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USDOLLAR Correction on Horizon- Outlook Remains Bullish

USDOLLAR Correction on Horizon- Outlook Remains Bullish

David Song, Strategist

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10556.18

10576.73

10552.87

-0.03

45.48%

Forex_USDOLLAR_Correction_on_Horizon-_Outlook_Remains_Bullish_body_ScreenShot053.png, USDOLLAR Correction on Horizon- Outlook Remains Bullish

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is trading 0.03 percent higher on the day after moving 45 percent of its average true range, but the reserve currency may hold a narrow range throughout the North American trade as the economic docket remains fairly light for the next 24-hours of trading. Indeed, the dollar may face a larger correction amid the downward trajectory in the 30-minute relative strength index, and we may see a move back towards the 10,525 region for a test of trendline support. Nevertheless, we will maintain our bullish forecast for the USDOLLAR as the upward trending channel continues to take shape, and the bullish sentiment surrounding the greenback may gather pace ahead of the FOMC interest rate decision scheduled for March 20 amid the shift in the policy outlook.

Forex_USDOLLAR_Correction_on_Horizon-_Outlook_Remains_Bullish_body_ScreenShot048.png, USDOLLAR Correction on Horizon- Outlook Remains Bullish

As job growth in the world’s largest economy gathers pace, the economic docket is expected to show retail spending expanding at a faster pace in February, and another batch of positive developments may spark another run at the 10,600 figure as it dampens the FOMC’s scope to expand its balance sheet further. Meanwhile, Fed Governor Elizabeth Dukeargued that ‘monetary policy has contributed significantly to the recent improvement in the labor market and thereby begun to ease one of the main sources of weak housing demand,’ but went onto say that ‘it is entirely possible that it might be appropriate at some point to adjust the pace of MBS purchases’ as the economic recovery gradually gathers pace. In turn, we may see a growing number of central bank officials start to lay out a tentative exit strategy, but the USDOLLAR remains poised for a more meaningful correction as the relative strength index continues to threaten resistance. Nevertheless, we will continue to buy dips in the dollar as the oscillator maintains the upward trend carried over from the previous year, and the fundamental developments coming out of the U.S. should have a greater influence in driving the reserve currency as the Fed looks poised to switch gears later this year.

Forex_USDOLLAR_Correction_on_Horizon-_Outlook_Remains_Bullish_body_ScreenShot054.png, USDOLLAR Correction on Horizon- Outlook Remains Bullish

Two of the four components advanced against the greenback, led by a 0.16 percent in the Australian dollar, but the higher-yielding currency may struggle to hold its ground in the coming days should the data coming out of the $1T economy point to a slowing recovery. Although job growth in Australia is expected to increase another 10.0K in February, a further deterioration in consumer inflation expectations may heighten speculation for a rate cut, and the Reserve Bank of Australia (RBA) meeting minutes due out next week reveal a more dovish tone for monetary policy as growth prospects deteriorate. As the relative strength index on the AUDUSD remains capped by the 47 figure, the rebound from the monthly low (1.0114) may taper off ahead of the policy statement, and we will maintain a bearish forecast for the aussie as the central bank keeps the door open to push the benchmark interest rate to a fresh record-low.

--- Written by David Song, Currency Analyst

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

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