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U.S. Dollar Rebound To Gather Pace Ahead Of Fed’s Beige Book

By , Currency Analyst
06 June 2011 18:35 GMT

DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9497.24

9497.46

9458.62

0.21

52.02%

U.S._Dollar_Rebound_To_Gather_Pace_Ahead_Of_Feds_Beige_Book_body_ScreenShot083.png, U.S. Dollar Rebound To Gather Pace Ahead Of Fed’s Beige Book

The Dow Jones-FXCM U.S. dollar index bounced back from a low of 9458.62 and the rebound in the USD may gather pace over the next 24-hours of trading as fears surrounding the European debt crisis bears down on trader sentiment. The greenback is 0.21% higher from Friday after moving 52% of its average true range and the near-term correction may continue to pan out in the days ahead as the relative strength index bounces back from oversold territory. After carving out a near-term top at 9764.97 in May, the index has been trading within a downward trending channel coming into June, but the recent decline in the greenback is likely to be short-lived as there appears to be a major shift in risk taking behavior.

As the Fed prepares to conclude QE2 in June, investors appear to be gradually winding down their appetite for yields, and the shift in market sentiment should help to prop up the reserve currency as it benefits from safe-haven flows. However, with the Beige Book on tap for later this week, the central bank may continue to highlight the ongoing weakness within the real economy, and the FOMC will certainly look to retain its zero interest rate policy in the third-quarter as employment remains subdued. In turn, speculation for another round of quantitative easing may resurface in the coming months, and Chairman Ben Bernanke may retain a balanced tone at the next rate decision on June 22 as the ongoing weakness in the real economy is expected to bear down on price growth.

U.S._Dollar_Rebound_To_Gather_Pace_Ahead_Of_Feds_Beige_Book_body_ScreenShot082.png, U.S. Dollar Rebound To Gather Pace Ahead Of Fed’s Beige Book

Three of the four components weakened on Monday, led by a 0.42% decline in the British Pound, while the Australian dollar is likely to face increased volatility over the next 24-hours of trading as the Reserve Bank of Australia is scheduled to deliver its interest rate decision for June. The RBA is widely expected to hold the benchmark interest rate at 4.75% for the sixth consecutive meeting, and the Governor Glenn Stevens may continue to strike a balanced tone for future policy as households and businesses cope with the slew of natural disasters from earlier this year. The larger-than-expected contraction in 1Q GDP paired with the slowdown in global trade may lead the central bank to uphold its wait-and-see approach for most of 2011, but the board may see scope to raise the benchmark interest rate later this year as price growth breeches the 3% limit for inflation. Fresh comments from the RBA is likely to heavily influence price action for the Australian dollar, and the high-yielding currency may continue to consolidate over the near-term should the central bank talk down speculation for a rate hike in the third-quarter.

Join us to discuss the outlook for the major currencies on the DailyFXForums

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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06 June 2011 18:35 GMT