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Bullish USDOLLAR Trend at Risk on Fed Outlook- $10B Taper Expected

Bullish USDOLLAR Trend at Risk on Fed Outlook- $10B Taper Expected

David Song, Strategist

Talking Points:

- USDOLLAR Threatens Bullish Trend Ahead of FOMC Meeting

- AUD to Continue Series of Lower Highs & Lower Lows

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10662.68

10681.88

10649.15

-0.05

78.55%

USDOLLAR Daily

Forex_Bullish_USDOLLAR_Trend_at_Risk_on_Fed_Outlook-_10B_Taper_Expected_body_Picture_3.png, Bullish USDOLLAR Trend at Risk on Fed Outlook- $10B Taper Expected

Chart - Created Using FXCM Marketscope 2.0

  • Retain Game Plan to ‘Selling Bounces’ Ahead of FOMC Meeting
  • Bearish RSI Divergence Favors ‘Selling Bounces’
  • Interim Resistance: 10,753 (23.6 expansion) to 10,759 (61.8 retracement)
  • Interim Support: 10,561 (100.0 extension)- Closing Basis

Release

GMT

Expected

Actual

Durable Goods Orders (DEC)

13:30

1.8%

-4.3%

Durables ex Transportation (DEC)

13:30

0.5%

-1.6%

Non-Defense Capital Goods Orders ex Aircrafts (DEC)

13:30

0.3%

-1.3%

Non-Defense Capital Goods Shipments ex Aircrafts (DEC)

13:30

0.1%

-0.1%

S&P/Case-Shiller Home Price Index s.a. (MoM) (NOV)

14:00

0.80%

0.88%

S&P/Case-Shiller Home Price Index (YoY) (NOV)

14:00

13.80%

13.71%

S&P/Case-Shiller Home Price Index (NOV)

14:00

165.72

165.80

Consumer Confidence (JAN)

15:00

78.0

80.7

Richmond Fed Manufacturing Index (JAN)

15:00

13

12

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) may face a larger decline over the near-term as it threatens the bullish trend carried over from the previous year.

Indeed, the Federal Open Market Committee (FOMC) interest rate decision may dictate price action for February as market participants see the central bank reducing its asset-purchase program by another $10B, but a shift in the forward-guidance may drag on the greenback should we see a growing number of Fed officials favor a less-aggressive approach in normalizing monetary policy.

With that said, the initial reaction to the rate decision may not be clear cut as market participants gauge the prospects for future policy, and a material shift in central bank rhetoric may undermine the bullish sentiment surrounding the dollar if the FOMC implements a dovish twist to its forward-guidance.

Join DailyFX on Demandto Cover Current U.S. Dollar Trade Setups

Forex_Bullish_USDOLLAR_Trend_at_Risk_on_Fed_Outlook-_10B_Taper_Expected_body_ScreenShot024.png, Bullish USDOLLAR Trend at Risk on Fed Outlook- $10B Taper Expected

AUDUSD Daily

Forex_Bullish_USDOLLAR_Trend_at_Risk_on_Fed_Outlook-_10B_Taper_Expected_body_Picture_1.png, Bullish USDOLLAR Trend at Risk on Fed Outlook- $10B Taper Expected
  • Bearish RSI Momentum Remains Intact; Carving Another Lower High?
  • Interim Resistance: 0.8980 (38.2 expansion) to 0.9000 (1.618 expansion)
  • Interim Support: 0.8670 (100.0 expansion) to 0.8700 (78.6 expansion)

Once again, two of the four components rallied against the greenback, driven by a 0.46 percent advance in the Australian dollar, but the AUDUSD appears to be carving another lower high as the bearish momentum in the Relative Strength Index continues to take shape.

Beyond the Fed meeting, the Reserve Bank of Australia (RBA) interest rate decision on February 3 may drive the AUDUSD lower as the slowdown in the Asia-Pacific region dampens the outlook for growth and inflation, and Governor Glenn Stevens may show a greater willingness to further embark on the easing cycle in order to further insulate the $1T economy.

In turn, we will maintain our game plan to ‘sell bounces’ in the AUDUSD, and the higher-yielding currency may face additional headwinds in the days ahead as market sentiment falters.

--- 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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