Currency Analyst since 2010

USD: a pause in rally will continue

By Elizaveta Belugina

During the past week US dollar corrected down versus its major counterparts. The rally of American currency couldn’t be endless, and the dovish minutes of the FOMC September meeting have decreased the enthusiasm of even the most keen dollar bulls. The Federal Reserve has become more concerned about weak global growth and the impact of a strengthening US dollar on the domestic economy. Many FOCM members are still cautious about tightening policy. As a result, traders now expect that the Fed may hold low interest rates for a longer period.

From the technical point of view, US dollar has started correcting lower in most pairs, and this correction may still extend. After reaching a yearly high at 86.84 the Dollar Index (DXY) eased down to the levels just above 85. We’ll likely see a few weeks of consolidation taking place near support at 84.75. The next serious trigger for the greenback will be at the next Fed’s meeting on Oct. 29 as the American central bank will finally end QE3. In the nearest future we expect swings in the market’s sentiment, but generally most players are still betting on stronger dollar. Next week the major currencies won’t move in one direction versus USD.

Next week data releases will help to understand US economic conditions better. Watch PPI, retail sales and Empire State manufacturing index on Wednesday; industrial production and Philly Fed manufacturing Index on Thursday; and building permits and consumer sentiment on Friday.

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