US Dollar Index At Risk Ahead Of 9900 Despite Less Dovish Fed

By Michael Boutros, Currency Strategist

The greenback is markedly weaker at the closeof North American trade with the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR ) off by 0.57% on the session after moving a full115% of its daily average true range. Equity markets were mixed atthe close as headlines out of Europe and mixed US economic dataweighed on stocks with the S&P and NASDAQ off by 0.05% and0.76% respectively while the Dow climbed higher by 0.56%. Remarksmade by Cleveland Fed President Sandra Pianalto were surprisinglyless dovish than expected with the central banker citing the needfor the Fed to take “balanced approach” to an exitstrategy while noting that the economy continues to display,“forward momentum.” Despite the remarks from Pianalto,a known dove, the dollar remained on the defensive with itsEuropean counter-parts outperforming early in the week.

The dollar closed back below the 61.8% Fibonacci extension taken from the August 1st and October 27th troughs at 9945. The index has continued to straddle this level for the past few sessions with key daily support seen at the relative three way confluence of the 50 & 100-day moving averages and the 9900 support level. This level remains paramount for the greenback with a break below eyeing support targets at the 50% extension at 9850. Daily topside advances are limited by channel resistance dating back to the 2012 high, currently just above the psychological 10,000 level. Note that the relative strength index continues to trade within the confines of a descending channel with a topside break needed to dispel further dollar weakness.

An hourly chart shows the index trading back in the confines of a descending channel formation after briefly dipping below channel support late last week. A break below this formation eyes subsequent floors at 9900, 9875, and the 50% extension at 9850. Interim resistance stands at the key 61.8% extension at 9945 backed by 9975 and channel resistance. A breach above the 10,000 mark shifts our focus higher with such a scenario eyeing primary objectives at 10,040 and the 78.6% extension at 10,080. Look for the dollar to take cues off broader risk trends as the European crisis comes back into focus with a substantial shift into risk aversion likely to offer ample support for the reserve currency.

The greenback declined against three of thefour component currencies highlighted by a 0.58% decline againstthe Japanese yen. The USD/JPY has remained under pressure sincelast week when the BoJ yielded no plans to further ease policy.Risk aversion flows have also continued to support the low yielderas traders flock into so called “haven” assets such asthe yen, the greenback, and US Treasuries. For complete USD/JPYscalp targets refer to today’s Winners/Losers Report . The Australian dollar was the weakestperformer of the lot with a decline of 0.16% on the session.Although the greenback saw broad-based losses against its Europeancounterparts like the pound, the euro and the swissie, commoditybacked currencies remained on the defensive with the aussie, thekiwi, and the cad all closing weaker on the session. Global growthconcerns continue to limit advances in the commodity bloc with thegreenback well supported in the interim. Traders will be closelyeyeing the minutes from the most recent RBA interest rate decisionwith our medium-term bias on the aussie remaining weighted to thedownside.

Tomorrow’s economic docket is highlighted March housing starts, building permits, manufacturing production and industrial production data. Traders will be closely eying the housing data as the sector continues to drag on the economy with housing starts expected to rise to 1.0% m/m, up from a previous contraction of 1.1% m/m. Building permits are expected to remain under pressure with consensus estimates calling for a decline of 0.6% m/m, down from a previous gain of 5.1% m/m. We remain neutral on the greenback at these levels while noting that our longer-term outlook remains weighted to the topside. However in light of recent price action, further declines in the index are likely with such a scenario to offer favorable long entries.

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

4/17

12:30

MEDIUM

Housing Starts (MAR)

705K

698K

4/17

12:30

MEDIUM

Housing Starts (MoM) (MAR)

1.0%

-1.1%

4/17

12:30

MEDIUM

Building Permits (MAR)

711K

717K

4/17

12:30

MEDIUM

Building Permits (MoM) (MAR)

-0.6%

5.1%

4/17

13:15

MEDIUM

Manufacturing Production (MAR)

-

0.3%

4/17

13:15

MEDIUM

Industrial Production (MAR)

0.3%

0.0%

4/17

13:15

LOW

Capacity Utilization (MAR)

78.6%

78.7%

---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/2012/04/16/US_Dollar_Index_at_Risk_Ahead_of_9900_Despite_Less_Dovish_Fed.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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