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USDOLLAR at Risk for Larger Correction- GBP Longs Favored Above 1.63

USDOLLAR at Risk for Larger Correction- GBP Longs Favored Above 1.63

David Song, Strategist

Talking Points:

- Bearish USDOLLAR Divergence Remains in Focus During Holiday Trade

- British Pound Poised for Higher High on Hawkish BoE Minutes, Jobless Claims

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10725.62

10750.56

10718.76

-0.14

78.23%

USDOLLAR Daily

Forex_USDOLLAR_at_Risk_for_Larger_Correction-_GBP_Longs_Favored_Above_1.63_body_Picture_2.png, USDOLLAR at Risk for Larger Correction- GBP Longs Favored Above 1.63

Chart - Created Using FXCM Marketscope 2.0

  • Failure to Push Above Interim Resistance to Highlight Larger Correction
  • Bearish Divergence in Relative Strength Index Favors Downside
  • 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

U.S. Market Closed for MLK Holiday

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is struggling to hold its ground during the holiday trade, and the greenback may face a larger correction ahead of the Fed meeting on January 29 as the bearish divergence in the Relative Strength Index continues to take shape.

Beyond the technical developments, the 2014World Economic Forum in Davos, Switzerland may sway market sentiment as global policy makers are scheduled to speak throughout the event, and comments undermining the fundamental outlook for the world economy may foster a risk-off environment as Fed officials discuss another $10B reduction to its asset-purchase program.

As discussed in DailyFX on Demand, a move below former resistance (10,710-10,716) would highlight a larger correction for the USDOLLAR, and the greenback may ultimately threaten the monthly range (10,619) should the fundamental developments coming out later this week dampen the prospects for a stronger U.S. recovery.

Forex_USDOLLAR_at_Risk_for_Larger_Correction-_GBP_Longs_Favored_Above_1.63_body_ScreenShot303.png, USDOLLAR at Risk for Larger Correction- GBP Longs Favored Above 1.63

GBPUSD Daily

Forex_USDOLLAR_at_Risk_for_Larger_Correction-_GBP_Longs_Favored_Above_1.63_body_ScreenShot302.jpg, USDOLLAR at Risk for Larger Correction- GBP Longs Favored Above 1.63
  • Remains Bullish Above 1.6300; Topside RSI Break Favors ‘Buy Dip’ Strategy
  • Interim Resistance: 1.6550 (78.6 expansion) to 1.6600 Pivot
  • Interim Support: 1.6300 Pivot to 1.6310 (50.0 expansion)

The dollar weakened across the board, led by a 0.30 percent rally in the Australian dollar, while the British Pound remains the laggard of the group, with the GBPUSD advancing 0.02 percent on the day.

Nevertheless, the sterling could be coiling up for another run at the 1.6600 handle as we have the Bank of England (BoE) Minutes paired with U.K. Jobless Claims on tap for later this week, and a slew of positive developments should continue to foster a bullish outlook for the pound-dollar as Governor Mark Carney adopts a more hawkish tone for monetary policy.

In turn, we will target the topside objectives as long as the GBPUSD holds above 1.6300, and the pair could be on its way for a higher high as price as well as the RSI maintains the bullish trend dating back to July.

--- 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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