USD Index Looks To FOMC Minutes For Direction, GBP To Hold Range

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10145.77

10173.35

10129.46

-0.27

77.43%

Although the Dow Jones-FXCM U.S. Dollar Index(Ticker: USDollar ) remains 0.30 percent lower on the day, the FOMCMinutes on tap for later today may prop up the greenback as thecentral bank appears to be moving away from quantitative easing.The fresh batch of central bank rhetoric should set the tone forthe remainder of the week as market participants weigh the outlookfor monetary policy, and we may see the Fed talk down speculationfor additional monetary support as the world’s largesteconomy gets on a more sustainable path. In turn, we should see theinverse head-and-shoulders pattern continue to take shape, and wewould like to see the index clear the 10,200 figure to reinforceour bullish outlook for the USD. However, if the language suggeststhat an increased number of the committee is leaning towardsanother large-scale asset purchase program, the development maynegate our call for a stronger dollar, and we may see the greenbackthreaten the June low (10,025) as investors raise bets forQE3.

As we have a higher low in place, the near-term outlook for the USDOLLAR remains tilted to the upside, and we may see a bullish breakout in the index as the Fed appears to be bringing its easing cycle to an end. Beyond the FOMC Minutes, we will be closely watching China’s 2Q GDP report as it’s supposed to show the slowest pace of growth since the first three-months of 2009, and a dismal development may sap risk-taking behavior as it casts a weakened outlook for the world economy. As a result, there’s speculation that the People’s Bank of China will continue to embark on its easing cycle in an effort to stem the risk for a ‘hard landing,’ but the region may struggle to prop up the slowing recovery as the sovereign debt crisis continues to drag on global growth. As the flight to safety gathers pace, we should see the dollar continue to benefit from safe-haven flows, and we are waiting to see another run at the 10,300 figure amid the series of higher lows paired with higher highs.

The greenback weakened against nearly all of its major counterparts, led by the 0.64 percent rally in the Australian dollar, while the sterling continued to recoup the losses from the previous week as it maintains the range-bounce price action carried over from June. We should see the GBPUSD continue to track sideways ahead of the Bank of England Minutes on tap for the following week, but the policy statement may spark a bullish reaction in the British Pound as the central bank appears to be nearing the end of its easing cycle. BoE dove Adam Posen argued that the MPC has done ‘enough for now’ during a newspaper interview, and went onto say that commercial banks have become too cautious on lending as region remains in a technical recession. In light of the recent comments, its seems as though the committee will revert back to a wait-and-see approach over the remainder of the year, and we may see a relief rally in the GBPUSD should the central bank talk down speculation for additional asset purchases.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Followme on Twitter at @DavidJSong

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Original Article: http://www.dailyfx.com/forex/fundamental/us_dollar_index/daily_dollar/2012/07/11/USD_Index_Looks_To_FOMC_Minutes_For_Direction_GBP_To_Hold_Range.html

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