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USDOLLAR Eyes 10,500 Ahead of NFP- AUD to Hold Bearish Trend

USDOLLAR Eyes 10,500 Ahead of NFP- AUD to Hold Bearish Trend

David Song, Strategist





Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index






Forex_USDOLLAR_Eyes_10500_Ahead_of_NFP-_AUD_to_Hold_Bearish_Trend_body_ScreenShot047.png, USDOLLAR Eyes 10,500 Ahead of NFP- AUD to Hold Bearish Trend

Although the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is trading 0.33 percent lower from the open, the dollar looks poised to press higher ahead of the highly anticipated Non-Farm Payrolls report as it appears to be finding trendline support. As the 30-minute relative strength index comes up against oversold territory, we should see a small correction going into the end of the week, and the bullish sentiment surrounding the dollar may gather pace next week as the economic docket is expected to reinforce an improved outlook for the U.S. As the index carves out a higher low on a 30-minute scale, we may see greenback carve out a fresh yearly high in the coming days, but the daily chart continues to point to a larger correction in the index as the reserve currency remains overbought.

Forex_USDOLLAR_Eyes_10500_Ahead_of_NFP-_AUD_to_Hold_Bearish_Trend_body_ScreenShot048.png, USDOLLAR Eyes 10,500 Ahead of NFP- AUD to Hold Bearish Trend

Beyond the results of the Fed’s Stress Test, the Non-Farm Payroll report highlights the biggest event risk for the next 24-hours of trading, and the print may increase the appeal of the reserve currency as the world’s largest economy is expected to add another 163K jobs in February. As discouraged workers return to the labor force, the ongoing improvement in employment should encouraged the FOMC to adopt a more hawkish tone for monetary policy, and we should see the central bank slowly move away from its easing cycle in 2013 as the region gets on a more sustainable path. As the relative strength index comes off of trendline resistance, the technical outlook continues to foreshadow a larger correction for the greenback, but a positive NFP report may trigger another run at the 10,500 figure as it dampens the Fed’s scope to expand the balance sheet further.

Forex_USDOLLAR_Eyes_10500_Ahead_of_NFP-_AUD_to_Hold_Bearish_Trend_body_ScreenShot049.png, USDOLLAR Eyes 10,500 Ahead of NFP- AUD to Hold Bearish Trend

The greenback weakened against three of the four components, led by a 1.03 percent rally in the Euro, while the Australian dollar advanced 0.44 percent amid the pickup in market sentiment. However, as Australia’s trade deficit widens to AUD 1057M, the slowdown in global trade along with the slowing recovery in the $1T economy may prompt the Reserve Bank of Australia (RBA) to adopt a more dovish tone for monetary policy, and Governor Glenn Stevens may show a greater willingness to push the benchmark interest rate to a fresh record-low as the outlook for growth and inflation deteriorates. As the relative strength index on the AUDUSD comes up against interim resistance (47), we should see the pair maintain the downward trending channel from earlier this year, and we are still looking for a move back towards the 38.2 percent Fibonacci retracement from the 2011 high to low around 1.0030 as the RBA remains poised to carry out its easing cycle throughout 2013.

--- Written by David Song, Currency Analyst

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

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