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USD Index Poised For Bullish Breakout, AUD Weakness To Accelerate

USD Index Poised For Bullish Breakout, AUD Weakness To Accelerate

2012-07-23 15:20:00
David Song, Strategist
Share:

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10144.3

10158.85

10112

0.46

81.82%

USD_Index_Poised_For_Bullish_Breakout_AUD_Weakness_To_Accelerate_body_ScreenShot077.png, USD Index Poised For Bullish Breakout, AUD Weakness To Accelerate

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.46 percent higher from the open after moving 82 percent of its average true range, and the greenback may continue to recoup the losses from earlier this month as market participants scale back their appetite for risk. As the economic docket remains fairly light over the next 24-hours of trading, we should see market sentiment dictate price action across the major currencies, but the index looks poised for a small pullback as the 30-minute relative strength index falls back from a high of 78. In turn, we may see the dollar consolidate going into the overnight trade, and we will look to buy dips in the greenback as it continues to benefit from safe-haven flows.

USD_Index_Poised_For_Bullish_Breakout_AUD_Weakness_To_Accelerate_body_ScreenShot078.png, USD Index Poised For Bullish Breakout, AUD Weakness To Accelerate

As the heightening threat for contagion continues to drag on investor confidence, we will maintain our bullish forecast for the USD, and we should see the dollar retrace the decline from 10,223 as it carves out a higher low in July. At the same time, we will be keeping a close eye on the relative strength index as it maintains the upward trend from earlier this year, and the series of higher lows paired with higher highs may ultimately lead to a bullish breakout in the index as it bounces off of trendline support. In turn, we are still waiting to see another run at the 100 percent Fibonacci retracement around 10,334, and the dollar looks poised to mark fresh yearly highs over the near-term as the weakening outlook for Europe continues to sap risk sentiment.

USD_Index_Poised_For_Bullish_Breakout_AUD_Weakness_To_Accelerate_body_ScreenShot079.png, USD Index Poised For Bullish Breakout, AUD Weakness To Accelerate

Two of the four components weakened against the greenback, led by a 1.00 percent decline in the Australian dollar, and the high-yielding currency may face additional headwinds over the coming days as market participants scale back their appetite for risk. At the same time, the economic docket is expected to show the headline reading for inflation expanding at the slowest since the third quarter of 2009, and easing price pressures in the $1T economy may continue to fuel speculation for lower borrowing costs as the Reserve Bank of Australia maintains a dovish tone for monetary policy. According to Credit Suisse overnight index swaps, market participants now see the benchmark interest rate falling by more than 100bp over the next 12-months, and the shift in the policy outlook continues to foster a bearish outlook for the AUDUSD as interest rate expectations falter.

--- 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.

Join us to discuss the outlook for the major currencies on the DailyFX Forums

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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