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U.S. Dollar Index Struggles To Hold Ground Ahead Of FOMC Minutes

U.S. Dollar Index Struggles To Hold Ground Ahead Of FOMC Minutes

2011-05-17 18:06:00
David Song, Currency Strategist
Share:

DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9651.14

9699.19

9645.63

0.04

68.43%

U.S._Dollar_Index_Struggles_To_Hold_Ground_Ahead_Of_FOMC_Minutes_body_ScreenShot002.png, U.S. Dollar Index Struggles To Hold Ground Ahead Of FOMC Minutes

The Dow Jones-FXCM U.S. Dollar index fell back from a fresh monthly high of 9699.19, but the gauge should continue to push higher going into the middle of the week as it continues to trade within an upward trending channel. The USD remains 0.04% higher on the day after moving 68% of its average true range, and the reserve currency may appreciate further over the next 24-hours of trading as investors scale back their appetite for risk.

As the Federal Reserve plans to conclude the additional $600B in quantitative easing in June, the shift in trader sentiment should carry into the second-half of the year, but the FOMC may retain a wait-and-see approach over the coming months as Chairman Ben Bernanke continues to highlight the ongoing weakness within the real economy. However, as price growth in the U.S. gathers pace, the meeting minutes could reveal an increased willingness to start normalizing monetary policy later this year, and the Fed may change its tune for monetary policy as it maintains its dual mandate to ensure price stability while fostering full-employment. In turn, the policy statement is likely to influence future price action for the U.S. dollar, and interest rate expectations should play a greater role in driving the reserve currency as investors weigh the prospects for monetary policy.

U.S._Dollar_Index_Struggles_To_Hold_Ground_Ahead_Of_FOMC_Minutes_body_ScreenShot001.png, U.S. Dollar Index Struggles To Hold Ground Ahead Of FOMC Minutes

The sharp decline in the Japanese Yen has certainly helped to prop up the dollar index, while we saw the Euro, British Pound, and Australian dollar recouped the losses from earlier this morning. As Japan’s 1Q GDP report is expected to show the growth rate contracting 0.5% during the first three-months of 2011, the Bank of Japan may step up its efforts to shore up real economy, and the central bank may resort to expanding its asset purchases as the region faces a double-dip recession. BoJ Governor Masaaki Shirakawa warned that the economy is in ‘a very severe’ state while speaking in front Parliament, and pledged to stem the risk for deflation as the region copes with the aftermath of the devastating earthquake and tsunami from back in March. As investors speculate the central bank to expand monetary policy further in May, the Japanese Yen may continue to underperform against its major counterparts, but the low-yielding currency should benefit from the drop in risk appetite as carry interest falters.

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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