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USD Divergence in Focus- AUD Eyes Downside Targets for Support

USD Divergence in Focus- AUD Eyes Downside Targets for Support

David Song, Strategist

Talking Points:

- USDOLLAR Continues to Carve Higher High; Threatens Former Support

- Australian Dollar Searching for Support; RSI Threatens Oversold Territory

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10640.03

10661.05

10616.87

-0.05

88.76%

USDOLLAR Daily

Forex_USD_Divergence_in_Focus-_AUD_Eyes_Downside_Targets_for_Support_body_Picture_3.png, USD Divergence in Focus- AUD Eyes Downside Targets for Support

Chart - Created Using FXCM Marketscope 2.0

  • Retails Bullish Trend; Former Support Providing New Resistance?
  • Relative Strength Index Fails to Mark Higher High; Divergence?
  • Interim Resistance: 10,658 (61.8 extension)- Former Support
  • Interim Support: 10,470 Pivot- Closing Basis

Release

GMT

Expected

Actual

Building Permits (OCT)

13:30

930K

1034K

Building Permits (MoM) (OCT)

13:30

--

6.2%

S&P/Case-Shiller Composite-20 s.a. (MoM) (SEP)

14:00

0.90%

1.03%

S&P/Case-Shiller Composite-20 (YoY) (SEP)

14:00

13.00%

13.29%

S&P/Case-Shiller Home Price Index (SEP)

14:00

165.00

165.66

S&P/Case-Shiller US Home Price Index (YoY) (3Q)

14:00

--

11.18%

S&P/Case-Shiller US Home Price Index (3Q)

14:00

--

150.92

House Price Index (MoM) (SEP)

14:00

0.4%

0.3%

House Price Purchase Index (QoQ) (3Q)

14:00

2.00%

1.96%

Consumer Confidence (NOV)

15:00

72.6

70.4

Richmond Fed Manufacturing Index (NOV)

15:00

4

13

The near-term rally in the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) could be coming to an end as former support appears to be acting as new resistance, and we may see a more meaningful correction during the final days of November as there appears to be a bearish divergence in the Relative Strength Index.

Despite the higher high in price, the RSI may threaten the bullish trend from the previous month as the oscillator turns around ahead of overbought territory, but the Thanksgiving Holiday may produce choppy price action across the major currencies as market participation thins ahead of the weekend. Nevertheless, a near-term pullback may ultimately produce a higher low in the USDOLLAR, and the bullish sentiment surrounding the greenback may gather pace ahead of the Fed’s December 17-18 meeting amid the ongoing discussion to taper the asset-purchase program.

In turn, we will retain our game plan to ‘buy dips’ as the greenback persistently carves a series of higher highs paired with higher lows, and we may see the Federal Open Market Committee (FOMC) implement a small reduction in its quantitative easing program as the board refrains from undermining the taper-timeline laid out by Chairman Ben Bernanke.

Join DailyFX on Demand for LIVE Coverage of U.S. Data Prints

Forex_USD_Divergence_in_Focus-_AUD_Eyes_Downside_Targets_for_Support_body_ScreenShot009.png, USD Divergence in Focus- AUD Eyes Downside Targets for Support

AUDUSD Daily

Forex_USD_Divergence_in_Focus-_AUD_Eyes_Downside_Targets_for_Support_body_Picture_1.png, USD Divergence in Focus- AUD Eyes Downside Targets for Support
  • Continues to Search for Support; At Risk for Lower Low
  • Bearish Relative Strength Index Threatens Oversold Territory
  • Interim Resistance: 0.9250 (23.6 retracement) to 0.9290 Pivot
  • Interim Support: 0.8990 Pivot to 0.9000 (1.618 expansion)

Three of the four components rallied against the greenback, led by a 0.27 percent advance in the Euro, while the Australian dollar bucked the trend, with the higher-yielding currency slipping another 0.48 percent.

The AUDUSD may continue to carve a series of lower lows paired with lower highs as the Reserve Bank of Australia (RBA) threatens to intervene in the currency market, and the aussie-dollar remains poised to face additional headwinds over the near to medium-term as China – Australia’s largest trading partner – looks to target a 7 percent rate of growth in 2014.

The bearish momentum may gather pace over the remainder of the week should the RSI push back below the 30 region, and we will continue to watch the downside targets for the AUDUSD as it struggles to find support.

--- 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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