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Bearish USDOLLAR Divergence in Focus- GBP Eyes Higher High

Bearish USDOLLAR Divergence in Focus- GBP Eyes Higher High

David Song, Strategist

Talking Points:

- USDOLLAR Fails to Maintain Bullish Trend as NFP Disappoints

- British Pound Preserves Monthly Range- Higher Low in Place?

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10656.95

10725.81

10638.22

-0.40

222.18%

USDOLLAR Daily

Forex_Bearish_USDOLLAR_Divergence_in_Focus-_GBP_Eyes_Higher_High_body_Picture_3.png, Bearish USDOLLAR Divergence in Focus- GBP Eyes Higher High

Chart - Created Using FXCM Marketscope 2.0

  • Close Below Trendline & Interim Support to Highlight Downside Targets
  • Bearish Divergence in Relative Strength Index to Provide Confirmation/Conviction
  • 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

Change in Nonfarm Payrolls (DEC)

13:30

197K

74K

Unemployment Rate (DEC)

13:30

7.0%

6.7%

Underemployment Rate (DEC)

13:30

--

13.1%

Change in Private Payrolls (DEC)

13:30

200K

87K

Labor Force Participation Rate (DEC)

13:30

--

62.8%

Change in Manufacturing Payrolls (DEC)

13:30

15K

9K

Change in Household Employment (DEC)

13:30

--

143

Average Hourly Earnings (MoM) (DEC)

13:30

0.2%

0.1%

Average Hourly Earnings (YoY) (DEC)

13:30

1.9%

1.8%

Average Weekly Hours All Employees (DEC)

13:30

34.5

34.4

Revision of Seasonally Adjusted Household Survey Data

13:30

Two-Month Payroll Net Revision (DEC)

13:30

--

38K

Wholesale Inventories (MoM) (NOV)

15:00

0.4%

0.5%

Wholesale Trade Sales (MoM) (NOV)

15:00

0.7%

1.0%

IBD/TIPP Economic Optimism (Jan)

15:00

46.0

45.2

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) sold off following the dismal Non-Farm Payrolls print, and the greenback may continue to give back the advance from back in October as the slowdown in job growth dampens the Fed’s scope to further reduce its asset-purchase program at the January 29 meeting.

Nevertheless, Richmond Fed President Dennis Lockhart, who votes on the FOMC in 2015, argued that the it is ‘wise not to overreact’ to one data print as he sees the committee discussing another $10B taper later this month, and the shift in the policy outlook may help to limit the downside for the greenback as the central bank retains a rather upbeat tone for the economy.

In light of recent price action, the technical outlook points to further dollar weakness in the days ahead, and the bearish divergence in the Relative Strength Index should continue to take shape as the greenback appears to have carved a lower high in January.

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

Forex_Bearish_USDOLLAR_Divergence_in_Focus-_GBP_Eyes_Higher_High_body_ScreenShot214.png, Bearish USDOLLAR Divergence in Focus- GBP Eyes Higher High

GBPUSD Daily

Forex_Bearish_USDOLLAR_Divergence_in_Focus-_GBP_Eyes_Higher_High_body_Picture_1.png, Bearish USDOLLAR Divergence in Focus- GBP Eyes Higher High
  • Price & RSI Maintains Bullish Trend- Carves Higher Low Above Trendline Support
  • Interim Resistance: 1.6550 (78.6 expansion) to 1.6600 Pivot
  • Interim Support: 1.6300 Pivot to 1.6310 (50.0 expansion)

Three of the four components strengthened against the greenback, led by a 0.99 percent advance in the Australian dollar, while the British Pound bucked the trend amid the dismal developments coming out of the U.K. economy.

Nevertheless, we will maintain a bullish outlook for the GBPUSD as it appears to have carved a higher low ahead of trendline support, and the bullish trend should continue to take shape over the near-term as the Bank of England (BoE) scales back its dovish tone for monetary policy.

With BoE Governor Mark Carney scheduled to speak next week, more hawkish comments from the central bank head may eventually spur a higher high in the exchange rate, and we will maintain a ‘buy the dip’ strategy for the British Pound as the Monetary Policy Committee looks to normalize monetary policy ahead of schedule.

--- 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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