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USD Searches for Support- Correction Offers Long Opportunity

USD Searches for Support- Correction Offers Long Opportunity

2013-09-04 15:30:00
David Song, Strategist
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- USD Trades Heavy; Searches for Support Ahead of Fed’s Beige Book

- Dollar Threatening Bullish Trend Carried Over From August

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10743.78

10792.68

10740.39

-0.40

106.18%

USDOLLAR 30-Minute

Forex_USD_Searches_for_Support-_Correction_Offers_Long_Opportunity__body_ScreenShot062.png, USD Searches for Support- Correction Offers Long Opportunity

Chart - Created Using FXCM Marketscope 2.0

  • Falls back from near-term resistance: 10,803 (38.2 retracement) - 10,806 (78.6 expansion)
  • Dip below 50.0 percent expansion (10,748) opens up 50.0 percent retracement (10,739)
  • 30-Minute Relative Strength Index rebounds from support (13)
  • Game plan: look for opportunities buy dips if dollar carves higher low

Release

GMT

Expected

Actual

Trade Balance (JUL)

12:30

-$38.6B

-$39.1B

Fed's John Williams Speaks on Monetary Policy

16:30

Federal Reserve Releases Beige Book

18:00

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) pared the advance from the end of August, with the greenback coming up against trendline support, but the fresh batch of central bank rhetoric due out later today may spark a more meaningful rebound in the reserve currency as market participants weigh the outlook for monetary policy.

Indeed, we’re seeing the USDOLLAR preserve the bullish trend ahead of the Fed’s Beige Book as the 50.0 percent Fibonacci expansion (10,748) provides interim support, and the dollar may coil up for a move higher should the district banks highlight an improved outlook for the world’s largest economy. At the same time, San Francisco Fed President John Williams may sound a little more upbeat this time around as the encourages the FOMC to keep an ‘open mind’ at the September 17-18 meeting, and the dollar may continue to carve out a series of higher highs paired with higher lows amid the growing discussion at the central bank to scale back on quantitative easing.

USDOLLAR Daily

Forex_USD_Searches_for_Support-_Correction_Offers_Long_Opportunity__body_ScreenShot064.png, USD Searches for Support- Correction Offers Long Opportunity

The dollar appears to be facing a near-term correction as it falls back from resistance - 10,803 (38.2 retracement) to 10,806 (78.6 expansion) – and the bullish trend may continue to take shape over the near to medium-term amid the shift in the policy outlook. For further confirmation, we would like to see the relative strength index maintain the bullish momentum, but a break lower may produce a larger correction in the dollar as it remains largely capped by the 10,803-10,806 region.

Nevertheless, there’s growing speculation that the FOMC will switch gears later this month as growth and inflation picks up, and technical outlook continues to point to a stronger dollar as it carves out a key low around the 38.2 percent expansion (10,652).

Forex_USD_Searches_for_Support-_Correction_Offers_Long_Opportunity__body_ScreenShot066.png, USD Searches for Support- Correction Offers Long Opportunity

AUDUSD Daily

Forex_USD_Searches_for_Support-_Correction_Offers_Long_Opportunity__body_ScreenShot065.png, USD Searches for Support- Correction Offers Long Opportunity
  • Interim resistance: 0.9210-20 (61.8 percent Fib retracement)
  • Soft support: 0.8990 pivot; 0.8700 (78.6 retracement) – 0.8710 (38.2 expansion)

Three of the four components strengthened against the greenback, largely driven by a 1.28 percent rally in the Australian dollar, and the AUDUSD appears to be making a run at the 0.9210-20 region (61.8 percent retracement) as the 2Q GDP report dampens bets of seeing the Reserve Bank of Australia (RBA) further embark on its easing cycle.

Indeed, the AUDUSD broke out of the bearish trend carried over from August amid the positive developments coming out of the Asia-Pacific region, but the pair may ultimately face range-bound prices over the near-term as it comes up against former trendline support. Despite the rebound in the exchange rate, we anticipate the RBA to retain a rather dovish tone for monetary policy amid the slowing/uneven recovery in the $1T economy, and the pair looks poised to preserve the long-term bearish trend as the outlook for growth and inflation remains subdued.

--- 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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