USD Index Contained After US Industrial Production Data

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USD Index Contained After US Industrial Production Data

The week is starting with a light day in term so of economic data. We did get some US data on manufacturing and industrial production. They were mixed, and the market’s immediate reaction is a USD-sell off. But will it extend?

Empire State Manufacturing Index
September: 27.5
Forecast: 16.4
August: 14.7
empire state manufacturing 9/15/2014

(click to enlarge; source: forexfactory.com)
Capacity Utilization Rate
August: 78.8%
Forecast: 79.3%
July: 79.1%
capacity utilization rate 9/15/2014

(click to enlarge; source: forexfactory.com)

Industrial Production m/m
August: -0.1%
Forecast: 0.4%
July: 0.2% (revised down from 0.4%)
industrial production 9/15/2014

(click to enlarge; source: forexfactory.com)

Mixed Bag with Positive Underlying Trend:
Today’s data was essentially mixed. We saw strong a strong manufacturing index reading for the region covered by the NY Fed. The Empire State Manufacturing Index grew to the strongest reading since April 2010, when the reading was 31.9. The capacity utilization rate showed some slack opening up in August, but should not be a cause for alarm. The dip in industrial production was a bit unexpected. It is the first decline in 4 months, and shows a little bit of weakness in Q3. Still, the underlying trend is strong, and today’s data should not cause a reversal against recent USD-strength.

USD-Reaction:
The market’s initial reaction was a sell-off of the USD. The 1H USD Index shows that price has been consolidating for a week roughly between 84.03 and 84.52. It fell from a common high within the range at 84.40 after the US data points.

USDX 1H Chart 9/15
usd index 9/15

(click to enlarge)

ti will take a break below 84.00 to open up a bearish correction scenario ahead of Wednesday’s FOMC meeting. Otherwise the bullish trend and momentum are still intact.

If price breaks above 84.52, it continues the prevailing uptrend, with upside at least to the 2013-high at 84.73.

USDX Weekly Chart 9/15
usdx weekly chart 9/15

(click to enlarge)

Now, if price comes up to the 2013-high and fails to clear it after the FOMC meeting, we can expect some consolidation, or short-term bearish correction especially since the weekly RSI is near 80, showing overbought condition.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.