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  • ...I don't believe the markets will ever be okay with the Fed bowing out of stimulus. As market sentiment normalizes, speculative exposure increases proportionally, meaning there will always be a market premium to contend with. A form of the sociological 'normalization' effect
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USDOLLAR Rebound Loses Steam - GBP/USD to Lead Breakout?

USDOLLAR Rebound Loses Steam - GBP/USD to Lead Breakout?

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- USDOLLAR testing uptrend from April low.

- GBPUSD at topside of multi-month ascending triangle.

- Forex economic calendar focuses on US housing data on Tuesday.

Yesterday we examined some of the causes behind the US Dollar’s weak start to 2014, which has largely bucked consensus expectations given the widespread belief that US Treasury yields would rise amid the Federal Reserve’s tapering of QE3. Today, the technical vulnerability of the US Dollar is revealed via the Dow Jones FXCM Dollar Index, an equal-weighted basket of the US Dollar versus the Australian Dollar, British Pound, Euro, and Japanese Yen.

Specifically, if the USDOLLAR is on the verge of another downswing, the GBPUSD may be best positioned to take advantage of it going forward:

Forex Technical Analysis: USDOLLAR Chart (H4)

USDOLLAR Rebound Loses Steam - GBP/USD to Lead Breakout?

- USDOLLAR treated 10495/500 as significant support from February to April, before breaking on April 6.

- Post-breakdown resistance has formed at 10470/75 and 10495.

- The uptrend off of the April 10 and 17 lows is currently being tested; a move below 10425 would suggest resumption of the downtrend; below 10400 would confirm it.

- Only a weekly close through 10495/500 would suggest USDOLLAR strength, also representing the descending trendline off of the January, February, and April highs.

Read more: AUD/USD, EUR/USD Set for Late-April Pivots as Liquidity Returns

Forex Technical Analysis: GBPUSD Chart (H4)

USDOLLAR Rebound Loses Steam - GBP/USD to Lead Breakout?

- GBPUSD may be in the midst of a two month long ascending triangle formation, beginning back at the lows seen on February 4 to 7.

- Resistance in the triangle formed against $1.6825, with the most recent failures coming after April 9.

- There have been a series of higher lows forming above the ascending trendline off of the July 2013 and March 2014 lows, suggesting increasing bullish momentum.

- The past three days price has consolidated into a minor flag (red) between 1.6773 and 1.6840 – these levels mark either side of the range to engage should a breakout opportunity arise. A move through 1.6840 would immediately draw attention for a move towards 1.7000.

Read more: GBP/JPY, GBP/USD Set for Test of Highs or Major Breakdown

--- Written by Christopher Vecchio, Currency Analyst

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