US Dollar Rate Today (1/11): Is the USD Seeing a New Phase of Strength? Yes.. Maybe

A look at the foreign exchange markets in early afternoon in London shows the US dollar continues to extend its recent recovery:

The pound to dollar exchange rate is 0.5 pct down on last night's close at 1.5964 while the euro to dollar exchange rate is 0.53 pct down at 1.3518.

(Please note: All quotes here taken from the wholesale markets; your bank will subtract a discretionary spread when passing on their rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.)

The current recovery we are witnessing was sparked following Wednesday night's FOMC outcome; a rapid selling of the Euro yesterday then granted the dollar further impetus.

Forecasting a stronger dollar into year end

Camilla Sutton at Scotiabank saw this US dollar strength coming on the basis that markets may have underestimated the possibility of the US Fed tapering coming earlier than expected:

"We would caution USD bears that with both the WSJ and FT are out with articles suggesting that a December taper is a real possibility there is some added upside risk to the USD, particularly since the market is now positioned for a H1 2014 taper.

"The FOMC statement signalled that the Fed sees financial conditions having eased, a vague improvement in the labour market and noted a softening in the housing market. This was enough to generate a brief USD rally, which subsequently has been erased, with the exception of EUR."

US data to weigh on the Dollar

Taking a softer approach to the possibility of US dollar strength are Lloyds Bank Research who say:

"We think a continuation of soft domestic data will weigh on the USD and see the market shift expectations of ‘tapering’ firmly back to next year. We remain negative USD and prefer to look for opportunities to sell.

"We think the manufacturing ISM will be a focus this afternoon, where a modest decline is expected, though the strength of the Chicago PMI yesterday does suggest risks are to the upside."

Next week we get key releases, Q3 GDP and October payrolls, although the report will be complicated by how furloughed workers are treated in the respective surveys (household survey which produces the unemployment rate, and establishment survey which produces the headline payroll).

Technical outlook for the euro dollar rate

"The recent setback is staged from the critical resistance at 1.3833. Having sold off sharply, the next major support focus is at 1.3469. Near-term resistance is at 1.3686," says Geoffrey Yu at UBS.

Also forecasting declines in the short term is Luc Luyet at MIG Bank:

"The recent setback is staged from the critical resistance at 1.3833. Having sold off sharply, the next major support focus is at 1.3469. Near-term resistance is at 1.3686.

"In the longer term, the sharp decline below the support at 1.3651 from deep overbought conditions suggests that a significant top has likely been made at 1.3832 (25/10/2013 high). A break of the strong support at 1.3462 (see also the rising channel) would confirm the start of a new phase of weakness."