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USD Getting Oversold Ahead of NFPs- AUD Correction on Horizon

USD Getting Oversold Ahead of NFPs- AUD Correction on Horizon

David Song, Strategist

Talking Points:

- USDOLLAR Extends Decline; Marks Fresh Monthly Low of 10,389

- Australian Dollar Continues to Outperform; Slower Inflation Ahead

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10408.09

10438.14

10389.67

-0.13

103.56%

USDOLLAR Daily

Forex_USD_Getting_Oversold_Ahead_of_NFPs-_AUD_Correction_on_Horizon_body_Picture_3.png, USD Getting Oversold Ahead of NFPs- AUD Correction on Horizon

Chart - Created Using FXCM Marketscope 2.0

  • Fails to Maintain Range; Slips to Fresh Monthly Low (10,414)
  • RSI May Threaten Bearish Trend Amid Imminent Oversold Signal
  • Former Support to Act as New Resistance: 10,470 Pivot
  • Interim Support: 10,369 (61.8 expansion) to 10,375 (50.0 retracement)

Release

GMT

Expected

Actual

Fed's Daniel Tarullo Speaks on Orderly Resolution

17:00

Fed's Charles Evans Speaks on U.S. Economy

18:00

Fed's William Dudley Speaks on Orderly Resolution

19:40

Fed's Jeremy Stein Speaks on Financial Imbalances

20:30

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) extended the decline from earlier this week as a growing number of Fed officials scale back their willingness to taper the asset-purchase program, and the bearish sentiment surrounding the reserve currency may gather pace over the near-term as market participants see a further delay in the central bank’s exit strategy.

Indeed, Chicago Fed President Charles Evans, a voting member on the Federal Open Market Committee (FOMC), said tapering the quantitative easing program is likely to be postponed following the government shutdown, and it seems as though the central bank will retain its highly accommodative policy stance throughout the remainder of the year in an effort to combat the fiscal drag.

As a result, more dovish rhetoric coming out of the Fed is likely to produce further weakness in the USD, and we may see a move into 10,369 (61.8 percent expansion) to 10,375 (50.0 percent retracement) as the reserve currency continues to search for support.

Nevertheless, the fundamental developments coming out of the world’s largest economy may help limit the downside for the greenback as U.S. Non-Farm Payrolls are projected to increase another 180K in September, but a further deterioration in the Participation Rate may undermine the job growth figures as the FOMC sticks to its forward-guidance for monetary policy.

Forex_USD_Getting_Oversold_Ahead_of_NFPs-_AUD_Correction_on_Horizon_body_ScreenShot258.png, USD Getting Oversold Ahead of NFPs- AUD Correction on Horizon

AUDUSD Daily

Forex_USD_Getting_Oversold_Ahead_of_NFPs-_AUD_Correction_on_Horizon_body_Picture_1.png, USD Getting Oversold Ahead of NFPs- AUD Correction on Horizon
  • Bullish Trend in Focus Following Double-Bottom
  • Relative Strength Index Approaching Resistance (79)
  • Interim Resistance: 0.9670 (61.8% expansion) to 0.9715 (50.0% retracement)
  • Interim Support: 0.9250 (23.6% retracement) to 0.9290 Pivot

Three of the four components strengthened against the greenback, led by a 0.30 percent rally in the Australian dollar, but the AUDUSD may face a near-term correction in the days ahead as the Relative Strength Index approaches resistance (79).

Australia’s Consumer Price report may serve as the fundamental catalyst to spark a more meaningful pullback in the exchange rate as the headline reading for inflation is expected to narrow to an annualized 1.8 percent from 2.4 percent in the second-quarter, and a marked slowdown in price growth may renew bets for further rate cuts from the Reserve Bank of Australia (RBA) as the region continues to face an uneven recovery.

--- 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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