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U.S. Dollar Outlook Remains Bullish As Index Preserves Upward Trend

U.S. Dollar Outlook Remains Bullish As Index Preserves Upward Trend

2011-05-25 16:02:00
David Song, Currency Strategist
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DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9698.20

9756.30

9689.86

-0.09

80.54%

U.S._Dollar_Outlook_Remains_Bullish_As_Index_Preserves_Upward_Trend_body_ScreenShot041.png, U.S. Dollar Outlook Remains Bullish As Index Preserves Upward Trend

The USD lost ground during the North American trade, with the Dow Jones-FXCM U.S. dollar index slipping to a fresh daily low of 9689.86, but the greenback looks as though it will consolidate over the next 24-hours of trading as it maintains the range from earlier this week. The greenback is 0.09% lower from the open after moving roughly 81% of its average true range, and we should see a near-term correction emerge heading into the end of the week as the relative strength index dips into oversold territory. As the dollar index continues to trade within the upward trending channel, the greenback should continue to recoup the losses from earlier this year, and we are likely to see the gauge make a run at 9800.00 in the coming days as the shift in risk-taking behavior gathers pace.

Nevertheless, the Organization for Economic Cooperation and Development warned that the U.S. will need to “produce credible medium term plans” to address the swelling budget deficit, but raised its growth forecast for the world’s largest economy as the group sees GDP rising 2.6% in 2011 versus projections for a 2.2% expansion back in November. As growth and inflation gathers pace, the Federal Reserve may show an increased willing to lift the benchmark interest rate off the record-low, and Chairman Ben Bernanke May soften his dovish tone for future policy as the FOMC plans to conclude its easing cycle in June. However, the Fed may look to support the economy throughout the remainder of the year if the government adopts ambitious measures to reduce the budget deficit, and the central bank may retain its zero interest rate policy as it aims to encourage a sustainable recovery.

U.S._Dollar_Outlook_Remains_Bullish_As_Index_Preserves_Upward_Trend_body_ScreenShot042.png, U.S. Dollar Outlook Remains Bullish As Index Preserves Upward Trend

Three of the four components rallied on Wednesday, led by a 0.59% advance in the British Pound, and the rebound in the GBP/USD may gather pace over the near-term as investors speculate the Bank of England to gradually normalize monetary policy in 2011. Although the OECD lowered its growth forecast for Britain, the group said the MPC will need to raise the benchmark interest rate this year ‘to stave off significant increases in inflation expectations, and the committee may have little choice but to target heightening price pressures in order to balance the risks for the region. In turn, BoE Governor Mervyn King may turn increasingly hawkish over the coming months, and we may see a growing shift within the MPC as concerns for inflation come off of the backburner.

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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