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USD Retains Bullish Trend- Bearish Euro Divergence on Tap?

USD Retains Bullish Trend- Bearish Euro Divergence on Tap?

2013-12-27 17:35:00
David Song, Strategist
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Talking Points:

- USDOLLAR Threatens Bullish Trend; Closing Price in Focus

- Euro Retains 2008 Trend; Bearish Divergence Taking Shape?

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10676.21

10700.81

10631.5

-0.19

166.68%

USDOLLAR Daily

Forex_USD_Retains_Bullish_Trend-_Bearish_Euro_Divergence_on_Tap_body_Picture_3.png, USD Retains Bullish Trend- Bearish Euro Divergence on Tap?

Chart - Created Using FXCM Marketscope 2.0

  • Will Retain Bullish Bias on Close Above 10,657 (61.8 expansion)
  • Relative Strength Index Suggests Bullish Momentum Retains Intact
  • Interim Resistance: 10,753 (23.6 expansion) to 10,759 (61.8 retracement)
  • Interim Support: 10,657 (61.8 extension)- Closing Basis

Release

GMT

Expected

Actual

No Scheduled Releases

The sharp decline in the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) was short-lived amid thin market conditions, and we will preserve a bullish outlook on a close above 10,657 (61.8 percent Fibonacci expansion) as the upward trend remains intact.

With the slew of Fed officials (Charles Plosser, Jeremy Stein, Jeffrey Lacker, Ben Bernanke, William Dudley, Eric Rosengren, and Narayana Kocherlakota) scheduled to speak following the New Year holiday, any updates regarding the taper-timeline may help to instill an improved outlook for the greenback, and the group may sound more upbeat this time around as the central bank moves away from its easing cycle.

However, if the policymakers keep their lips sealed on the exit strategy, dismal developments coming out of the U.S. economy may put the bullish dollar trend at even greater risk, and the fundamentals may play a larger role in driving USD price action in 2014 as market participants weigh the outlook for monetary policy.

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

Forex_USD_Retains_Bullish_Trend-_Bearish_Euro_Divergence_on_Tap_body_ScreenShot170.png, USD Retains Bullish Trend- Bearish Euro Divergence on Tap?

EURUSD Daily

Forex_USD_Retains_Bullish_Trend-_Bearish_Euro_Divergence_on_Tap_body_Picture_1.png, USD Retains Bullish Trend- Bearish Euro Divergence on Tap?
  • Close Below 1.3800 May Foreshadow Range-Bound Prices
  • Interim Resistance: 1.3800 (100.0 expansion) to 1.3830 (61.8 retracement)
  • Interim Support: 1.3650 (50.0 & 78.6 expansion)- Closing Basis

The dollar weakened against two of the four components, led by a 0.57 percent rally in the Euro, and the short-term spike in the EURUSD may fail to generate a longer-term trend as it struggles to hold above the 1.3800 handle.

Indeed, European Central Bank (ECB) board member Jens Weidmann argued that ‘subdued price pressures shouldn’t be a license for arbitrary monetary-policy easing as the board mulls negative deposit rates, but the Governing Council may have little choice but to implement more non-standard measures over the near-term as the protracted recovery raises the risk for disinflation.

Nevertheless, the EURUSD may make another run at the 1.3900 region as it retains the Relative Strength Index continues to carve a series of higher lows, but a bearish divergence may start to take shape as long as price holds below the downward trendline dating back to 2008.

--- 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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