DJ FXCM Dollar Index

       

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index9790.69816.629666.731.20141.82%

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The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains 1.20 percent higher from the open after moving 142 percent of its average true range, and the rebound from 9,454 may gather pace over the remainder of the week as the gauge finally clears resistance around 9,800. As the shift away from risk-taking behavior gathers pace, the USD should continue to retrace the sharp reversal from 10,134, but we may see a short-term correction pan out over the next 24-hours of trading as the greenback remains overbought. As the 30-minute relative strength index falls back from overbought territory, we may see the reserve currency struggle to hold above 9,800, and the index may continue to face range-bound price action over the near-term as market participants weigh the fundamental outlook for the global economy.

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As the USD continues to trade below the 50.0 percent Fibonacci retracement around 9,828, the near-term rally may be coming to an end, but risk trends should continue to dictate price action for the major currencies as the economic docket remains fairly light for the rest of the week. In turn, the developments coming out of the euro-area is likely to heavily influence the currency market, and the political shift in Greece and Italy is poised to come under increased scrutiny as European policy makers struggle to restore investor confidence. As German Finance Minister Wolfgang Schaeuble floats the idea of Italy tapping the European Financial Stability Facility, the heightening risk for contagion continues to dampen the appeal of the single-currency, and we may see the European Central Bank take additional steps to shore up the economy as the region slips back into a recession. Indeed, there's speculation that the ECB will lower the benchmark interest rate to 1.00% in December, but the Governing Council may have little choice but to carry its easing cycle into 2012 as the downturn in growth curbs the outlook for inflation. In turn, the EUR/USD looks poised to extend the sharp reversal from 1.4246, and the euro may threaten the rebound from 1.3145 as the fundamental outlook for Europe turns increasingly bleak.

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Three of the four components weakened against the greenback, led by a 1.84 percent decline in the Australian dollar, but the high-yielding currency may regain its footing over the next 24-hours of trading should the labor report instill an improved outlook for the isle-nation. Australia is expected to add another 10.0K jobs in October following the 20.4K expansion in the previous month, and the data could spark a rebound in the AUD/USD as the data fosters a positive attitude for future growth. However, market participants are looking for another rate cut by the Reserve Bank of Australia according to Credit Suisse overnight index swaps, with investors pricing a 100 percent chance for a 25bp rate cut at the next meeting on December 6, and speculation for lower borrowing costs is likely to further weaken the high-yielding currency as the central bank turns increasingly cautious towards the economy. As a result, the reversal from 1.0752 should gather pace in the days ahead, and we may see the exchange rate come up against the 38.2% Fib from the 2010 low to the 2011 high around 0.9920-50 to test for near-term support.