Equity Correlation Begins To Decouple As USD Tests Key Resistance

By Michael Boutros, Currency Strategist

The greenback is markedly higher at the closeof North American trade with the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR ) advancing 0.23% on the session after moving afull 116% of its daily average true range. Today’s FOMCpolicy statement offered further support for the dollar’sadvance after the Fed acknowledged continued improvement in USeconomic data while citing that recent financial market strainshave eased. The remarks leave little room for further dollardiluting quantitative easing measures and as such the pressure onthe greenback should remain limited as speculation for QE3 subside.Equity markets were substantially higher at the close with the Dow,the S&P, and NASDAQ surging 1.68%, 1.81%, and 1.88%respectively as US Treasuries sold off, pushing up yields acrossthe curve.

The dollar saw a test of key trendlineresistance dating back to the October 4th high at 10,035 early inthe session. This level remains paramount for the greenback with abreach here eyeing the 78.6% Fibonacci extension taken from theAugust 1th and October 27 th troughs at 10,080 and the October high at10,134. Daily support now rests with the 61.8% extension at 9945.Not that the daily relative strength index continues to hold aboveformer RSI resistance with the slope suggesting the dollar couldcontinue to gain traction over the coming days.

An hourly chart shows the index breaking above the psychological 10,000 mark before encountering soft resistance at the 10,030 level. A breach here eyes interim topside targets at 10,055 and the 78.6% extension at 10,080. Interim support rests at 9980 backed by the 61.8% extension at 9945, 9920, and the 9900-mark. Our medium-to-long term outlook for the dollar remains weighted to the topside noting the possibility for a correction of some magnitude after testing key trendline resistance in intra-day trade.

The greenback advanced against two of the fourcomponent currencies highlighted by a 0.93% advance against theJapanese yen. The USD/JPY has continued to strengthen withtoday’s FOMC rate decision fueling the pair with enoughmomentum to break above key Fibonacci resistance at 82.80. Forcomplete scalp targets on the yen refer to thismorning’s Winners/Losers report . The pound was the strongest performer of thelot with an advance of 0.31% as stronger-than-expected tradebalance data showed the national deficit contracting January. Weremain neutral on the sterling at these levels noting key dailysupport at the 1.56-figure.

Tomorrow’s economic docket offers little in the way of tradable event risk with Fed Chairman Ben Bernanke’s speech before community bankers in Nashville Tennessee topping the calendar. Traders will be lending a keen ear to the Bernanke’s remarks in the wake of today’s FOMC statement which offered little for traders to sink their teeth into. Again we note the shifting dynamic of the greenback beginning to react favorably to positive data flow out of the US with the last couple of sessions giving us further conviction for this shift to gather pace later on this year. The dollar is likely to remain well supported for now with a pullback in the index offering favorable long entries as we look for a break above the key trendline resistance noted earlier.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

3/14

12:30

LOW

Import Price Index (MoM) (FEB)

0.6%

0.3%

3/14

12:30

LOW

Import Price Index (YoY) (FEB)

5.6%

7.1%

3/14

12:30

LOW

Current Account Balance (4Q)

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-$110.3B

3/14

13:00

MEDIUM

Fed Chairman Ben Bernanke Speaks on U.S. Economy

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---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/2012/03/13/Equity_Correlation_Begins_to_Decouple_as_USD_Tests_Key_Resistance.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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