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Post-FOMC USD Recovery in Focus as Bearish Momentum Falters

Post-FOMC USD Recovery in Focus as Bearish Momentum Falters

David Song, Strategist

- USDOLLAR Pares FOMC Reaction; Threatens Bearish Momentum

- Japanese Yen Weakens Across the Board Despite Less-Dovish Bank of Japan

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10549.71

10554.81

10483.56

0.65

127.62%

USDOLLAR Daily

Forex_Post-FOMC_USD_Recovery_in_Focus_as_Bearish_Momentum_Falters_body_Picture_3.png, Post-FOMC USD Recovery in Focus as Bearish Momentum Falters

Chart - Created Using FXCM Marketscope 2.0

  • USDOLLAR Marks Fresh Monthly Low (10,471); Holds June Low (10,469)
  • Former Support May Act as New Resistance: 10,582 (23.6 expansion) to 10,589 (50.0 retracement)
  • Break Below 10,469 Opens Up the May Low (10,399)
  • Relative Strength Index Rebounds from 25; Threatens Bearish Momentum

Release

GMT

Expected

Actual

Initial Jobless Claims (SEP 13)

12:30

330K

309K

Continuing Claims (SEP 6)

12:30

2900K

2787K

Current Account Balance (2Q)

12:30

-$97.0B

-$98.9B

Philadelphia Fed. (SEP)

14:00

10.3

22.3

Existing Home Sales (AUG)

14:00

5.25M

5.48M

Existing Home Sales (MoM) (AUG)

14:00

-2.6%

1.7%

Leading Indicators (AUG)

14:00

0.6%

0.7%

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) continues to pare the decline following the Federal Open Market Committee (FOMC) interest rate decision amid the slew of positive data coming out of the world’s largest economy, and the greenback may continue to track higher over the remainder of the week as the Relative Strength Index breaks out of the bearish trend.

Despite the delay in the Fed’s exit strategy, the central bank remains on track to taper the asset-purchase program as the majority sees the first rate hike in 2015, and the more hawkish composition of the 2014 FOMC may spur a material shift in the policy outlook as the economic recovery is expected to gather pace next year.

Nevertheless, the bearish momentum in the USDOLLAR appears to be coming an end as the Relative Strength Index breaks out of the downward trend, and we may see a more pronounced reversal in the greenback as the central bank looks to switch gears.

Forex_Post-FOMC_USD_Recovery_in_Focus_as_Bearish_Momentum_Falters_body_ScreenShot125.png, Post-FOMC USD Recovery in Focus as Bearish Momentum Falters

USDJPY Daily

Forex_Post-FOMC_USD_Recovery_in_Focus_as_Bearish_Momentum_Falters_body_Picture_1.png, Post-FOMC USD Recovery in Focus as Bearish Momentum Falters
  • Maintains Upward Trending Channel; RSI Retains Bullish Momentum
  • Interim Resistance: 100.60-70 (61.8 expansion)
  • Interim Support: 97.50 (38.2 retracement) to 97.70 (38.2 expansion)

All four components weakened against the greenback, led by a 1.48 percent decline in the Japanese Yen, and the USDJPY stills looks constructive as it preserves the bullish setup carried over from the previous month.

Indeed, the muted market reaction to the less-dovish comments from Bank of Japan (BoJ) board member Takahide Kiuchi and Governor Haruhiko Kuroda suggests that the deviation in the policy outlook will continue to limit the downside for the USDJPY, and the bullish trend in the relative strength index certainly foreshadows a further advance in the exchange rate as the central bank is widely expected to further embark on its easing cycle.

In turn, we will target the topside objectives in the USDJPY going into the end of the week, but we will need to keep a close eye on the 61.8 percent Fibonacci expansion around 100.60-70 following the failed run earlier this month.

--- 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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