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USDOLLAR Spike Undermined by Bearish Divergence- AUD Lower Low on Tap

USDOLLAR Spike Undermined by Bearish Divergence- AUD Lower Low on Tap

2014-01-16 15:50:00
David Song, Strategist

Talking Points:

- USDOLLAR Spikes Into Interim Resistance- Closing Price in Focus

- Australian Dollar Slips to Fresh Yearly Low (0.8775) Amid Slowing Recovery

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10735.91

10755.52

10714.06

0.25

107.31%

USDOLLAR Daily

Forex_USDOLLAR_Spike_Undermined_by_Bearish_Divergence-_AUD_Lower_Low_on_Tap_body_Picture_3.png, USDOLLAR Spike Undermined by Bearish Divergence- AUD Lower Low on Tap

Chart - Created Using FXCM Marketscope 2.0

  • Close Above 10,716 to Favor Further USD Strength
  • Need Bullish Break in Relative Strength Index for Confirmation/Conviction
  • Interim Resistance: 10,753 (23.6 expansion) to 10,759 (61.8 retracement)
  • Interim Support: 10,561 (100.0 extension)- Closing Basis

Release

GMT

Expected

Actual

Initial Jobless Claims (JAN 11)

13:30

328K

326K

Continuing Claims (JAN 4)

13:30

2850K

3030K

Consumer Price Index (MoM) (DEC)

13:30

0.3%

0.3%

Consumer Price Index (YoY) (DEC)

13:30

1.5%

1.5%

Consumer Price Index ex Food & Energy (MoM) (DEC)

13:30

0.1%

0.1%

Consumer Price Index ex Food & Energy (YoY) (DEC)

13:30

1.7%

1.7%

Fed's John Williams Speaks on Central Banking

14:15

Philadelphia Fed. (JAN)

15:00

8.7

9.4

NAHB Housing Market Index (JAN)

15:00

58

56

Fed Chairman Ben Bernanke Speaks on Central Banking

16:10

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) fell back from a fresh monthly high of 10,754 following the unexpected uptick in U.S. Continuing Jobless Claims, and the technical outlook continues to highlight the downside targets for the greenback as the bearish divergence in the Relative Strength Index continues to take shape.

In light of the spike into interim resistance, another close below 10,716 may continue to highlight a near-term top in the USDOLLAR, and the reserve currency remains poised for a larger correction as it struggles to retain the bullish trend carried over from the previous year.

With that said, another lower high in the RSI should reinforce a bearish outlook for the greenback, and we will continue to watch the downside targets as the recent batch of dismal data dampens the Fed’s scope to deliver another $10B taper at the January 29 meeting.

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

Forex_USDOLLAR_Spike_Undermined_by_Bearish_Divergence-_AUD_Lower_Low_on_Tap_body_ScreenShot275.png, USDOLLAR Spike Undermined by Bearish Divergence- AUD Lower Low on Tap

AUDUSD Daily

Forex_USDOLLAR_Spike_Undermined_by_Bearish_Divergence-_AUD_Lower_Low_on_Tap_body_Picture_1.png, USDOLLAR Spike Undermined by Bearish Divergence- AUD Lower Low on Tap
  • Looking for Lower Low Following Break of Interim Support; Reinforced by RSI Trigger
  • Interim Resistance: 0.8980 (38.2 expansion) to 0.9000 (1.618 expansion)
  • Interim Support: 0.8700 (78.6 expansion) to 0.8730 (50.0 expansion)

Two of the four components weakened against the greenback, led by a 1.26 percent decline in the Australian dollar, and the AUDUSD may continue to track lower over the remainder of the week as it searches for support.

Indeed, the dismal Employment report coming out of the $1T economy triggered the break of interim support, with the aussie-dollar marking a fresh yearly low of 0.8775, and the higher-yielding currency may face additional headwinds over the coming months as the slowing recovery puts increased pressure on the Reserve Bank of Australia (RBA) to further embark on its easing cycle.

In turn, we will for a lower low in the AUDUSD, and will maintain our bearish forecast for the pair amid the deviation in the policy outlook.

--- 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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