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USD To Consolidate Further, Sterling Rebound To Gather Pace

USD To Consolidate Further, Sterling Rebound To Gather Pace

2011-09-23 16:05:00
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

9946.1

9991.99

9911.02

-0.23

95.68%

USD_To_Consolidate_Further_Sterling_Rebound_To_Gather_Pace_body_ScreenShot119.png, USD To Consolidate Further, Sterling Rebound To Gather Pace

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.23% lower on the day after moving 96% of its average true range, and it seems as though the greenback has carved out a near-term top this week as price action holds below 10,000. The rebound in risk sentiment is likely to fuel the pull back from 9993, and the USD may threaten the upward trend from earlier this month as trader sentiment improves. In turn, the index may fall back towards the 50.0% Fibonacci retracement around 9828, and we may see the greenback congest over the following week should the International Monetary Fund/World Bank semi-annual meeting help to prop up investor confidence.

USD_To_Consolidate_Further_Sterling_Rebound_To_Gather_Pace_body_ScreenShot120.png, USD To Consolidate Further, Sterling Rebound To Gather Pace

Indeed, the G20’s pledge to shore up the global economy spurred a rebound in market sentiment, and the developments coming from the IMF/World Bank semi-annual meeting may continue to fuel risk-taking behavior as global policy makers step up their efforts to address the risks for the world economy. However, the meeting may spark a shift in risk should the group highlight a dour outlook for global growth, and the IMF may call for additional monetary stimulus as the major industrialized countries face an increased risk of a double-dip recession. In turn, we may see the USD appreciate further in the days ahead, and the index may make a run at the 78.6% Fib around 10,117 as it retraces the decline from earlier this year.

USD_To_Consolidate_Further_Sterling_Rebound_To_Gather_Pace_body_ScreenShot121.png, USD To Consolidate Further, Sterling Rebound To Gather Pace

Three of the four components advanced against the dollar, led by a 0.78% rally in the British Pound, and the sterling may continue to recoup the losses from earlier this month as the economic recovery in the U.K. appears to be gradually gathering pace. The larger-than-expected rise in U.K. mortgage approvals propped up the GBP/USD, and the event risks scheduled for the following week may instill a bullish outlook for the sterling as the data is expected to reinforce an improved outlook for the region. The rebound in the GBP/USD looks poised to gather pace as the relative strength index bounces back from a low of 19, and the correction may accelerate in the days ahead as the gauge comes out of oversold territory. However, as the Bank of England sees a risk of undershooting the 2% target for inflation, the central bank may see scope to expand its asset purchase program beyond the GBP 200B target, and speculation for further easing is likely to bear down on the exchange rate as interest rate expectations falter.

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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