USD Correction To Taper Off Ahead Of NFPs, Sterling Outlook Clouded

By David Song, Currency Analyst

DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9891.31

9946.52

9888.45

-0.38

99.74%

The Dow Jones-FXCM U.S.Dollar Index ( Ticker: USDollar ) is 0.38 percent lowerfrom the open amid the rebound in risk-taking behavior, and we maysee the greenback continue to give back the advance from earlierthis week as the upward trending channel gives out. As the bearishdivergence in the 30-minute relative strength continues to pan out,we are likely to see the dollar track lower throughout the NorthAmerican trade, but we should see the index consolidate going intoFriday as employment in the world’s largest economy isexpected to increase another 210K in February.

Indeed, the lack of momentum to clear the 61.8 percent Fibonacci retracement (9,949) could drag the index down towards the 50.0 percent Fib (9,830), but we should see the rebound from 9,738 gather pace as we are now looking at a broader upward trending channel for the index. As the USD carves out a higher low coming into March, we should see the 50.0 percent Fib come in as interim support, and it seems as though it will only be a matter of time before we see another run at the 78.6 percent Fib (10,118) as the fundamental outlook for the U.S. improves. Therefore, the more robust recovery in the labor market may prop up the USDOLLAR, and we may see fundamentals play an increased role in dictating price action for the reserve currency as the Federal Reserve talks down speculation for another round of quantitative easing.

Three of the fourcomponents continued to gain ground against the greenback, led by a0.87 percent advance in the Euro, while the British Pound advance0.51 percent amid the muted reaction to the Bank of Englandinterest rate decision. As the BoE refrained from releasing apolicy statement, we may see the GBPUSD maintain the range-boundprice action ahead of the policy meeting minutes due out on March21, and the fresh batch of commentary from the Monetary PolicyCommittee may spur a bullish outlook for the sterling should thecentral bank continue to soften its dovish tone for monetarypolicy. As the BoE anticipates to see a faster recovery this year,it seems as though the MPC will preserve a wait-and-seeapproach throughout 2012, butthe central bank may see scope to start normalizing monetary policygoing into the 2013 as the committee sees a diminishing risk ofundershooting the 2 percent target for inflation. As the GBPUSDremains well supported by the 50-Day SMA (1.5674), we could seeanother run at 1.6000, but the technicals certainly paint a mixedoutlook for the pound-dollar as the relative strength indexmaintains the downward trend from February.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Followme on Twitter at @DavidJSong

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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/daily_dollar/2012/03/08/USD_Correction_To_Taper_Off_Ahead_Of_NFPs_Sterling_Outlook_Clouded.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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