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Limited USD Correction Taking Shape- Short AUD Targets on Tap

Limited USD Correction Taking Shape- Short AUD Targets on Tap

David Song, Strategist

Talking Points:

- USDOLLAR Rebounds from Fresh Monthly Low on Risk Aversion

- Bullish Australian Dollar Momentum Falters; Downside Targets in Focus

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10398.8

10406.47

10367.37

0.06

81.46%

USDOLLAR Daily

Forex_USD_Correction_in_Focus-_Short_AUD_Targets_on_Horizon_body_Picture_3.png, Limited USD Correction Taking Shape- Short AUD Targets on Tap

Chart - Created Using FXCM Marketscope 2.0

  • Carves Lower Low Around 10,354- Lower High on Tap?
  • RSI Rebound Remains Capped by Bearish Momentum
  • Former Support to Offer New Resistance: 10,470 Pivot
  • Interim Support: 10,290 (38.2 retracement) to 10,321 (78.6 expansion)

Release

GMT

Expected

Actual

Initial Jobless Claims (OCT 18)

12:30

340K

350K

Continuing Claims (OCT 11)

12:30

2870K

3874K

Trade Balance (AUG)

12:30

-$39.4B

-$38.8B

Kansas City Fed Manufacturing Activity (OCT)

15:00

2

6

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) continued to pare the decline from earlier this month, but the rebound may be limited ahead of the Federal Open Market Committee (FOMC) meeting on October 29-30 as the central bank delays its exit strategy.

Despite the bounce in the Relative Strength Index, the bearish momentum dating back to July may generate a rather uneventful correction for the dollar, and the greenback may face additional headwinds in the days ahead should the FOMC show a greater willingness to carry its highly accommodative policy stance into 2014.

Nevertheless, ahead of the Fed rate decision, another uptick in U.S. Durable Goods Orders along with a sixth consecutive rise in Advance Retail Sales may generate a test of former support (10,470), and the dollar may ultimately carve out a lower high going into November should the central bank move away from the taper timeline laid out by Chairman Ben Bernanke.

Forex_USD_Correction_in_Focus-_Short_AUD_Targets_on_Horizon_body_ScreenShot295.png, Limited USD Correction Taking Shape- Short AUD Targets on Tap

AUDUSD Daily

Forex_USD_Correction_in_Focus-_Short_AUD_Targets_on_Horizon_body_Picture_1.png, Limited USD Correction Taking Shape- Short AUD Targets on Tap
  • Fails to Mark a Close Above 0.9714 (50.0 retracement)
  • Bullish Relative Strength Index Momentum Falters
  • Interim Resistance: 0.9770 (61.8 expansion) to 0.9800 Pivot
  • Interim Support: 0.9500 (38.2 retracement) to 0.9520 (38.2 expansion)

Two of the four components traded lower against the greenback, led by a 0.34 percent decline in the Australian dollar, and the AUDUSD looks poised for a more meaningful decline as the bullish RSI momentum deteriorates.

Indeed, the RSI reversed ahead of resistance (79), with the oscillator failing to maintain the upward trend from the end of August, and the advance from 0.8891 may be a mere correction as it fails to put in a close above 0.9710-20 (50.0 percent retracement).

In light of the recent price developments, we’ll be watching the downside targets for the AUDUSD, and the higher-yielding currency may face additional headwinds over the near-term amid the recent turmoil in China – Australia’s largest trading partner.

--- 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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