Talking Points:
- EUR/USD Threatens Range; Retail FX Remains Net-Short Ahead of ECB Meeting.
- GBP/USD Continues to Search for Support- U.K. Consumer Price Index, Average Weekly Earnings in Focus.
- USDOLLAR Remains Bid Despite Mixed Data, Dovish NY Fed President Dudley.
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Chart - Created Using FXCM Marketscope 2.0
- Even though market participants anticipate the European Central Bank (ECB) to endorse a dovish outlook at the January 21 interest rate decision, EUR/USD climbs to a fresh monthly high (1.0983), with a close above 1.0970 (38.2% expansion) raising the risk for a run at the December high (1.1059).
- The diverging paths for monetary policy highlights a long-term bearish outlook for EUR/USD but, the pair stands at risk of facing a similar reaction to the ECB’s December 3 announcement should the Governing Council implement a wait-and-see approach throughout the first-half of 2016.
- The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short EUR/USD since January 6 but, the ratio appears to be working its way back towards recent extremes as it slips to -1.53, with 40% of traders now long.
GBP/USD
- GBP/USD stands at risk for a further decline as it continues to take out the downside target while the Relative Strength Index (RSI) pushes deeper into oversold territory; will keep a close eye on the oscillator as it approaches the lowest level since September 2014.
- Even though the U.K. core Consumer Price Index (CPI) is expected to hold steady at an annualized 1.2% in December, a further slowdown in wage growth may push the Bank of England (BoE) to further delay its normalization cycle as Average Weekly Earnings are anticipated to slow to 1.8% from 2.0% in October.
- With GBP/USD searching for support, a close below 1.4290 (78.6% retracement) to 1.4300 (61.8% expansion) may expose the next downside target around 1.4200 (100% expansion).
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USDOLLAR(Ticker: USDollar):
| Index | Last | High | Low | Daily Change (%) | Daily Range (% of ATR) |
|---|---|---|---|---|---|
| DJ-FXCM Dollar Index | 12250.56 | 12252.96 | 12221.91 | 0.17 | 92.14% |
Chart - Created Using FXCM Marketscope 2.0
- Despite the ongoing mixed data prints coming out of the world’s largest economy, the USDOLLAR extends the advance from earlier this week, with the RSI approaching overbought territory.
- Signs of a slowing recovery accompanied by persistently low energy prices may dampen the Federal Open Market Committee’s (FOMC) scope to implement another rate-hike in the first-half of 2016 as New York Fed President William Dudley, a permanent voting-member, highlights the downside risks to growth and inflation.
- Nevertheless, the USDOLLAR may continue to trade higher in the week ahead as it holds above the 12,200 threshold, withthe topside targets around 12,273 (161.8% expansion) to 12,296 (100% expansion) in focus.
Read More:
Price & Time: GBP/USD: Is this only getting started?
Bearish EUR/USD: Eyeing New 2016 Lows
COT-Large Speculators Flip to Net Long Japanese Yen Position
USD/CAD Technical Analysis: Multiple Major Targets Hit This Morning
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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