Daily Report: Dollar Mildly Higher as Fed Prepares for Exit

Dollar is mildly higher in Asia today as Fed is preparing to exit its emergency stimulus measures. Fed proposed on Monday to set up a term deposit facility to drain funds from the markets by mopping up some of the $1T in excess reserves in the US banking system. Under the proposal, Fed would offer term deposits with interest, providing incentive for banks to park their money at the Fed. Nevertheless, Fed said that such proposal has "no implications for monetary policy decisions in the near term."

Dollar index is a bit higher today but consolidations from 78.45 looks set to continue further. As noted before, pull back from 78.45 might extend towards near term channel support (now at 77.04). Nevertheless, downside should be contained by 38.2% retracement of 74.19 to 78.45 at 76.82 and bring rally resumption. Above 78.45 will target 38.2% retracement of 89.62 to 74.19 at 80.08.

On the data front, swiss UBS consumption indicator, US S&P case-shiller price index and US consumer confidence will be featured today. Germany CPI will also be released.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.8831; (P) 0.8861; (R1) 0.8896; More

With 0.8808 minor support intact, AUD/USD's recovery from 0.8734 might continue further and could have a test on neckline support turned resistance (now at 0.8977). Nevertheless, upside should be limited by 0.9013 resistance and bring fall resumption. On the downside, below 0.8808 minor support will suggest that such recovery is finished and flip intraday bias back to the downside. Break of 0.8734 will target 23.6% retracement of 0.6008 to 0.9404 at 0.8603 next.

In the bigger picture, the break of 0.8915/8945 support zone confirm the bearish case that AUD/USD has already topped out at 0.9404 in medium term, by completing a head and shoulder top (ls: 0.9326, h: 0.9404, rs: 0.9321). Deeper decline should now be seen to correct the whole rise from 0.6008 and should target 0.7702/0.8626 support zone. Nevertheless, strong support should be seen there, at lease initially, and bring rebound. On the upside, break of 0.9193 resistance is needed to invalidate this view. Otherwise, outlook will remain bearish.

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