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U.S. Dollar Rebound On Tap, Euro Floor To Give Way

U.S. Dollar Rebound On Tap, Euro Floor To Give Way

2012-01-18 16:30:00
David Song, Strategist
Share:

DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9947.21

9981

9935.24

-0.33

70.84%

U.S._Dollar_Rebound_On_Tap_Euro_Floor_To_Give_Way_body_ScreenShot098.png, U.S. Dollar Rebound On Tap, Euro Floor To Give Way

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.33 percent lower from the open after moving 71 percent of its average true range, and it looks as though the greenback will track sideways over the next 24-hours of trading as it maintains the range from earlier this week. In turn, we should have an opportunity to play the USD back to the upside, and a pronounced rebound in the index could spark another run at 10,035 as the greenback continues to build a floor around 9,947. However, we may scale back our bullish bet for the USD should market sentiment pick up over the remainder of the week, and the reserve currency may continue to pare the rebound from late October (9,454) as investors ramp up their appetite for risk.

U.S._Dollar_Rebound_On_Tap_Euro_Floor_To_Give_Way_body_ScreenShot099.png, U.S. Dollar Rebound On Tap, Euro Floor To Give Way

As the dollar maintains the upward trend from the previous year, we should get a rebound in the coming days, and the greenback looks poised to strength further over the near-term as it carves out another higher low. As the 50-Day SMA (9,938) moves in tandem with our trendline, it looks as though the dollar will make another run at the 78.6 percent Fibonacci retracement around 10,117, but the USD looks poised for a bullish breakout as price action continues to approach the apex of an ascending triangle. However, as the economic docket is expected to show easing price pressures across the United States, the slower rate of inflation could reignite speculation for another large-scale asset purchase plan, and a soft consumer price report could bear down on the exchange rate as the Federal Reserve keeps the door open to expand its balance sheet further.

U.S._Dollar_Rebound_On_Tap_Euro_Floor_To_Give_Way_body_ScreenShot004.png, U.S. Dollar Rebound On Tap, Euro Floor To Give Way

All four components gained ground against the dollar, led by a 0.68 percent advance in the Euro, but the rebound in the EUR/USD should taper off as the pair continues to trade within the downward trending channel from back in late October. As the euro-dollar remains capped by the 20-Day SMA (1.2872), we expect to see a move lower over the next 24-hours of trading, and the exchange rate may come up against the 23.6 percent Fib from the 2009 high to the 2010 low around 1.2630-50 as the fundamental outlook for the euro-area turns increasingly bleak. As Fitch Ratings sees a risk of another credit-rating downgrade for Spain, Italy, Ireland, Cyprus, Belgium and Slovenia, the heightening risk for contagion instills a bearish outlook for the single currency, and the 23.6 percent Fib may give way as European policy makers struggle to restore investor confidence.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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