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USD Relief Rally Taking Shape- JPY to Threaten Bullish Momentum

USD Relief Rally Taking Shape- JPY to Threaten Bullish Momentum

David Song, Strategist

Talking Points:

- USDOLLAR Relief Rally on Tap Amid Debt Deal

- Japanese Yen to Threaten Bullish Momentum

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10531.37

10540

10499.87

0.10

98.51%

USDOLLAR Daily

Forex_USD_Relief_Rally_Taking_Shape-_JPY_to_Threaten_Bullish_Momentum_body_Picture_3.png, USD Relief Rally Taking Shape- JPY to Threaten Bullish Momentum

Chart - Created Using FXCM Marketscope 2.0

  • Relief Rally on Tap Amid U.S. Debt Deal
  • Bullish Relative Strength Index Momentum Gathers Pace
  • Interim Resistance: 10,582 (23.6 expansion) to 10,589 (50.0 retracement)
  • Interim Support: 10,470 Pivot

Release

GMT

Expected

Actual

NAHB Housing Market Index (OCT)

14:00

57

55

Fed's Sandra Pianalto Speaks on U.S. Housing Market

17:30

Federal Reserve Releases Beige Book

18:00

Fed's Esther George Speaks on Fed Centennial

21:30

Fed's Richard Fisher Speaks on U.S. Banking System

22:45

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) pared the decline from earlier this week as Congress comes closer in reaching a debt-deal, and we may see a relief rally take shape over the remainder of the week as the U.S. avoids a default.

Indeed, the headline driven market may prompt further advances in the greenback as the deadlock comes to an end, but the USDOLLAR may remained capped around 10,582 (23.6 expansion) to 10,589 (50.0 retracement) should the Fed’s Beige Book highlight a weakened outlook for growth and inflation.

As the fiscal drag weighs on the recovery, we see a growing number of Fed officials scale back their willingness to taper the asset-purchase program at the October 29-30 meeting, and the reserve currency may face additional headwinds over the near-term should the central bank look to carry its highly accommodative policy stance into the following year.

Forex_USD_Relief_Rally_Taking_Shape-_JPY_to_Threaten_Bullish_Momentum_body_ScreenShot244.png, USD Relief Rally Taking Shape- JPY to Threaten Bullish Momentum

USDJPY Daily

Forex_USD_Relief_Rally_Taking_Shape-_JPY_to_Threaten_Bullish_Momentum_body_Picture_1.png, USD Relief Rally Taking Shape- JPY to Threaten Bullish Momentum
  • Still Stuck in Wedge/Triangle Formation
  • Bearish Relative Strength Index at Risk; Support at 37
  • Interim Resistance: 99.10 (23.6 expansion) to 99.40 (50.0 expansion)
  • Interim Support: 96.40 (23.6 expansion) to 96.60 (50.0 expansion)

All four components weakened against the greenback, led by a 0.68 percent decline in the Japanese Yen, and the USDJPY may ultimately breakout of the consolidation phase as the Relative Strength Index looks poised to threaten the bearish trend dating back to May.

Despite the Bank of Japan’s (BoJ) wait-and-see approach, the aftermath of the sales tax hike may prompt the central bank to further embark on its easing cycle, and the longer-term bullish trend in USDJPY may continue to take shape next year amid the deviation in the policy outlook.

As a result, a ‘buy the dip’ strategy may be favorable in the coming days, and we will wait for a key topside break in the RSI to provide confirmation as well as conviction for a long dollar-yen trade.

--- 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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