By David Song, Currency Analyst DJ FXCM Dollar Index
The Dow Jones-FXCM U.S. Dollar Index ( Ticker: USDollar ) is down 1.40% on the day after moving 145% of its average true range, and the greenback may continue to retrace the rally carried over from the previous month as risk trends continue to dictate price action in the foreign exchange market. However, as the 30-minute relative strength index trades bounces back from a low of 23, we may see the greenback regain its footing over the next 24-hours of trading, and a short-term correction may pan out in the days ahead once the oscillator crosses back above 30. As the Federal Open Market committee is scheduled to release its policy meeting minutes later this week, we may see the USD consolidate going into the middle of the week, and comments from the FOMC is likely to move the market as investors weigh the prospects for future policy. Indeed, the dollar index appears to have found short-term support around the 50.0% Fibonacci retracement ( 9,828), and the greenback may face range-bound price action ahead of the FOMC meeting minutes as the central bank maintains a cautious outlook for the world’s largest economy. As the Fed employs ‘Operation Twist’ in an effort to stem the downside risks for the region, the policy statement may highlight an increased willingness to carry the easing cycle into the following year, and the central bank may keep the door open to conduct another round on quantitative easing as the region faces an increased risk of a double-dip recession. As we expect the Fed to maintain a wary outlook for the region, dovish comments from the central bank may impede on investor confidence, and a flight to safety may resurface as the prospects for global growth deteriorates. In turn, we may see the index work its way back towards the 61.8% Fib around 9,947, and the greenback may extend the rally carried over from the previous month as it continues to benefit from safe-haven flows. All four components advanced against the dollar on Monday, led by a 2.44% advance in the Australian dollar, and the AUD/USD may continue to retrace the sharp decline from the previous month as market participants increase their appetite for risk. However, as the Reserve Bank of Australia shows an increased willingness to scale back the benchmark interest rate from 4.75%, speculation for lower borrowing costs continue to cast a bearish outlook for the aussie-dollar, and the relief rally may taper off ahead of the next rate decision scheduled for the 31 st as investors see a growing risk of a rate cut. According to Credit Suisse overnight index swaps, market participants are fully pricing a 25bp rate hike for later this month, while borrowing costs are expected to fall by nearly 150bp over the 12-months as the isle-region faces a slowing recovery. As interest rate expectations deteriorate, the near-term outlook remains bearish, and the exchange rate should continue to trend lower over the remainder of the year as the fundamental outlook for the world economy weakens. --- Written by David Song, Currency Analyst
|Index||Last||High||Low||Daily Change (%)||Daily Range (% of ATR)|
|DJ-FXCM Dollar Index||9829.32||9961.46||9826.5||-1.40||145.30%|
To contact David, e-mail email@example.com. Follow me on Twitter at @DavidJSongTo be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to firstname.lastname@example.org. Join us to discuss the outlook for the major currencies on the DailyFX Forums
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.