Two Ways to Look at What’s Ahead for the US Dollar

10/21/2010 12:01 am EST

Focus: FOREX

Leading indicators in the world’s largest economy are expected to advance 0.3% in September after climbing 0.3% the month prior, which will mark the third consecutive monthly advance. The report is of great importance due to the fact that the index comprises indictors that are said to precede larger developments in the economy, such as employment and consumer goods orders, among many others.

Meanwhile, the Philadelphia Fed business outlook for the month of October is forecast to rebound in October, with figures expected to come in at 2.0 from September’s reading of -0.7. A reading in line or exceeding economists’ approximations will bode well for the US as the report would suggest an improved outlook from manufacturers, which is positive for production and economic growth. Components that should not be overlooked when digesting the report are prices paid, new orders, and employment.

All in all, economists of late are optimistic with regards to tomorrow’s releases. If figures are in line or surpass expectations, the US dollar may face additional upside momentum as the currency looks to regain ground against most of its counterparts after trading in overbought/oversold levels for a substantial amount of time.

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The EUR/USD pair has finally broken below the rising channel, which has remained intact since the beginning of September. At the same time, price action slipped and closed below the ten-day SMA, while the parabolic showed a sell signal yesterday. As of late, the EUR/USD is struggling to break back above the 20-day moving average. A close below this level today will validate further losses back towards 1.3500. Not to overlook, the MACD crossed over to the downside yesterday, which is indicative of additional declines.

By Michael Wright, currency analyst,
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