Dollar Index Outlook Ahead of Bernanke Testimony | Learn Forex | GoLearnForex.com

The Dow Jones FXCM Dollar Index (ticker: USDollar) looks set to climb ahead of Fed Chair Bernanke’s testimony tomorrow at the Jackson Hole symposium. We expect that Mr. Bernanke will not announce a fresh round of quantitative easing (QE3) but will rather confirm that rates will remains ultra-low until mid-2013 – as he has already intimated – and make mention of other “tools” at the Fed’s disposal if needed. We expect Bernanke to take something of a wait-and-see position while he waits to see how the economy fairs in the second half of the year, slow growth is acceptable, a recession is not. Therefore, we forecast that if the economy fairs badly we could see QE3 toward the years end, however, if things tick up in the US during H2 (or at least don’t get any worse) and forecasts for 2012/3 improve then we will see Bernanke holster his QE3 pistol into the new year.

The implications of these forecasts for the dollar index are plain, if Bernanke elects not to ease further – and not print more money – the greenback will benefit as those betting on QE3 exit their shorts and fears of a weak buck evaporate. We expect to see the index fill the gap between where it is trading now and the short-term falling trend line off recent range highs before resuming downside moves. We have been forecasting in recent days our new, more bearish, outlook for the index. On the above chart, we have also highlighted the range highs up at 9,770, if players get very aggressive we could see the index even test these levels, however, this remains unlikely and doesn’t change our outlook much. A topside failure at either resistance level keeps our bearish outlook in tact; to negate we will need a sustained break and close above both of these levels causing a significant shift in structure.

Written by Jonathan Granby, DailyFX Research Team