USD Index Poised For Rebound, JPY Carving Short-Term Top

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9958.74

9999.64

9956.07

-0.10

72.92%

Although t he Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar ) remains 0.08 percent lower from the open, the rebound in market sentiment appears to be tapering off ahead of the European close, and we may see currency traders scale back their appetite throughout the North American trade as European policy makers struggle to restore investor confidence. As the 30-minute relative strength index approaches oversold territory, we should see a short-term rebound over the next 24-hours of trade, and we may see market participants turn increasingly bullish against the greenback should Fed officials continue to talk down speculation for additional monetary support.

As FOMC voting members Sandra Pianalto is scheduled to speak at 16:30 GMT, the fresh batch of central bank rhetoric is likely to spark increased volatility in the USD, and we may see the board member strike an improved outlook for the region as the economy gets on a more sustainable path. A less dovish statement could ultimately spark a sharp rebound in the index, but we may see Ms. Pianalto maintain a cautious tone as the ongoing turmoil in Europe continues to pose a risk to the global financial system. Nevertheless, as the USDOLLAR continues to hold above the 61.8 percent Fib around 9,949, we should see the bullish formation continue to take shape, and index looks poised to make another run at the 78.6 Fib around 10,118 as it maintains the upward trend from earlier this year. At the same time, we’re closely watching the bearish divergence in the RSI as it dampens our bullish call for the dollar, but we will maintain our bullish outlook for the greenback as the index continues to find support around 9,900.

Three of the four components advanced against the greenback, led by a 0.58 percent advance in the Japanese Yen, but the recent strength in the low-yielding currency may be short-lived as the Bank of Japan pledges to carry out its easing cycle throughout 2012. Indeed, the USDJPY slipped to a fresh monthly low of 80.28, but the lack of momentum to hold below the 50.0 percent Fib from the 2011 high to low around 80.50 could ultimately pave the way for a reversal as the RSI threatens the downward trend carried over from the previous month. As the dollar-yen appears to be carving out a higher low in April, the pair could be putting in a short-term floor ahead of May, and we may see the USDJPY resume the upward trending from earlier this year as the BoJ looks to take additional steps to stem the risk for deflation.

--- Written by David Song, Currency Analyst