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Bullish USDOLLAR Setup Deteriorates Ahead of NFP- AUD at Resistance

By , Currency Analyst
06 February 2014 16:20 GMT

Talking Points:

- USDOLLAR Fails to Maintain Bullish Trend as Euro Benefits From ECB

- Australian Dollar Threatens Resistance Ahead of RBA Quarterly Statement

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10654.4

10673.28

10642.29

-0.19

77.31%

USDOLLAR Daily

Forex_Bullish_USDOLLAR_Setup_Deteriorates_Ahead_of_NFP-_AUD_at_Resistance_body_Picture_3.png, Bullish USDOLLAR Setup Deteriorates Ahead of NFP- AUD at Resistance

Chart - Created Using FXCM Marketscope 2.0

  • Close Below Trendline Support Puts Bullish Bias at Risk
  • Downside Break in Relative Strength Index Highlights Further USD Weakness
  • Interim Resistance: 10,753 (23.6 expansion) to 10,759 (61.8 retracement)
  • Interim Support: 10,561 (100.0 extension)- Closing Basis

Release

GMT

Expected

Actual

Challenger Job Cuts (YoY) (JAN)

12:30

--

11.6%

Trade Balance (DEC)

13:30

-$36.0B

-$38.7B

Non-Farm Productivity (4Q P)

13:30

2.8%

3.2%

Unit Labor Costs (4Q P)

13:30

-0.7%

-1.6%

Initial Jobless Claims (FEB 1)

13:30

335K

331K

Continuing Claims (JAN 25)

13:30

2998K

2964K

Fed's Eric Rosengren Speaks on U.S. Economy

22:30

The bullish Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) setup appears to be breaking down following the market reaction to the European Central Bank (ECB) interest rate decision, and a close below trendline support may highlight further declines for the greenback as the bearish momentum in the Relative Strength Index gathers pace.

Indeed, a positive Non-Farm Payrolls (NFP) report may spur a near-term rally in the dollar as the jobless rate approaches the Fed’s 6.5 percent unemployment threshold, but another disappointing outcome may trigger a more meaningful USD correction as it dampens expectations of seeing another $10B taper at the March 19 meeting.

Nevertheless, we will continue to look for a higher low in the dollar index as Fed officials continue to favor a further reduction in the asset-purchase program, and the central bank may look to normalize monetary policy sooner rather than later as the central bank anticipates a stronger recovery in 2014.

Join DailyFX on Demandto Cover Current U.S. Dollar Trade Setups

Forex_Bullish_USDOLLAR_Setup_Deteriorates_Ahead_of_NFP-_AUD_at_Resistance_body_ScreenShot054.png, Bullish USDOLLAR Setup Deteriorates Ahead of NFP- AUD at Resistance

AUDUSD Daily

Forex_Bullish_USDOLLAR_Setup_Deteriorates_Ahead_of_NFP-_AUD_at_Resistance_body_Picture_1.png, Bullish USDOLLAR Setup Deteriorates Ahead of NFP- AUD at Resistance
  • Price & RSI Breaks Out- Still Searching for Lower High
  • Interim Resistance: 0.8980 (38.2 expansion) to 0.9000 (1.618 expansion)
  • Interim Support: 0.8670 (100.0 expansion) to 0.8700 (78.6 expansion)

The greenback weakened against three of the four components, led by a 0.58 percent rally in the Australian dollar, and the AUDUSD may face a larger correction over the remainder of the week should the Reserve Bank of Australia’s (RBA) quarterly monetary policy statement talk down bets for lower interest rates in the $1T economy.

Indeed, Governor Glenn Stevens scaled back on the verbal intervention as the marked depreciation in the aussie fuels imported inflation, but the central bank may keep the door open to cut borrowing costs further as growth is expected to hold below trend.

With that said, the policy outlook may continue to limit the upside for the AUDUSD, and we will retain a bearish outlook for the higher-yielding currency as the central bank looks to further assist with the rebalancing of the real economy.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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06 February 2014 16:20 GMT