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USD Divergence Taking Shape- GBP Targets 1.6400 on BoE Policy

USD Divergence Taking Shape- GBP Targets 1.6400 on BoE Policy

David Song, Strategist

Talking Points:

- USDOLLAR Retains Range During Holiday Trade; Threatening Bullish Formation

- Pound Eyes 1.6400 as Bank of England (BoE) Removes Funding-for-Lending Scheme (FLS)

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10624.79

10645.83

10613.82

-0.16

66.85%

USDOLLAR Daily

Forex_USD_Divergence_Taking_Shape-_GBP_Targets_1.6400_on_BoE_Policy_body_Picture_3.png, USD Divergence Taking Shape- GBP Targets 1.6400 on BoE Policy

Chart - Created Using FXCM Marketscope 2.0

  • Bounces Off of Trendline Support; May Stay Range-Bound Over Holiday Trade
  • Bearish Break in Relative Strength Index to Highlight Topping Formation
  • Interim Resistance: 10,658 (61.8 extension)- Former Support
  • Interim Support: 10,470 Pivot- Closing Basis

Release

GMT

Expected

Actual

No Scheduled Releases

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) bounced back from trendline support to retain the range-bound price action from earlier this week, but the upward momentum appears to be coming to an end amid the bearish break in the Relative Strength Index.

The RSI divergence suggests that the dollar will resume the series of lower highs paired with lower seen since July, and a more bearish outlook may take shape in December should the fundamental developments coming out of the U.S. economy undermine the Fed’s scope to taper the asset-purchase program at the last meeting for 2013.

In turn, a closing price below range support (10,604-15) should bring up the downside targets in the coming days, and we may see a more meaningful run at the 10,300 region as the dollar appears to be carving a near-term top.

Join DailyFX on Demandto Cover Current U.S. Dollar Trade Setups

Forex_USD_Divergence_Taking_Shape-_GBP_Targets_1.6400_on_BoE_Policy_body_ScreenShot017.png, USD Divergence Taking Shape- GBP Targets 1.6400 on BoE Policy

GBPUSD Daily

Forex_USD_Divergence_Taking_Shape-_GBP_Targets_1.6400_on_BoE_Policy_body_Picture_1.png, USD Divergence Taking Shape- GBP Targets 1.6400 on BoE Policy
  • Bullish Breakout Gathers Pace; Looking for Higher High
  • Relative Strength Index Approaching Overbought Territory
  • Interim Resistance: 1.6400 (61.8 expansion) to 1.6420 (1.618 expansion)
  • Interim Support: 1.6200 (23.6 retracement) to 1.6250 Pivot

The dollar weakened against three of the four components, led by a 0.40 percent rally in the British Pound, and the GBPUSD may continue to mark higher highs over the near-term amid the shift in the policy outlook.

With the Funding for Lending Scheme (FLS) set to expire next year, it seems as though the Bank of England (BoE) is making more apparent that it will implement its exit strategy ahead of schedule, and the policy meeting on December 5 may heighten the bullish sentiment surrounding the sterling should the central bank strike a more hawkish tone for monetary policy.

In turn, the GBPUSD may continue to work towards the next topside objective coming in around the 1.6400 handle, and the technical outlook may turn increasingly bullish over the near-term as the BoE moves away from its easing cycle.

--- 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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