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USD Struggles Ahead of Fed Rhetoric- JPY Threatens Key Support

USD Struggles Ahead of Fed Rhetoric- JPY Threatens Key Support

David Song, Strategist

Talking Points:

- USDOLLAR Struggling Ahead of Fed Rhetoric- Stalls Ahead of Former Support

- USDJPY Threatening Key Resistance; Japan 3Q GDP Revision in Focus

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10617.5

10641.67

10592.05

0.22

100.07%

USDOLLAR Daily

Forex_USD_Struggles_Ahead_of_Fed_Rhetoric-_JPY_Threatens_Key_Support_body_Picture_3.png, USD Struggles Ahead of Fed Rhetoric- JPY Threatens Key Support

Chart - Created Using FXCM Marketscope 2.0

  • Rally Stalls Ahead of Former Support Which Could Offer New Resistance
  • Relative Strength Retains Bullish Trend- Approaching Overbought
  • Interim Resistance: 10,658 (61.8 extension)- Former Support
  • Interim Support: 10,590 (50.0 retracement)- Former Resistance

Release

GMT

Expected

Actual

NFIB Small Business Optimism (Oct)

12:30

93.5

91.6

Chicago Fed Nat Activity Index (Sep)

13:30

0.15

0.14

Fed's Kocherlakota Speaks on Monetary Policy in St. Paul, MN

18:00

Fed's Lockhart Speaks on Economy in Montgomery, Alabama

18:50

The near-term rally in the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) appears to be stalling ahead of former support, and the greenback may face a more meaningful correction going into the middle of the week should we see Fed officials show a greater willingness to carry the highly accommodative policy stance into 2014.

Fresh comments from Atlanta Fed President Dennis Lockhart may prop up the dollar amid growing bets for a December taper, but Minneapolis Fed President Narayana Kocherlakota, who votes on the FOMC next year, may undermine the recent strength in the dollar as the central bank dove retains a cautious outlook for the U.S. economy.

Nevertheless, we will look for further advances in the greenback as long as the Relative Strength Index retains the bullish momentum carried over from the previous month, and will implement a ‘buy the dip’ strategy over the near-term as the dollar breakout gathers pace.

Forex_USD_Struggles_Ahead_of_Fed_Rhetoric-_JPY_Threatens_Key_Support_body_ScreenShot373.png, USD Struggles Ahead of Fed Rhetoric- JPY Threatens Key Support

USDJPY Daily

Forex_USD_Struggles_Ahead_of_Fed_Rhetoric-_JPY_Threatens_Key_Support_body_Picture_1.png, USD Struggles Ahead of Fed Rhetoric- JPY Threatens Key Support
  • Breakout Brings Up Key Resistance Ahead of 100.00
  • Bullish Relative Strength Index Confirms Break Higher
  • Interim Resistance: 99.80 (50.0 retracement) to 99.90 (61.8 retracement)
  • Interim Support: 97.50 (38.2 retracement expansion) to 97.70 (38.2 expansion)

The greenback advanced against three of the four components, led by a 0.49 percent decline in the Australian dollar, while the Japanese Yen is coming up against key support ahead of the preliminary 3Q GDP report.

Indeed, a downward revision in the growth rate may drag on the Yen as it undermines the Bank of Japan’s (BoJ) pledge to achieve the 2 percent target for inflation by 2015, and the bullish breakout in the RSI adds further conviction for a more meaningful move to the topside as market participants weigh the outlook for monetary policy.

The USDJPY may face a minor pullback as it comes up against resistance, but we also like buying dips in the dollar-yen as the longer-term bullish trend continue to take shape.

--- 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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