USD Index Struggles To Hold Trend Ahead Of FOMC, GBP Looks Higher

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9915.46

9965.33

9913.11

-0.40

94.13%

Although t he Dow Jones-FXCM U.S. Dollar Index(Ticker: USDollar ) remains 0.40 percent lower on the day, we maysee the reserve currency consolidate throughout the North Americansession as the 30-minute relative strength index bounces back fromoversold territory. With support coming up at 9,900 a breach belowthe key figure could open the door for another selloff, but we willmaintain our bullish outlook for the greenback as the recovery inthe world’s largest economy gets on a more sustainable path.With the slew of market-moving event risks on tap for the followingweek, we should see the dollar hold steady as market participantsturn their attention to the Federal Open Market committee interestrate decision on Wednesday.

As the USDOLLAR comes up against the lower bounds of the upward trending channel, a break here would reinforce the bearish divergence in the RSI, which should pull the index back towards the 50.0 percent Fibonacci retracement around 9,830. At the same time, if we see the dollar maintain the bullish formation, we could see the greenback continue to build a short-term base to make another run at the 78.6 percent Fib at 10,118. Nevertheless, as the FOMC rate decision highlights the biggest event risk for the following week, the fresh batch of central bank rhetoric will have heavy implications for short-term price action, and we will look for any hawkish comments to strengthen our bullish outlook for the reserve currency. In light of the recent comments from Fed officials, it seems as though the board will start to lay out a tentative exit strategy ahead of the second-half of the year, and the committee look to target the risk for inflation amid the stickiness in underlying price growth. In turn, we may see the upward trend continue to take shape in May, and the shift in the Fed’s policy outlook could pave the way for fresh 2012 highs as the dollar appears to be carving a long-term uptrend.

The dollar weakened across the board, led by a 0.61 percent advance in the euro, while the British Pound climbed 0.49 to reach a fresh yearly high of 1.6143. As the Fed changes its tune, it seems as though the Bank of England will follow suit amid the resilience in core inflation, and the sterling may continue to track higher in May as it searches for resistances. As the GBPUSD comes up against the 23.6 percent Fib from the 2009 low to high around 1.6250, we anticipate to see fresh yearly highs in the days ahead, and we will maintain our bullish forecast for the British Pound as the BoE moves away from its easing cycle.

--- 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/2012/04/20/USD_Index_Struggles_To_Hold_Trend_Ahead_Of_FOMC_GBP_Looks_Higher.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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