DJ FXCM Dollar Index
Daily Change (%)
Daily Range (% of ATR)
DJ-FXCM Dollar Index
The greenback recouped the losses carried over from the overnight trade, but the reserve currency may face increased headwinds in the week ahead should Fed Chairman Ben Bernanke show an increased willingness to expand monetary policy further. The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains 0.16% lower from the open after moving 112% of its average true range, and the sharp selloff may gather pace if the relative strength index break below 30. However, should the RSI continue to hold above oversold territory, we may see a near-term correction unfold heading into the following week, and the index may consolidate in the days ahead as central bankers from across the globe convene in Jackson Hole, Wyoming.
In light of the recent remarks by the FOMC, market participants speculate Mr. Bernanke will hint at another quantitative easing program next week, and the central bank head may reiterate his pledge to carry the zero interest rate policy well into 2013 in an effort to encourage a sustainable recovery. However, given the opposing views within the committee, Fed officials may continue to voice their dissent against the recent decision made by the majority, and market participants may turn increasingly bearish against the USD as the fundamental outlook for the world's largest economy remains clouded with high uncertainties. At the same time, the rebound from the 23.6% Fibonacci retracement (9426) could lead to a near-term correction in the index, but the bearish pattern in the USD may continue to pan out as the central bank maintains a cautious outlook for the region.
All four components advanced against the USD on Friday, led by a 0.45% advance in the Euro, but the near-term outlook for the single-currency remains fairly bearish as the EU struggles to contain the sovereign debt crisis. Although we saw the EUR/USD advance to a high of 1.4451, the lack of momentum to trade above the 78.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.4440-60 could push the exchange rate lower in the week ahead, and we may see the euro-dollar threaten the rebound from 1.3836 as the pair continues t trade within a descending triangle. Moreover, we may see European Central Bank President Jean-Claude Trichet talk down speculation for higher interest rates in light of the slowing recovery, and there may be an increased realize on the Governing Council to stimulate the ailing economy as governments across the region take extraordinary steps to balance the budget deficit.