USD Searching For Direction After BoJ, U.S. Data

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 |  Includes: FXY, UDN, UUP
by: FXstreet

The U.S. dollar trades mixed across the board on Tuesday while Wall Street indexes started the week on the back foot, with markets still assessing the Bank of Japan decision and weaker-than-expected U.S. data.

The BoJ hiked its inflation target to 2% and increased its asset purchase program. The inflation target is an immediate goal while the increase to the asset purchase program will take effect in 2014. The timing of the asset purchase program was a disappointment to the market and sparked a rally in the yen, which dragged USD/JPY to a low of 88.35.

Meanwhile, a stronger than expected German ZEW survey lifted the euro to session highs versus the greenback, but it failed to consolidate gains and turned lower during the American session, weighed by weak housing and manufacturing U.S. data. Disappointing earnings reports did nothing but fuel the cautious mood.

Euro under pressure, 1.3250 key support to watch

The euro had a volatile day, falling to a low of on the back of a series of rumors ranging from a resignation at the Bundsbank, to a large German bank being asked to simulate a split, but bounced back to daily highs at the 1.3370 zone after a strong German ZEW survey reading.

However with movements driven by headlines, EUR/USD lacks definition and strength either side of the board, and continues to consolidate within its 1.3250/1.3400 range, where it has been trading during the last couple of weeks.

The pair needs a decisive break below 1.3250 or above 1.3400 to define a clearer longer-term bias. Meanwhile, short-term indicators show a slight bearish tone, suggesting a deeper correction cannot be dismissed.

"Overall range-trading picture remains intact, despite today's hectic trading and spikes to 1.3370 on the upside and 1.3265 on the downside", says Slobodan Drvenica, analyst at Windsor Brokers Ltd. "Negative scenario requires break of initial 1.3300 support, while trigger for stronger pullback is seen on a break below 1.3255, range floor. Initial resistance lies at 1.3330, while any bounce above here requires clearance of today's high at 1.3370, to possibly re-attract 1.3400 barrier".

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