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USDOLLAR Threatens Bullish Trend- Faster Inflation Ahead

USDOLLAR Threatens Bullish Trend- Faster Inflation Ahead

2013-03-14 16:35:00
David Song, Strategist
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Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10499.94

10560.02

10498.66

-0.51

111.81%

Forex_USDOLLAR_Threatens_Bullish_Trend-_Faster_Inflation_Ahead_body_ScreenShot067.png, USDOLLAR Threatens Bullish Trend- Faster Inflation Ahead

Although the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is trading 0.51 percent lower from the open, we may see a short-term rebound going into the end of the week as the 30-minute relative strength index dips into oversold territory. As the USDOLLAR appears to be carving a higher low just above the 10,500 region, and the greenback may regain its footing over the next 24-hours of trading should the economic docket foster an improved outlook for growth and inflation. In turn, we should see the reserve currency maintain the upward trending channel carried over from the previous month, and the index may make another run at the 10,600 figure ahead of the FOMC interest rate decision scheduled for the following week as we anticipate the central bank to strike an improved outlook for the world’s largest economy.

Forex_USDOLLAR_Threatens_Bullish_Trend-_Faster_Inflation_Ahead_body_ScreenShot068.png, USDOLLAR Threatens Bullish Trend- Faster Inflation Ahead

U.S. Consumer Prices are projected to increase an annualized 1.9% in February following the 1.6% expansion the month prior, and heightening price pressures may prompt the FOMC to adopt a more hawkish tone for monetary policy as the economic recovery gradually gathers pace. At the same time, the U. of Michigan Confidence survey is expected to advance for the third month in March, and a slew of positive developments may pave the way for one last run at the 10,600 figure, but the short-term pullback may turn into a larger reversal as the relative strength index finally comes off of overbought territory. With the break below the 70 figure, we may see the oscillator threaten the bullish trend dating back to September, and we may see the dollar consolidate ahead of the FOMC as market participants weigh the outlook for monetary policy.

Forex_USDOLLAR_Threatens_Bullish_Trend-_Faster_Inflation_Ahead_body_ScreenShot069.png, USDOLLAR Threatens Bullish Trend- Faster Inflation Ahead

The greenback weakened across the board, led by a 0.94 percent advance in the Australian dollar, and the AUDUSD may continue to work its way back towards the 61.8 percent Fibonacci retracement from the 2011 high to low around 1.0430 as the developments coming out of the $1T economy dampen expectations for a rate cut. As the 71.5K jump in Australian employment encourages an improved outlook for growth, the Reserve Bank of Australia (RBA) Minutesmay strike an improved outlook for the region, but Governor Glenn Stevens may keep the door open to push the benchmark interest rate to a fresh record-low as the uneven recovery dampens the outlook for inflation. In turn, we may see the AUDUSD carve out a lower top in the days ahead, and we will keep a close eye on the relative strength index as it comes up against interim resistance around the 59 region.

--- 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, please follow this link.

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