USD Posts Largest Single Day Decline In March- Consolidation Ahead

By Michael Boutros, Currency Strategist

The greenback posted its largest single daydecline this month with the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR ) off by more than 0.58% at noon in New York. Thedecline pared the entire week’s advance with the index nowback below former long-standing trendline resistance dating back tothe October highs. Although CPI data came in at expectations, aweaker than expected University of Michigan confidence surveyaccelerated the dollar’s decline with interim support seen atthe 61.8% Fibonacci extension taken from the August 1st and October27th troughs at 9945. The index has now completed a 5-wave rallywith the correction likely to find support at this level beforeheading lower. Only a break of the ascending channel formationwould shift our bias more aggressively bearish. Note that a breakbelow RSI trendline support risks further losses for the greenbackwith such a scenario likely to challenge channel support. Dailytopside resistance stands with the 78.6% extension at 10,080 backedby 10,134.

An hourly chart shows the index breaking belowchannel support dating back to the February 29 th lows before losing steam just ahead of the61.8% extension at 9945. A break here eyes subsequent floors at9920, 9900 and 9875. Topside resistance now stands with formerchannel support backed by 10,030 and 10,055. Note that RSI now restdeep in oversold territory with a pullback offering favorableshorts as the dollar continues its descent.

The greenback fell against all four componentcurrencies for a second consecutive day highlighted by a 0.85%decline against the British pound. For complete scalp targets onGBPUSD, refer to today’s Winners/Losers report . The yen was the weakest performer of the lotwith an advance of just 0.27% despite broad dollar losses. Ourlonger-term outlook on the USDJPY remains weighted to the topsidehowever with pullbacks in the exchange rate offering favorable longentries. Look for the dollar to consolidate into the close withfurther weakness expected next week before the dollar can find abase off which to mount its counteroffensive.

---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/2012/03/16/USD_Posts_Largest_Single_Day_Decline_in_March-_Consolidation_Ahead.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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