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USD Index Poised For Higher High, GBP To Outperform On BoE Policy

USD Index Poised For Higher High, GBP To Outperform On BoE Policy

2012-04-11 16:05:00
David Song, Strategist

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9972.4

9997.1

9950

-0.14

78.30%

USD_Index_Poised_For_Higher_High_GBP_To_Outperform_On_BoE_Policy_body_ScreenShot018.png, USD Index Poised For Higher High, GBP To Outperform On BoE Policy

Although the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains 0.14 percent lower from the open, the greenback looks poised for a rebound as the 30-minute relative strength index bounces back from oversold territory. In turn, we may see the index approach the upper bounds of the downward trending channel over the next 24-hours of trading, and the dollar may ultimately break out of the bearish formation should the Federal Reserve continue to soften its dovish tone for monetary policy. However, the greenback may fall back towards 9,900 ahead of a correction to test for near-term support, and we may see market participants turn increasingly bearish against the USD as the downward trend continues to take shape.

USD_Index_Poised_For_Higher_High_GBP_To_Outperform_On_BoE_Policy_body_ScreenShot019.png, USD Index Poised For Higher High, GBP To Outperform On BoE Policy

On a broader scale, the technical outlook continues to paint a bullish outlook for the greenback as the USDOLLAR bounces off of the 61.8 percent Fibonacci retracement around 9,949. As a result, we should see the upward trending channel continue to pan out in April, and the bullish sentiment underlining the dollar should gather pace throughout 2012 as the Federal Reserve holds an improved outlook for the region. As we expect the Fed’s Beige Book to dampen speculation for more monetary easing, the economic survey should push the dollar higher going into the end of the week, and we are likely to see the index mark fresh highs for the year as market participants start to price in a rate hike for the next 12-months. At the same time, the upward trajectory in the moving averages reinforce our call for a higher dollar, and we may see a large run to the upside as the 10-Day SMA (9,980) looks to push back above the 20-Day SMA (9,975)

USD_Index_Poised_For_Higher_High_GBP_To_Outperform_On_BoE_Policy_body_ScreenShot020.png, USD Index Poised For Higher High, GBP To Outperform On BoE Policy

Three of the four components advanced against the greenback, led by a 0.54 percent advance in the Australian dollar, while the British Pound gained 0.20 percent to maintain the upward trending channel from earlier this year. As the GBPUSD continues to build a short-term base around 1.5800, the higher low should pave the way for a higher high, and we may see the sterling outperform against its major counterparts as the Bank of England looks to conclude its easing cycle this year. Moreover, the group of moving averages (10, 20, 50, 100, and 200 Day) reinforce a bullish outlook for the pair as the faster moving SMA’s start to push above the slower moving averages, and the technical developments certainly point to a larger move to the upside as the SMA’s look poised to break away from one another.

--- 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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