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USDOLLAR Breakout in Focus- JPY Rebound to Be Short-Lived

USDOLLAR Breakout in Focus- JPY Rebound to Be Short-Lived

David Song, Strategist

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10780.21

10825.85

10777.93

-0.28

64.99%

Forex_USDOLLAR_Breakout_in_Focus-_JPY_Rebound_to_Be_Short-Lived_body_ScreenShot175.png, USDOLLAR Breakout in Focus- JPY Rebound to Be Short-Lived

Chart - Created Using FXCM Marketscope 2.0

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.28 percent lower from the open as U.S. Initial Jobless Claims missed market expectations, but rising demands for U.S. Durable Goods certainly furthers the Fed’s argument to taper its asset-purchase program as the outlook for growth improves. As the USDOLLAR breaks out of the downward trend from earlier this month, the greenback appears to have carved out a higher low ahead of the next FOMC interest rate decision on July 31, and we may see the greenback track higher in the coming days should the central bank lay out a more detailed exit strategy. In turn, the dollar may firm up going into the weekend, and we may see a short-term bounce over the next 24-hours of trading as the 30-minute relative strength index approaches oversold territory.

Forex_USDOLLAR_Breakout_in_Focus-_JPY_Rebound_to_Be_Short-Lived_body_ScreenShot176.png, USDOLLAR Breakout in Focus- JPY Rebound to Be Short-Lived

As the bullish flag pattern in the USDOLLAR continues to take shape, the topside break in the relative strength index certainly raises the scope of seeing a near-term rally in the reserve currency, and we may see the greenback carve out a higher high in August as it builds a short-term base around the 50.0 percent Fibonacci retracement around 10,739. Although we anticipate to hear a more upbeat Fed next week, there’s growing speculation surrounding that the FOMC will start to taper its asset-purchase program at the September 17-18 meeting, and the shift in the policy outlook should carry the dollar higher throughout the second-half of the year as the economic recovery in the U.S. gradually gathers pace. In turn, we will once again resort to our game plan of buying dips in the greenback, and the bullish sentiment surrounding the dollar should gather pace over the near to medium-term as the world’s largest economy gets on a more sustainable path.

Forex_USDOLLAR_Breakout_in_Focus-_JPY_Rebound_to_Be_Short-Lived_body_ScreenShot182.png, USDOLLAR Breakout in Focus- JPY Rebound to Be Short-Lived

The greenback weakened across the board, led by a 0.77 percent rally in the Japanese Yen, but the recent strength in the low-yielding currency may be short-lived as the USDJPY appears to be carving out a bullish trend. Indeed, the USDJPY was also trading within a bullish flag pattern, but the recent series of higher highs paired with higher lows may pave the way for a larger move to the upside as the dollar-yen looks to be coiling up for a move higher. As the Bank of Japan (BoJ) remains poised to further embark on its easing cycle, the shift in the policy outlook continues to instill a bullish outlook for the USDJPY, and there appears to be a new upward trending channel taking shape as it breaks out of the continuation patten.

--- Written by David Song, Currency Analyst

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

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