USD Index To Threaten Range On NFPs, AUD Carving Lower Top

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10139.89

10155.5

10081.13

0.36

121.42%

The Dow Jones-FXCM U.S. Dollar Index(Ticker: USDollar ) is 0.42 percent higher from the open aftermoving 121 percent of its average true range, and the dollar maycontinue to track higher ahead of the highly anticipated Non-FarmPayrolls report as market participants scale back their appetitefor risk. Although risk trends continue to influence the currencymarket, an upbeat employment report may spark a bullish reaction inthe greenback as it dampens speculation for another round ofquantitative easing. Nevertheless, the oversold reading on the30-minute relative strength index could bring about a short-termcorrection in the index, but we may see the dollar move towards thetop of its current range ahead of NFPs as the better-than-expectedADP report paired with the drop in initial jobless claims raisesthe outlook for the U.S. labor market.

As the USDOLLAR carves out a higher low around the 10,025 figure, we should see the upward trending channel continue to take shape, and it seems as though the relative strength index will break out of the bearish trend as market sentiment wanes. Indeed, the People’s Bank of China surprised the market by cutting the benchmark interest rate by 0.31 percent to 6 percent, and the flight to safety may gather pace throughout the month as China tries to avert a ‘hard landing.’ As the outlook for global growth deteriorates, there’s bets that the Fed will do more later this year to assist the world economy, but a positive NFP report will limit the FOMC’s scope to push through another asset purchase program as the economy gets on a more sustainable path. However, we will be closely watching the jobless rate as discouraged workers continue to leave the labor force, and we are likely to see increased volatility following the fresh batch of data as investors weigh the outlook for monetary policy.

The U.S. dollar rallied against three of the four components, led by a 1.13 percent decline in the Euro, while Australian dollar bucked the trend and remains 0.13 percent higher on the day. Despite the resilience in the AUDUSD, the lack of momentum to push back above the 23.6 percent Fibonacci retracement from the 2010 low to the 2011 high around 1.0360-70 may produce a lower top in July, and we will maintain our bearish forecast for the high-yielding currency as the Reserve Bank of Australia sticks to its easing cycle. According to Credit Suisse overnight index swaps, market participants are still looking for at least 75bp worth of rate cuts in the next 12-months, and we will be closely watching the RSI on the AUDUSD as it remains capped by the 65 figure.

--- 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/2012/07/05/USD_Index_To_Threaten_Range_On_NFPs_AUD_Carving_Lower_Top.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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