Fed’s Beige Book May Threaten USD Range, JPY Continues To Look Higher






Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index






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The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains little changed from the open after moving 64 percent of its average true range, and we may see the greenback continue to consolidate ahead of the Fed’s Beige Book as market participants weigh the outlook for monetary policy. As the 30-minute relative strength index falls back from overbought territory, we should see the index maintain the range-bounce price action from earlier this week, but an upbeat assessment may trigger a sharp move to the upside as market participants weigh the outlook for monetary policy. As the USDOLLAR appears to be carving out a higher low this week, we are looking for a move back above the 10,200 figure, but a dismal survey would dampen the appeal of the greenback as the Fed keeps the door open to expand monetary policy further.

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As we’re watching the short-term ascending channel within the broader trend, the dollar looks poised for a move higher, and we will retain our bullish forecast for the USD as the Fed looks to carry out its current policy. Although Fed Chairman Ben Bernanke kept the door open to conduct implement additional monetary stimulus, it seems as though we will need to see a material risk for another recession for the FOMC to push through another large-scale asset purchase program as the central bank sees the economic recovery gradually gathering pace in the months ahead. In turn, we should see the Fed carry out ‘Operation Twist’ throughout the remainder of the year, and the central bank may refrain from expanding its balance sheet further as the economy gets on a firmer footing. In turn, we will continue to look for fresh yearly highs in the index and the bullish sentiment underlining the dollar should gather pace in the second-half of the year as the FOMC holds a more upbeat outlook for the U.S. economy.

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The greenback weakened against two of the four components, driving by a 0.20 percent rally in the Australian dollar, while the Japanese Yen gained 0.19 percent as it continues to benefit from positive real interest rates in the world’s third-largest economy. Indeed, the Bank of Japan Minutes revealed that the central bank is looking at other options as the board maintains its pledge to pursue powerful monetary easing, but it seems as though the BoJ will continue to sit on the sidelines over the near-term as the fundamental outlook for the region improves. As currency traders scale back bets for more easing, the recent decline in the USDJPY may gather pace over the remainder of the week, and we may see the pair make a run at the June low (77.65) as the exchange rate struggles to push back above the 200-Day SMA at 79.02.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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