USD Overbought Ahead Of FOMC, JPY Weakness To Gather Pace On BoJ

By David Song, Currency Analyst

DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10003.39

10038.15

9970.51

0.08

116.68%

The Dow Jones-FXCM U.S.Dollar Index ( Ticker: USDollar ) remains 0.08 percenthigher on Tuesday amid the shift away from risk-taking behavior,and the greenback may consolidate ahead of the Federal Open MarketCommittee interest rate decision as market participants weigh theoutlook for monetary policy. Indeed, the index looks poised for asmall pullback as the 30-minute relative strength index falls backfrom overbought territory, but the bullish sentiment underliningthe dollar should gather pace over the near-term as the fundamentaloutlook for the world’s largest economy improves. In turn, weshould see dollar continue to retrace the decline from earlier thisyear, and the index looks poised to mark fresh highs for the yearas the central bank changes its tune for monetarypolicy.

Although the FOMC iswidely expected to maintain its current policy in March, thestatement accompanying the rate decision could spark a bullishreaction in the USDOLLAR a s Fed officials takenote of the more robust recovery. In turn, we should see thecentral bank continue to talk down speculation for morequantitative easing, and the FOMC may ultimately raise itsfundamental assessment for the region as the recovery gets on amore sustainable path. At the same time, the committee may look to extend ‘OperationTwist’ amid the ongoing weakness in the housingmarket, and we may see the FOMCendorse a wait-and-see approach throughout the first-half of theyear in an effort to stem the downside risks surrounding theregion. However, the pickup in growth andinflation may bring end to the Fed’s easing cycle in 2012,and the index looks poised to make another run at the 78.6 percentFibonacci (10,118) as market participants scale back bets forQE3.

Two of the four components advanced against the greenback, led by a 0.47 percent rally in the British Pound, while the Japanese Yen shed 0.61 percent as the Bank of Japan pledged to take additional steps to shore up the world’s third-largest economy. Although the BoJ preserved its current policy in March, Governor Masaaki Shirakawa swore to ease monetary policy further in order to meet the 1 percent target for inflation, and the Japanese Yen may continue to trade heavy over the near-term as the central bank looks to extend its easing cycle. As the board looks at new measures to shore up private sector activity, the shift in policy casts a bullish outlook for the USDJPY, and the pair looks poised to track higher over the near-term as relative strength index crosses back above 70. Although the oscillator indicates that the dollar-yen is overbought, the recent rise in the exchange rate looks poised to gather pace until we see the index fall back below 70.

--- 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/2012/03/13/USD_Overbought_Ahead_Of_FOMC_JPY_Weakness_To_Gather_Pace_On_BoJ.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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