USDOLLAR Rebound to Generate Lower High- Euro Correction on Tap

March 7, 2014

San Francisco (Mar 7)  The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) bounced back from a fresh monthly low of 10,502 as the Non-Farm Payrolls (NFP) report raised the outlook for growth and inflation, and the greenback may continue to track higher ahead of the Fed’s March 19 meeting as market participants ramp up bets of seeing another $10B reduction in the asset-purchase program.

However, as the USDOLLAR marks a lower low, a short-term correction may ultimately generate another lower high amid the bearish sentiment surrounding the reserve currency, and we will retain our approach for ‘selling bounces’ in the greenback as the downward trend in the Relative Strength Index continue to take shape.

With that said, we’ll watch the upside objectives for a near-term top, and the dollar may face additional headwinds over the near to medium-term should the Fed show a greater willingness to retain its zero-interest rate policy (ZIRP) for an extended period of time.

Three of the four components weakened against the dollar, led by a 0.28 percent decline in the Japanese Yen, while the Euro bucked the trend, with the single currency managing to hold a 0.05 percent gain.

Nevertheless, the EURUSD looks poised for a near-term pullback as it falls back from trendline resistance, and we will look for a higher low in the coming days as long as the RSI retains the bullish trend carried over from the previous month.

With a slew of European Central Bank (ECB) officials scheduled to speak next week, the fresh batch of central bank rhetoric may limit the downside for the single currency as President Mario Draghi retains a rather neutral tone for monetary policy, but we may see a growing number of Governing Council members favor a weaker Euro exchange rate in an effort to stem the risk for disinflation.

Source: DailyFX

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