USD Correction To Gather Pace, JPY Threatens Range As BoJ Mulls QE

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9973.92

9990.49

9956.05

-0.15

77.96%

The Dow Jones-FXCM U.S. Dollar Index(Ticker: USDollar ) is 0.15 percent lower from the open aftermoving 78 percent of its average true range, and the greenback maycontinue to give back the advance from earlier this week as itstruggles to maintain the upward trending channel from thebeginning of the month. As the bearish divergence in the 30-minuterelative strength index continues to take shape, the index appearsto have carved out a near-term top around the 10,000 figure, and wemay see the dollar revert back towards the 9,900 figure as itsearches for support. However, as the RSI bounces back from a lowof 34, the overnight decline may turn out to be a false break, andwe may see the dollar continue to retrace the decline from earlierthis year amid the shift in the Fed’s policyoutlook.

Indeed, Fed Chairman Ben Bernanke struck an improved outlook for the world’s largest economy amid the significant improvement in private sector credit, and we should see the central bank head continue to soften his dovish tone for monetary policy as the stickiness in underlying price growth raises the risk for inflation. As the broad ascending triangle in the index continues to pan out, the 78.6 percent Fibonacci retracement should hold up as resistance, and we should see the USDOLLAR continue to carve out higher lows as price action approaches the apex of the bullish formation. In turn, the 61.8 percent Fib around 9,949 may now come in as interim support, but the bullish momentum certainly appears to be tapering off as the relative strength index comes off of its high. In turn, we may see the short-term correction continue to play out over the remainder of the week, but we should see greenback hold above the 50.0 Fib at 9,830 as the bullish trend takes shape.

The greenback weakened against three of the four components, led by a 0.60 percent rally in the Australian dollar, while Japanese Yen struggled on Thursday amid the rebound in risk sentiment. Meanwhile, Bank of Japan board member Sayuri Shirai warned that the central bank’s asset purchase program may threaten the stability of the financial markets, and pledged to pay close attention to the exchange rate as the marked appreciation in the local currency continues to dampen the scope for an export-led recovery. In turn, BoJ officials may show a greater willingness for another currency intervention, but we may see a growing rift within the central bank as Governor Masaaki Shirakawa continues to utilize the balance sheet as the main policy tool to address the risks surrounding the region.

--- 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/2012/05/10/USD_Correction_To_Gather_Pace_JPY_Threatens_Range_As_BoJ_Mulls_QE.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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