USD Index Threatens Upward Trend, Yen Weakness To Gather Pace

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9935.52

9946.63

9897.39

0.21

73.41%

T he Dow Jones-FXCM U.S. Dollar Index(Ticker: USDollar ) is 0.21 percent higher from the open after moving73 percent of its average true range, and the rebound from 9,896should gather pace going into the middle of the week as risksentiment wanes. In turn, we may see the dollar work its way backtowards 10,000, but the greenback may face a short-term correctionas the 30-minute relative strength index approaches overboughtterritory. As the downward trending channel takes shape, the dollarcould be carving a lower high going into the middle of the week,and we may see the reserve currency track lower in April as marketparticipants raise bets for more quantitative easing.

Despite the dovish rhetoric from Fed ChairmanBen Bernanke, New York Fed President William Dudley, who’salso a permanent member of the FOMC, struck an improved outlook for the U.S. as he expects the economy to grow ‘at a moderate pace,’ and it seems as thoughthe committee will preserve a wait-and-see approach throughout 2012as central bank officials take note of the more robustrecovery. As the USDOLLAR threatens the upward trendingchannel from earlier this year, the greenback may have carved out atop in March, but we may see the reserve currency continue toretrace the decline from earlier this month should Fed policymakers talk down speculation for QE3. However, as the relativestrength index fails to maintain the upward trend, the lack ofmomentum to push back above the 61.8 percent Fibonacci retracementcould ultimately produce a move back towards the 50.0 percent Fib,and we may see the dollar consolidate over the near-term as marketparticipants weigh the outlook for monetary policy.

Three of the four components weakened against the greenback, led by a 0.39 percent decline in the Australian dollar, while the Japanese Yen lost another 0.36 percent against its U.S. counterpart, with the USDJPY advancing to a fresh weekly high of 83.37. As the Bank of Japan pledges to meet the 1 percent target for inflation, the central bank is widely expected to ramp up its asset purchase program throughout 2012, and the dovish tone held by the BoJ should continue to prop up the dollar-yen as the Fed looks to bring its easing cycle to an end. The shift in the policy outlook will continue to influence the USDJPY, and the exchange rate should continue to track higher over the near-term amid the deviation in interest rate expectations.

--- 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/2012/03/27/USD_Index_Threatens_Upward_Trend_Yen_Weakness_To_Gather_Pace.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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