Daily Change (%)
Daily Range (% of ATR)
DJ-FXCM Dollar Index
The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains0.21 percent higher from the open after moving 91 percent of its average true range, and the rebound from 9,896 looks poised to gather pace as the greenback appears to be breaking out of the downward trending channel from earlier this month. Although the 30-minute relative strength index is coming off of overbought territory, the upward trend in the oscillator reinforces our call for more USD strength, and we may see a small pullback before a larger move to the upside. As the Federal Open Market Committee takes note of the more robust recovery, the shift in central bank rhetoric should continue to prop up the dollar, and the committee may see scope to conclude its easing cycle in 2012 as the world's largest economy gets on a more sustainable path.
As the USDOLLAR maintains the upward trending channel from earlier this year, we are looking for another run at the 78.6 percent Fibonacci retracement (10,118), and we may see the greenback mark fresh highs for the year as the central bank continues to curb speculation for more quantitative easing. Indeed, St. Louis Fed President James Bullard talked down the risks surrounding the region as he expects the recovery to gather pace this year, but went onto say that inflation is moderating slight above the 2% while speaking in China. As the stickiness in price growth paired with the rise in private sector activity heightens the outlook for inflation, we may see the FOMC lift the benchmark interest rate off the record-low towards the end of the year, but the central bank may look to extend 'Operation Twist' amid the ongoing slack within the housing market.
Three of the four components lost ground against the greenback, led by a 0.97 percent decline in the Australian dollar, and the AUDUSD may continue to give back the advance from earlier this year as the downward trending channel takes shape. As the AUDUSD slips back below the 100-Day SMA (1.0380), a close below the moving average would strengthen our call for more aussie weakness, and we will be closely watching the relative strength index as it maintains the downward trend carried over from February. As the technical outlook paints a very bearish picture for the aussie-dollar, we should see the exchange rate track lower in April, and the pair may ultimately come up against the 38.2 percent Fib from the 2010 low to the 2011 high around 0.9930-50 as risk sentiment falters.
--- Written by David Song, Currency Analyst
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