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USD at Risk on Dovish Fed Rhetoric- AUD Breakout on Tap?

USD at Risk on Dovish Fed Rhetoric- AUD Breakout on Tap?

David Song, Strategist

Talking Points:

- USDOLLAR Struggles to Hold Interim Support Ahead of Fed Rhetoric

- Australian Dollar Threatens Bearish Trend Ahead of Reserve Bank of Australia (RBA) Minutes

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10561.77

10585.63

10545.84

-0.11

77.77%

USDOLLAR Daily

Forex_USD_at_Risk_on_Dovish_Fed_Rhetoric-_AUD_Breakout_on_Tap_body_Picture_3.png, USD at Risk on Dovish Fed Rhetoric- AUD Breakout on Tap?

Chart - Created Using FXCM Marketscope 2.0

  • Lower High in Place; Downward Trend From August in Focus
  • Relative Strength Index Carving Bearish Trend
  • Interim Resistance: 10,658 (61.8 extension)- Former Support
  • Interim Support: 10,470 Pivot- Closing Basis

Release

GMT

Expected

Actual

Total Net TIC Flows (SEP)

14:00

--

-$106.8B

Net Long-term TIC Flows (SEP)

14:00

$20.0B

$25.5B

NAHB Housing Market Index (NOV)

15:00

55

54

Fed's William Dudley Speaks on U.S. Economy

17:15

--

--

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

18:30

--

--

Fed's Narayana Kocherlakota Speaks on Bank Regulation

0:45

--

--

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) extended the decline from the previous week, with the greenback failing to hold above interim support (10,561- 100.0 percent Fibonacci expansion), and the reserve currency may face additional headwinds in the days ahead should we see a growing number of Fed officials undermine the taper-timeline laid out by Chairman Ben Bernanke.

Indeed, the Federal Open Market Committee (FOMC) Minutes highlights the biggest event risk ahead of the Thanksgiving Holiday as market participants weigh the likelihood for a December taper, but the fresh batch of comments from William Dudley and Narayana Kocherlakota (2014 FOMC voting member) may dampen the appeal of the dollar should the central bank doves show a greater willingness to carry the highly accommodative policy stance into following year.

As a result, it seems as though the USDOLLAR has carved a lower high ahead of the Fed’s December 17-18 meeting, and the downward trend may continue to take shape over the remainder of the year should the FOMC continue to delay its exit strategy.

Forex_USD_at_Risk_on_Dovish_Fed_Rhetoric-_AUD_Breakout_on_Tap_body_ScreenShot410.png, USD at Risk on Dovish Fed Rhetoric- AUD Breakout on Tap?

AUDUSD Daily

Forex_USD_at_Risk_on_Dovish_Fed_Rhetoric-_AUD_Breakout_on_Tap_body_Picture_1.png, USD at Risk on Dovish Fed Rhetoric- AUD Breakout on Tap?
  • Threatens Downward Trending Channel as Former Resistance Offers Support
  • Relative Strength Index Rebound Highlights Topside Risk
  • Interim Resistance: 0.9410 (38.2 expansion) to 0.9430 (23.6 expansion)
  • Interim Support: 0.9250 (23.6 retracement) to 0.9290 Pivot

The greenback continued to lose ground against most of its major counterparts, led by a 0.35 percent rally in the Australian dollar, and the higher-yielding currency may appreciate further over the next 24-hours of trading should the Reserve Bank of Australia (RBA) Minutes strike a more neutral tone for monetary policy.

It seems as though the RBA will continue to endorse a wait-and-see approach as the benchmark interest rate sits at a record-low, but further attempts to talk down the Australian dollar may fail to bear fruit as the central bank appears to be moving away from its easing cycle.

In turn, the bullish break in the Relative Strength Index may foreshadow further advances in the AUDUSD, while Governor Glenn Stevens may take a more stern approach in weakening the local currency to further assist with the rebalancing of the real economy.

--- 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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