USD Index Continues To Build Base, AUD Correction To Be Short-Lived

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9920.33

9968.92

9910.01

-0.49

97.38%

T he Dow Jones-FXCM U.S. Dollar Index(Ticker: USDollar ) is 0.49 percent lower from the open aftermoving 97 percent of its average true range, and the greenbacklooks primed for a corrective bounce as the 30-minute relativeindex comes off of oversold territory. As long as the 9,900 figureholds up as support, we will maintain our bullish outlook for theUSD, and the dollar should track higher over the near-term as itcontinues to carve out a higher low in April. In turn, we may seethe greenback make an attempt to break out of the bearish patternfrom earlier this month, but we may see the reserve currency holdsteady throughout the remainder of the week as Fed officialspreserve their 2014 pledge for the zero interest ratepolicy.

Indeed, FOMC voting members Janet Yellen and William Dudley endorsed the ‘highly accommodative policy stance’ amid the ongoing slack within the real economy, but saw little scope for another large-scale asset purchase program as ‘the recovery may be getting better established.’ In light of the recent rhetoric from the Fed, it seems as though the central bank is looking to conclude its easing cycle this year as the economy gets on a more sustainable path. As central bank officials continue to talk down expectations for another round of quantitative easing, the shift in the policy outlook continues to foster a bullish outlook for the USD, but the technicals certainly tell a different story as the index fails to maintain the upward trend from earlier this year. As there bearish divergence in the relative strength index takes shape, the development certainly points to additional USD weakness, but we may see fundamentals play an increased role in driving the dollar as the Fed starts to lay the ground work to normalize monetary policy.

Once again, three of the four components gainedground against the reserve currency, driven by a 1.30 percentadvance in the Australian dollar, and we may see the high-yieldingcurrency continue to retrace the decline from the previous month asthe rebound in risk appetite gathers pace. Indeed, the jump in employment sparked a sharp rebound in the AUDUSD, with theexchange rate breaking out of the downward trending channel carriedover from the previous month, but the recent move may ultimatelyturn out to be a short-term correction as market participantscontinue to see lower borrowing costs for the $1T economy.According to Credit Suisse overnight index swaps, investors arestill looking for at least 75bp worth of rate cuts over the next12-months, and the downturn in interest rate expectations continuesto cast a bearish outlook for the Australian dollar as the regioncopes with a slowing recovery.

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list,send an e-mail with subject line "Distribution List" todsong@dailyfx.com.

Join us to discuss the outlook for the majorcurrencies on the DailyFX Forums
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/2012/04/12/USD_Index_Continues_To_Build_Base_AUD_Correction_To_Be_Short-Lived.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.

More from Currencies

Bitcoin Today: Prices Slip as Broader Crypto Market Struggles to Make Traction

Bitcoin Today: Prices Slip as Broader Crypto Market Struggles to Make Traction

Bitcoin Today: Prices Attempt to Recover From One-Month Lows

Bitcoin Today: Prices Attempt to Recover From One-Month Lows

Cryptocurrency Regulation Is a Must for Long-Term Sustainability, Expert Says

Cryptocurrency Regulation Is a Must for Long-Term Sustainability, Expert Says

These Small Cap Experts Explain Why Crypto Isn't Going Anywhere

These Small Cap Experts Explain Why Crypto Isn't Going Anywhere

Bitcoin Today: Prices Sink to One-Month Low as Bid to $10,000 Falters

Bitcoin Today: Prices Sink to One-Month Low as Bid to $10,000 Falters