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USD Index Remains Capped By Key Figure Ahead Of Fed’s Beige Book

USD Index Remains Capped By Key Figure Ahead Of Fed’s Beige Book

2012-10-10 14:50:00
David Song, Strategist
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Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9915.93

9949.89

9913.69

-0.19

75.09%

USD_Index_Remains_Capped_By_Key_Figure_Ahead_Of_Feds_Beige_Book_body_ScreenShot025.png, USD Index Remains Capped By Key Figure Ahead Of Fed’s Beige Book

Although the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains 0.19 percent lower from the open, the pullback from 9,949 appears to be tapering off as the 30-minute relative strength index bounces off of trendline support. As market participants turn their attention to the Fed’s Beige Book on tap for 18:00 GMT, we should see the dollar consolidate going into the European close, and the dollar may continue to retrace the decline from the previous month should the central bank survey instill an improved outlook for the U.S. However, the G7 meeting in Tokyo may encourage risk-taking behavior as the group of finance ministers convene to address the downside risks surrounding the world economy, and we may see the index test the 9,900 figure once again for interim support.

USD_Index_Remains_Capped_By_Key_Figure_Ahead_Of_Feds_Beige_Book_body_ScreenShot026.png, USD Index Remains Capped By Key Figure Ahead Of Fed’s Beige Book

The Fed’s Beige Book may curb bets for additional monetary support should the survey show increased activity across the 12-districts, and the region banks may sound more upbeat this time around as the world’s largest economy gets on a more sustainable path. As Fed officials see a limited threat for a double-dip recession, the updated assessment may spark a shift in the policy outlook, and we may see the FOMC endorse a wait-and-see approach over the remainder of the year as the open-ended asset purchase program comes under increased criticism. However, Fed Chairman Ben Bernanke may keep the door open to expand the balance sheet further amid the weakening outlook for global growth, and we may see a growing rift within the central bank as the ongoing expansion in the monetary base continues to heighten the risk for long-term inflation. As the USDOLLAR remains capped by the 61.8 percent Fibonacci retracement around 9,949, the Fed’s Beige Book may serve as the fundamental catalyst to spark a move the key figure, but we will keep a close eye on the relatives strength index as it approaches interim resistance around the 60 figure.

USD_Index_Remains_Capped_By_Key_Figure_Ahead_Of_Feds_Beige_Book_body_ScreenShot027.png, USD Index Remains Capped By Key Figure Ahead Of Fed’s Beige Book

Three of the four components rallied against the greenback, led by a 0.49 percent advance in the Australian dollar, and the high-yielding currency may continue to track higher over the next 24-hours of trading as the economic docket is expected to instill an improved outlook for growth. Indeed, employment in the $1T is expected to increase 5.0K during September after contracting 8.8K the month prior, while the jobless rate is anticipated to come in at 5.3 percent from 5.1 percent, which would be the highest reading since June. In turn, a mixed batch of data may spark a choppy reaction in the AUDUSD, but the development may fall short of market expectations as the region continues to face an uneven recovery.

--- 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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