DJ FXCM Dollar Index

The Dow Jones-FXCM U.S. Dollar Index (Ticker:USDollar) is 0.39 percent higher on the day after moving 70 percent of its average true range, and we may see the greenback may another run at 9,800 as it maintains the range from earlier this week. As the G20 Summit in Cannes, France fails to prop up investor confidence, the shift away from risk-taking behavior is likely to gather pace in the days ahead, and the reserve currency may continue to retrace the sharp selloff from the previous month as the fundamental outlook for the world economy remains clouded with high uncertainty. However, the greenback consolidate throughout the North American trade as the 30-minute relative strength index falls back from overbought territory, and we may have to wait until the following week to see the greenback resume the rebound from 9,454.

As the economic docket remains fairly light for the beginning of the following week, the rise in risk aversion looks poised to gather pace, and we may get a potential breakout in the dollar index as the reserve currency continues to benefit from safe-haven flows. In turn, the index may finally clear 9,800, which could open the door for a test of the 61.8 percent Fibonacci retracement around 9,947. As Fed officials are scheduled to speak next week, comments regarding monetary policy are likely to shake up the currency market, but we may see Chairman Ben Bernanke show an increased willingness to expand the balance sheet further as the fundamental outlook for the world’s largest economy remains weak. In turn, speculation for another round on quantitative easing may instill a bearish outlook for the USD, and the greenback may continue to trend sideways over the near-term as market participants weigh the prospects for future policy.

All four components weakened against the greenback, led by a 0.65 percent decline in the Australian dollar, but we may see the high-yielding currency regain its footing next week as the economic docket for the isle-nation is expected to reinforce an improved outlook for future growth. As employment is expected to increase another 10K in October, the development may increase demands for the Australian dollar, but a rise in the jobless rate could spark a mixed reaction as the region faces a slowing recovery. As growth and inflation falter, the Reserve Bank of Australia may continue to scale back the rate hikes from the previous year, and the central bank may carry its easing cycle into 2012 as the slowdown in global trade dampens the prospects for future growth. As the AUD/USD carves out a top coming into November, the sharp reversal from 1.0752 should gather pace over the near-term, and the exchange rate may fall back towards the 38.2 percent Fib from the 2010 low to the 2011 high around 0.9920-50 to test for support.

--- Written by David Song, Currency Analyst

To contact David, e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Join us to discuss the outlook for the major currencies on the DailyFX Forums