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U.S. Update: Dollar correction underway

Mon, Sep 21 2009, 14:51 GMT
by Valeria Bednarik

FXstreet.com Independent Analyst Team  |  View company's profile

What happened

With holidays in several Asian markets, including Japan, Singapore and India, greenback managed to regain ground in low-volume trade, bouncing back against dollar and yen, in what at this point could well be consider just profit taking and a technical correction after past week bearish rally.

Gbp remains under pressure since Asian opening, unable to recoup ground with speculations of rate cuts ahead for next months. Gold, the main market driver had pullback to the $ 1000/oz area, and keeps hovering under that level unable to confirm a break.

Stocks in Europe remained under pressure, supporting dollar upside continuation: EUR/USD reached 1.4610 support zone, while GBP/USD approached to key 1.6110 level, neck of a daily H&S figure; if the pair manages to close the day under such level, figure will be confirmed and further loses are expected for Pound.

With almost no fundamental news to take care of, and with U.S. stocks in negative territory, dollar rally was halted by the U.S. leading economic indicators, that rose in August for the fifth straight time, capping the longest stretch of gains since 2004 and adding signals that the recovery is under way. The index rose 0.6%, after a revised 0.9% rise in July, according to data that the New York-based group released today.

What to expect

Greenback's two-week slide will likely slow and we are probably entering into a consolidation stage, as investors will be waiting for further for clues about when the Federal Reserve might start to raise U.S. interest rates, as the FOMC is schedule to announce its rate decision on Wednesday. Of course, no change is expected, but the focus will on the statement which accompanies the decision, particularly the ones regarding QE: FED is also expect to leave it unchanged, yet any comments about easing QE or indications of a shift towards an early increase in policy rates would be positive for the greenback, which has been hurt not only by rising gold, but also by low expectations for U.S. interest rates.

EUR/USD Outlook

Pair opened the week inside the daily ascendant channel, and started a downside correction: RSI now at 64.40 after reaching almost 74.00 was pre announcing this, for now, corrective movement. 20 SMA remains far under current price, around the strong 1.4440/60 level. Only confirmations under that price could made pair fall further, thus before such level, 1.4550 seems strong enough to keep the downside capped. General bias remains bullish, mostly drive by sentiment, yet as commented above, market will likely wait for Wednesday’s FED decision to define either a deeper correction or confirm further rises in the term. Daily key resistances levels to watch are 1.4720 and 1.4770 ahead of stronger 1.4860 area.

Published on  Mon, Sep 21 2009, 14:55 GMT

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