US Dollar Takes Respite Ahead Of Key Event Risk- RBA On Tap

By Michael Boutros, Currency Strategist

The greenback was fractionally weaker at theclose of North American trade with the Dow Jones FXCM Dollar Index(Ticker: USDOLLAR ) off by just 0.02% on the session. Equitymarkets spent the entire day paring early losses carried over fromEuropean trade with news that China had cut its 2012 growthforecast to 7.5% from 8.0% weighing on broader market sentiment.The move opens the door for further easing from the PBoC suggestingthat the economy may ultimately face a ‘hard landing’.Stocks closed well off session lows but ended the lower on the daywith the Dow, the S&P, and NASDAQ off by 0.11%, 0.39%, and0.86% respectively.

The index continues to hold above key dailysupport at confluence of former channel resistance dating back tothe January 13th, the 50 & 100-day moving averages, and the 50%Fibonacci extension taken from the August 1 st and October 27 th troughs at 9850. A hold above this levelremains paramount for the dollar with a break below eyeingsubsequent daily targets at the 9800-mark and the 38.2% extensionat 9755. Note that the daily relative strength index is nowencountering trendline resistance dating back to October 3rd with abreach here suggesting further topside moves for thegreenback.

An hourly chart shows the index continuing to range between soft support at 9875 and soft resistance at the 9900-mark. We favor buying into dollar weakness with a breach above 9900 eyeing intra-day targets at 9920 and the 61.8% extension at 9950. Only a move below the 9840 congestion region negates or short-term bias with such a scenario eyeing subsequent support targets at 9800, 9775, and the 38.2% extension at 9755.

The greenback advanced fell against three ofthe four component currencies highlighted by a 0.34% declineagainst the Japanese yen. The USD/JPY outlook remains weighted tothe topside with intra-day pullbacks offering favorable longentries. For complete scalp targets on the USDJPY refer to thismorning’s Winners/Losers report . The Australian dollar was the weakestperformer of the lot with a decline of 0.61% against the greenback.As China’s largest trading partner, a slowdown in aggregateChinese demand has much steeper implications for Australia with theaussie coming under substantial pressure today on the heels of thegrowth downgrade. The AUDUSD has already broken below key supportat the 1.0725 level with longer-term support targets eyed at theFebruary 23 rd low just shy of the 1.06-handle, and the 50-daymoving average at 1.0550. All eyes will be on the RBA interest ratedecision later tonight with central bank widely expected to holdthe benchmark rate at 4.25%. Should Governor Glenn Stevensspecifically cite increased concerns about a slowdown in China,look for the aussie’s decline to accelerate with higheryielding assets likely to track lower should the RBA leave the dooropen for further easing.

With no data scheduled on tomorrow’s US economic docket, the greenback will continue to take cues off of broader market sentiment with a continued sell-off in risk assets likely to keep the dollar well supported ahead of the key NFP employment data on tap later in the week.

---Written by Michael Boutros, Currency Strategist with DailyFX.com

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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.

Original Article: http://www.dailyfx.com/forex/fundamental/us_dollar_index/usd_trading_today/2012/03/05/US_Dollar_Takes_Respite_Ahead_of_Key_Event_Risk-_RBA_on_Tap.html

DailyFX is the forex news and research arm of FXCM (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.

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