USD Takes Nose Dive After Breaking Key Support- Bearish Tone Prevails

By Michael Boutros, Currency Strategist

The greenback plummeted in North American tradetoday with the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR ) off by 0.60% on the session after moving astaggering 163% of its daily average true range. Weaker thanexpected 1Q GDP data this morning weighed heavily on the reservecurrency which now searches for support after breaking below thekey 9900 level earlier in the week. The data showed the US economygrew at an annualized pace of 2.2% q/q, missing consensus estimateswhich called for a print of 2.5% q/q. The data comes on the heelsof Wednesday’s FOMC rate decision where the central bankupgraded its growth, inflation, and employment forecasts whileChairmen Ben Bernanke reaffirmed the Fed’s commitment to“do more” should conditions deteriorate. The remarksfueled expectations for further easing with today’sdisappointing GDP print sending the dollar substantially lower asinvestors flocked into the high yielders at the expense of thereserve currency. Equity markets pared early losses with the Dow,the S&P, and NASDAQ all trading higher in afternoontrade.

The dollar broke below the 50% Fibonacci extension taken from the August 1st and October 27th troughs at 9850 early in the session with the index trading just below channel support at 2pm in New York. If this level is compromised (on a close basis), look for further declines with such a scenario eyeing daily support at the 200-day moving average just above the 9800-level. Note that an RSI break below trendline support confirms the move below 9850 and adds to the bearish tone.

An hourly chart shows the index breaking below channel support dating back to April 4th with the dollar currently holding just above soft support at 9825. Subsequent floors are seen at 9800, 9775, and the 38.2% extension at 9754. Interim topside resistance stands with the 50% extension at 9850 backed by 9880 and the key 9900 level. Note that RSI remains in extreme oversold territory with a pullback of magnitude likely before continuing lower.

The greenback declined against all fourcomponent currencies highlighted by a 0.76% decline against theAustralian dollar. The aussie broke above key resistance at theconfluence of the 200-day moving average and channel resistancedating back to March 6th at 1.0360 on Thursday with the pairtrading just shy of the 1.05-figure ahead of the US close onFriday. Traders will be closely eyeing next week’s RBA ratedecision with the central bank widely expected to cut the benchmarkinterest rate as strains in the housing and employment marketscontinue to weigh on the economy. However with Credit Suisseovernight swaps already factoring in a 132% chance of a 25basispoint cut, the effect of the policy change may be largely priced inat this point with risk to the aussie remaining weighted to thetopside. The euro was the weakest performer of the lot with anadvance of just 0.35% despite broad dollar losses. For completeanalysis and key levels on the euro, refer to thismorning’s Winners/Losers Report . Note that with the close of the monthapproaching on Monday, we remain neutral at these levels with theMay opening range likely to offer further clarity on a directionalbias as seasonality trends dictate.

---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/2012/04/27/USD_Takes_Nose_Dive_after_Breaking_Key_Support-_Bearish_Tone_Prevails.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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