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U.S. Dollar Consolidation May Gather Pace Ahead Of NFP’s

U.S. Dollar Consolidation May Gather Pace Ahead Of NFP’s

2011-07-01 18:22:00
David Song, Currency Strategist

DJ FXCM Dollar Index





Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index






U.S._Dollar_Consolidation_May_Gather_Pace_Ahead_Of_NFPs_body_ScreenShot022.png, U.S. Dollar Consolidation May Gather Pace Ahead Of NFP’s

The greenback struggled to maintain the overnight advance, with the Dow Jones-FXCM U.S. Dollar index paring the rally to 9614.59, and the reserve currency may trade heavy over the following week should market participants continue to raise their appetite for yields. The USD is flat on the day after moving 81% of its average true range, and the dollar may continue to consolidate throughout the North American trade as market participation thins ahead of the holiday weekend. With the highly anticipated non-farm payrolls report on tap for the following week, the slowing recovery in the U.S. labor market are likely to dampen the prospects for future growth, and we may see a shift away from risk-taking behavior as the outlook for the global economy remains clouded with high uncertainty.

U.S._Dollar_Consolidation_May_Gather_Pace_Ahead_Of_NFPs_body_ScreenShot021.png, U.S. Dollar Consolidation May Gather Pace Ahead Of NFP’s

Nevertheless, the upward trending channel in the U.S. dollar index should be maintained as long as price action continues to hold above 9500.00, and we may see a near-term correction unfold in the week ahead as the pair continues to mark higher lows. As the recent decline fails to threaten the lower bounds of the upward trending channel, a rebound in the USD could ultimately produce a test of 9800.00, and the reversal from 9337.19 should gather pace in the second-half of the year as the Fed starts to wind down its balance sheet.

U.S._Dollar_Consolidation_May_Gather_Pace_Ahead_Of_NFPs_body_ScreenShot023.png, U.S. Dollar Consolidation May Gather Pace Ahead Of NFP’s

Three of the four components advanced against the greenback, led by a 0.48% rise in the Australian dollar, but the near-term outlook for the high-yielding currency certainly hinges on the central bank’s interest rate decision scheduled for the following week as investors weigh the outlook for future policy. The Reserve Bank of Australia is widely expected to keep the benchmark interest rate at 4.75% in July, but the central bank may continue to endorse its ‘mildly restrictive’ policy stance for the second-half of the year given the slowing recovery in the global economy. Should the RBA strike a balance tone for monetary policy and talk down speculation for a rate hike in 2011, the AUD/USD could face a sharp correction, leading the pair to make another run at 1.0400.

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

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