Intense Dollar Buying - Market Analysis for Jan 6th, 2009

The fact that the Euro has weakened (dollar has strengthened) beneath the 1.3500-1.3450 area this morning and is confirmed by my daily RSI (momentum) gauge) indicates that more dollar buying power, and more Euro selling pressure, is directly ahead. The ETF for euro-dollar traders is the CurrencyShares Euro Trust (NYSE: FXE). The intense dollar buying will likely press the EUR/USD into the 1.3250-1.3150 target zone, which must contain the decline to avert a full-fledged retracement of the entire Nov-Dec EUR/USD advance from 1.2330 to 1.4720.

Not that it matters at all from a purely technical perspective, but why exactly would the dollar be so strong here? Perhaps the advent of the Obama Presidency, and investor hope and optimism that the worst is behind us, and the anticipation of a strong US revival economically and internationally are all factors elevating the demand for dollars? On the other hand, the US has adopted a zero interest rate policy, within an economy that is bound to elicit residual weakness and still-rising unemployment, amidst rising, huge deficits, which otherwise would be reason to jettison dollars. For the time being I will let the technicals show me the way.