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Key USDOLLAR Support at Risk as Shutdown Dampens Taper Bets

Key USDOLLAR Support at Risk as Shutdown Dampens Taper Bets

David Song, Strategist

Talking Points:

- USDOLLAR Holds September Low(10,471) Despite Government Shutdown

- AUDUSD Breaks Out as Reserve Bank of Australia (RBA) Keeps Cash Rate Steady

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10505.51

10541.29

10474.31

-0.23

126.16%

USDOLLAR Daily

Forex_Key_USDOLLAR_Support_at_Risk_as_Shutdown_Dampens_Taper_Bets_body_Picture_3.png, Key USDOLLAR Support at Risk as Shutdown Dampens Taper Bets

Chart - Created Using FXCM Marketscope 2.0

  • Preserves September Low (10,471) Despite Government Deadlock
  • Bearish Relative Strength Index Momentum in Focus
  • Interim Resistance: 10,582 (23.6 expansion) to 10,589 (50.0 retracement)
  • Soft Support: 10,469 (June low)

Release

GMT

Expected

Actual

ISM Manufacturing (SEP)

14:00

55.0

56.2

ISM Prices Paid (SEP)

14:00

55.0

56.5

Total Vehicle Sales (SEP)

21:00

16.00M

?

Domestic Vehicle Sales (SEP)

21:00

12.43M

?

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) pared decline following the government shutdown, with the greenback preserving the September low (10,471), but the reserve currency may continue to face choppy price action in the coming days as Congress struggles to meet on common ground.

Given the limited reaction to the U.S. data from earlier this morning, headlines surrounding the debt debate should continue to drive dollar price action over the remainder of the week, and the spillover effects may continue to dampen the outlook for the reserve currency as it raises the Fed’s scope to further delay the exit strategy.

In turn, the dollar may struggle to hold above support should the fiscal drag curb bets of seeing a taper at the October 29-30 meeting, and the bearish trend dating back to July may continue to take shape as the fundamental outlook for the world’s largest economy deteriorates.

Forex_Key_USDOLLAR_Support_at_Risk_as_Shutdown_Dampens_Taper_Bets_body_ScreenShot173.png, Key USDOLLAR Support at Risk as Shutdown Dampens Taper Bets

AUDUSD Daily

Forex_Key_USDOLLAR_Support_at_Risk_as_Shutdown_Dampens_Taper_Bets_body_Picture_1.png, Key USDOLLAR Support at Risk as Shutdown Dampens Taper Bets
  • Breaks Bearish Trend as Reserve Bank of Australia Retains Current Policy
  • Interim Resistance: 0.9500 (38.2 retracement) to 0.9515 (1.618 expansion)
  • Interim Support: 0.9290 Pivot to 0.9270 (100.0 expansion)

All four components continued to appreciate against the U.S. dollar, driven by the 0.75 percent rally in the Australian dollar, and the AUDUSD may the range-bound price action ahead of the Reserve Bank of Australia (RBA) Minutes due out on October 14 as the central bank retains its wait-and-see approach.

Despite Governor Glenn Stevens’ effort to talk down the local currency, easing bets for lower borrowing costs should limit the downside for the AUDUSD, and the pair may continue to track sideways in the days ahead as market participants weigh the outlook for monetary policy.

Nevertheless, the RBA statement may show the central bank’s willingness to further embark on the easing cycle as it continues to combat the slowing recovery, and we will look to implement a range-trade strategy for the AUDUSD as long as it appears to be entering a consolidation phase.

--- 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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