The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) added another 0.30 percent on Tuesday as the upward trending channel continues to take shape, and we may see the greenback appreciate further over the remainder of the week as the flight to safety gathers pace. As the 30-minute relative strength index pushes deeper into overbought territory, the dollar may continue to gain ground throughout the North American trade, but we should see a short-term pullback once the oscillator falls back below 70. As market participants turn their attention to the FOMC Minutes on tap for Wednesday, we may see the dollar consolidate going into the middle of the week, but the fresh batch of central bank rhetoric may prop up the greenback should the committee continue to talk down speculation for another large-scale asset purchase program. 
The upward trend in the USDOLLAR paired with the rise in the relative strength index reinforces a bullish outlook for the reserve currency, and the index looks poised to mark a run at the 78.6 percent Fibonacci retracement around 10,118 as the fundamental outlook for the world’s largest economy continues to improve. Indeed, the FOMC may sound more hawkish this time around amid the resilience in private consumption along with the stickiness in price growth, and we should see the central bank move away from its easing cycle as the recovery gradually gathers pace. However, Fed Chairman Ben Bernanke may keep the door open to expand the balance sheet further as ongoing turmoil in the global financial system continues to pose a risk to for the world economy, and we may see a growing rift within the committee as central bank officials expect to see a stronger recovery in the second-half of the year. In turn, we may see market participants increase bets for a rate hike, and the dollar should track higher going into the second-half of the year as we expect the FOMC to lay out a tentative exit strategy in the coming months. 
Three of the four components weakened against the greenback, led by a 0.46 percent decline in the Euro, while the British Pound shed 0.44 percent as market participants scaled back their appetite for risk. Indeed, the sterling may face additional headwinds over the next 24-hours of trading as market participants see the Bank of England lowering its growth forecast for the U.K. while keeping the door open to expand its balance sheet further, but we expect to see the central bank target the stickiness in underlying inflation as its price-stability mandate remains under scrutiny. As BoE officials anticipate to see a more robust recovery in the second-half of 2012, the MPC may shift gears at the turn of the year, and we may see the central bank start to discuss withdrawing monetary support as policy makers no longer see a risk of undershooting the 2 percent target for inflation. In turn, we should see the upward trend in the GBPUSD continue to take shape, and we are looking for fresh yearly highs in the exchange rate as the committee looks to conclude its easing cycle. --- 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, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com. Join us to discuss the outlook for the major currencies on the DailyFX Forums DailyFX provides forex news on the economic reports and political events that influence the currency market.
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The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains 0.10 higher from the open after move 67 percent of its average true range, and the greenback should continue to retrace the decline from the previous month as the upward trending channel gathers pace. As the above-forecast the U. of Michigan consumer confidence survey raises the outlook for growth, easing bets for another round of quantitative easing should continue to prop up the dollar, but we may see the reserve currency hold steady throughout the North American trade as the relative strength index comes off of overbought territory. Although the economic docket for the following week is expected to show the headline reading for inflation falling back to an annualized rate of 2.4% in April, the stickiness in underlying price growth may encourage the FOMC to drop its dovish tone for monetary policy, and we may see the central bank start to discuss a tentative exit strategy as the recovery gradually gathers pace. 
Indeed, the FOMC Minutes highlight the biggest event risk for the following week, and the central bank may sound more hawkish this time around as the outlook for growth and inflation picks up. At the same time, we may see a growing rift within the committee as Fed Chairman Ben Bernanke leaves the door open to expand the balance sheet further, and the central bank may mull the 2014 pledge for its zero interest rate policy as the economy gets on a more sustainable path. As the Fed moves away from its easing cycle, we should see the bullish trend in the USDOLLAR continue to take shape, and we may see the index make another run at the 78.6 percent Fibonacci retracement around 10,118 should the central bank see scope to start normalizing monetary policy later this year. As the RSI maintains the upward trend from the beginning of the month, the dollar should continue to track higher in the coming days, but we may see a short-term correction ahead of June as the ascending triangle formation remains in play. 
Two of the four components weakened against the greenback, led by a 0.33 percent decline in the British Pound, but the sterling may regain its footing next week should the Bank of England strike an improved outlook for the U.K. As the quarterly inflation comes into focus, we may see the BoE adopt a hawkish outlook for monetary policy amid the stickiness in underlying price growth, and the central bank may see scope to raise the benchmark interest rate off of the record-low as policy makers anticipate to see a faster recovery in the second-half of the year. However, as Britain slips back into recession, there’s speculation that the BoE will stick to its wait-and-see approach as the ongoing turmoil in the euro-area – the U.K.’s largest trading partner – dampens the prospects for future growth. In turn, we may see the GBPUSD continue to give back the advance from the previous month, but we should see former resistance around 1.6000 act as new support as the pair maintains the upward trend from earlier this year. --- 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, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com. Join us to discuss the outlook for the major currencies on the DailyFX Forums 
The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.40 percent higher from the open after moving 97 percent of its average true range, and we should see the greenback continue to retrace the decline from April as the upward trending channel from the beginning of the month continues to take shape. In turn, we should see the index work its way back towards the key 10,000 figure, and we will maintain our bull call for the dollar as the Federal Reserve continues to soften its dovish tone for monetary policy. Nevertheless, we may see a small pullback going into the middle of the weekas the 30-minute relative strength index moves back into overbought territory, but the shift in the Fed’s policy outlook should prop up the USD as the central bank continues to talk down speculation for additional monetary support. 
Indeed, New York Fed President William Dudley, who also serves as a permanent member of the FOMC, continued to soften his dovish tone for monetary policy amid the stickiness in underlying inflation, and said that the central bank will bring quantitative easing to a halt ‘‘the moment they become inconsistent with our dual mandate objectives.’ As the more robust recovery raises the risk for inflation, we should see the Fed move away from its easing cycle, and the central bank may start to discuss a tentative exit strategy as the economy gets on a more sustainable path. As the index continues to carve out a series of higher lows, we are still looking for another run at the 78.6 percent Fibonacci retracement around 10,118, and we should see currency traders turn increasingly bullish against the USD as the Fed continues to curb speculation for another large-scale asset purchase program. 
Three of the four components weakened against the greenback, led by a 0.99 percent decline in the Australian dollar, while the Japanese bucked the trend to advance 0.14 percent on the day. Although the USDJPY continues to trade within a downward trending channel, we’re still watching the bullish flag formation as it appears to be building a short-term base around the 100-Day SMA at 76.65. In turn, the dollar-yen looks poised to reverse course, and we should see the pair resume the advance from earlier this year as the Bank of Japan pledges to carry its easing cycle into the second-half of 2012. As a result, we need to see the pair clear and close above the 20-Day SMA (80.62) to see a meaningful rebound in the exchange rate, and we expect to see fresh yearly highs in the USDJPY amid the deviation in the policy outlook. --- 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, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com. Join us to discuss the outlook for the major currencies on the DailyFX Forums 
The greenback is markedly weaker at the close of North American trade with the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) off by 0.57% on the session after moving a full 115% of its daily average true range. Equity markets were mixed at the close as headlines out of Europe and mixed US economic data weighed on stocks with the S&P and NASDAQ off by 0.05% and 0.76% respectively while the Dow climbed higher by 0.56%. Remarks made by Cleveland Fed President Sandra Pianalto were surprisingly less dovish than expected with the central banker citing the need for the Fed to take “balanced approach” to an exit strategy while noting that the economy continues to display, “forward momentum.” Despite the remarks from Pianalto, a known dove, the dollar remained on the defensive with its European counter-parts outperforming early in the week. The dollar closed back below the 61.8% Fibonacci extension taken from the August 1st and October 27th troughs at 9945. The index has continued to straddle this level for the past few sessions with key daily support seen at the relative three way confluence of the 50 & 100-day moving averages and the 9900 support level. This level remains paramount for the greenback with a break below eyeing support targets at the 50% extension at 9850. Daily topside advances are limited by channel resistance dating back to the 2012 high, currently just above the psychological 10,000 level. Note that the relative strength index continues to trade within the confines of a descending channel with a topside break needed to dispel further dollar weakness. 
An hourly chart shows the index trading back in the confines of a descending channel formation after briefly dipping below channel support late last week. A break below this formation eyes subsequent floors at 9900, 9875, and the 50% extension at 9850. Interim resistance stands at the key 61.8% extension at 9945 backed by 9975 and channel resistance. A breach above the 10,000 mark shifts our focus higher with such a scenario eyeing primary objectives at 10,040 and the 78.6% extension at 10,080. Look for the dollar to take cues off broader risk trends as the European crisis comes back into focus with a substantial shift into risk aversion likely to offer ample support for the reserve currency. 
The greenback declined against three of the four component currencies highlighted by a 0.58% decline against the Japanese yen. The USD/JPY has remained under pressure since last week when the BoJ yielded no plans to further ease policy. Risk aversion flows have also continued to support the low yielder as traders flock into so called “haven” assets such as the yen, the greenback, and US Treasuries. For complete USD/JPY scalp targets refer to today’s Winners/Losers Report. The Australian dollar was the weakest performer of the lot with a decline of 0.16% on the session. Although the greenback saw broad-based losses against its European counterparts like the pound, the euro and the swissie, commodity backed currencies remained on the defensive with the aussie, the kiwi, and the cad all closing weaker on the session. Global growth concerns continue to limit advances in the commodity bloc with the greenback well supported in the interim. Traders will be closely eyeing the minutes from the most recent RBA interest rate decision with our medium-term bias on the aussie remaining weighted to the downside. Tomorrow’s economic docket is highlighted March housing starts, building permits, manufacturing production and industrial production data. Traders will be closely eying the housing data as the sector continues to drag on the economy with housing starts expected to rise to 1.0% m/m, up from a previous contraction of 1.1% m/m. Building permits are expected to remain under pressure with consensus estimates calling for a decline of 0.6% m/m, down from a previous gain of 5.1% m/m. We remain neutral on the greenback at these levels while noting that our longer-term outlook remains weighted to the topside. However in light of recent price action, further declines in the index are likely with such a scenario to offer favorable long entries. Upcoming Events Manufacturing Production (MAR) ---Written by Michael Boutros, Currency Strategist with DailyFX.com Join Michael on Tomorrow morning for a Live Scalping Webinar at 1230GMT (8:30ET) To contact Michael email mboutros@dailyfx.com or follow him on Twitter @MBForex for the latest charts and commentary To be added to Michael’s distribution list, send an email with the subject line “Distribution List”