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USDOLLAR Breakout Looks Hollow without EUR/USD Participation

USDOLLAR Breakout Looks Hollow without EUR/USD Participation

2016-01-19 12:30:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- USDOLLAR Index pulls back, threatens key reversal below 12248.

- EUR/USD consolidation around $1.0800/900 likely until Thursday.- EURUSD trades between $1.0804 and $1.0878.

- Follow retail crowd sentiment with live SSI charts.

There's been little consistency among the components of the USDOLLAR Index, with the majority of the recent breakout having been driven by declines in AUD/USD and GBP/USD. Pairs like EUR/USD and USD/JPY are having little influence, even on a day like today when the US Dollar is trading firmer in both those cases: the USDOLLAR Index is pulling back - threatening the ever-ominous key reversal at the yearly high - as AUD/USD's and GBP/USD's gains continue to dictate the broader USD-complex. (We take daily key reversals at yearly highs seriously - EUR/USD in May 2014 is a good example.)

Be that as it may, traders may find that today's rather empty economic docket leaves plenty of room for broader macro themes and the newswires to have a greater influence over price action. As such, FX traders may find that monitoring equities futures and sovereign bond markets more closely.

There should be a stark juxtaposition between today and the next two days, where central bank meetings and a busy economic calendar should hold the markets' collective gaze. UK labor market data for November and December, as well as the December US inflation report, carry heavy weight tomorrow, as does the Bank of Canada rate decision (we're looking for another 25-bps rate cut, and with OIS pricing around a 50% chance of a move, the Canadian Dollar may still have some further room to weaken). On Thursday, the ECB meeting - the most important event on the calendar this week - will help shake EUR/USD from its recent apoplectic, rangebound state.

See the above video for technical considerations in the USDOLLAR Index, EUR/USD, AUD/USD, USD/JPY, EUR/GBP, and GBP/JPY.

Read more: Euro Grind Continues as Prospect for ECB Action Slowly Increases

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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