone, which has allowed individual currency pairs the ability to test previous sessions highs or lows, but not easily break and hold.