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USD Correction Tests Key Support- GBP to Face Shallow Pullback

USD Correction Tests Key Support- GBP to Face Shallow Pullback

2013-09-12 17:30:00
David Song, Strategist

- USDOLLAR Tests August Low; RSI at Key Support

- British Pound Overbought- Is the Rally Over?

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10663.37

10692.19

10646.75

0.02

91.52%

USDOLLAR Daily

Forex_USD_Correction_Tests_Key_Support-_GBP_to_Face_Shallow_Pullback_body_Picture_3.png, USD Correction Tests Key Support- GBP to Face Shallow Pullback

Chart - Created Using FXCM Marketscope 2.0

  • Tests/Holds August low (10,646); Relative Strength Index at Support (39)
  • Close Above 38.2 percent Fib Expansion (10,652) to Highlight Bottoming Process
  • Broad Range Ahead as Resistance Stands at 10,803 (38.2 retracement) to 10,806 (78.6 expansion)

Release

GMT

Expected

Actual

Initial Jobless Claims (SEP 7)

12:30

330K

292K

Continuing Claims (AUG 30)

12:30

2960K

2871K

Import Price Index (MoM) (AUG)

12:30

0.5%

0.0%

Import Price Index (YoY) (AUG)

12:30

0.4%

-0.4%

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) extended the sharp decline from earlier this week to test the August low (10,646), and the greenback may continue to trade within the previous month’s range amid the mixed outlook surrounding the Federal Open Market Committee (FOMC) interest rate decision on tap for next week.

Indeed, the dollar should continue to carve a bottom/ higher low around the 38.2 percent Fibonacci expansion around 10,652 as long as the Relative Strength Index holds above the 39 figure, and we may see the reserve currency coil up for a topside break should the Fed move away from its easing cycle.

Nevertheless, a further decline in the greenback could expose the key range around 10,582-10,589 as the dollar continues to search for support, but the dollar may regain its footing going into the end of the week as the economic docket is expected to show a pickup in U.S. Advance Retail Sales.

Forex_USD_Correction_Tests_Key_Support-_GBP_to_Face_Shallow_Pullback_body_ScreenShot102.png, USD Correction Tests Key Support- GBP to Face Shallow Pullback

GBPUSD Daily

Forex_USD_Correction_Tests_Key_Support-_GBP_to_Face_Shallow_Pullback_body_Picture_1.png, USD Correction Tests Key Support- GBP to Face Shallow Pullback
  • Bullish Trend Continues to Take Shape; Rally Stalls at 1.5840 Pivot
  • RSI Overbought Signal; Retains Upward Trend
  • Soft Support: 1.5720-30 & 1.5680-90

Two of the four components rallied against the dollar, led by a 0.61 percent advance in the British Pound, but the GBPUSD faces a growing risk of a near-term correction amid the overbought RSI signal.

Indeed, the GBPUSD came up against the 1.5840 pivot as the Bank of England (BoE) struck an improved outlook for the U.K. economy, and the bullish trend may continue to take shape as Governor Mark Carney scales back his dovish tone for monetary policy and shows his support for the inflation-targeting framework.

As a result, the British Pound may face a very shallow correction even as the RSI falls back from a high of 71, and we will maintain a bullish outlook for the sterling as long as the oscillator preserves the upward trend dating back to July.

--- 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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