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USD Stuck in Topping Process- AUD at Risk for Fresh Lows on 4Q CPI

USD Stuck in Topping Process- AUD at Risk for Fresh Lows on 4Q CPI

David Song, Strategist

Talking Points:

- USDOLLAR Threatens Range Support as Bearish RSI Divergence Takes Shape

- Australian Dollar at Risk for Lower Low Should 4Q CPI Disappoint

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10721.74

10756.53

10717.47

-0.05

93.01%

USDOLLAR Daily

Forex_USD_Stuck_in_Topping_Process-_AUD_at_Risk_for_Fresh_Lows_on_4Q_CPI_body_Picture_3.png, USD Stuck in Topping Process- AUD at Risk for Fresh Lows on 4Q CPI

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

No Scheduled Event Risk

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) fell back from a fresh monthly high of 10,756, and the greenback may face a larger correction over the near-term should we see a move back below former resistance around 10,710-10,716.

Indeed, the bearish divergence in the Relative Strength Index (RSI) continues to highlight a topping process for the reserve currency, and the dollar may consolidate ahead of the Federal Open Market Committee (FOMC) meeting scheduled for January 29 as market participants gauge the scope of seeing another $10B reduction in the asset-purchase program.

With that said, we would need the near-term correction to generate a higher low to favor a bullish outlook for the greenback, and a further shift in the policy outlook should help to limit the downside risk for the dollar as the Fed moves away from its easing cycle.

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

Forex_USD_Stuck_in_Topping_Process-_AUD_at_Risk_for_Fresh_Lows_on_4Q_CPI_body_ScreenShot006.png, USD Stuck in Topping Process- AUD at Risk for Fresh Lows on 4Q CPI

AUDUSD Daily

Forex_USD_Stuck_in_Topping_Process-_AUD_at_Risk_for_Fresh_Lows_on_4Q_CPI_body_Picture_1.png, USD Stuck in Topping Process- AUD at Risk for Fresh Lows on 4Q CPI
  • Bearish RSI Break Favors Downside; Searching for Lower Low?
  • Interim Resistance: 0.8980 (38.2 expansion) to 0.9000 (1.618 expansion)
  • Interim Support: 0.8670 (100.0 expansion) to 0.8700 (78.6 expansion)

Three of the four components rallied against the greenback, led by a 0.24 percent advance in the British Pound, while the Australian dollar is struggling to hold its ground ahead of the region’s 4Q Consumer Price Index (CPI) as market sentiment falters.

Nevertheless, the headline reading for Australian inflation is expected to expand an annualized 2.4 percent during the three-months through December, which would mark the first rise since the first-quarter of 2013, and a marked pickup in price growth may prop up the higher-yielding currency as the Reserve Bank of Australia (RBA) sees a threat for an asset-bubble.

However, the uneven recovery in the $1T may continue to drag on growth and inflation, and a dismal CPI print may trigger fresh lows in the AUDUSD as market participants ramp up bets of seeing the RBA further embark on 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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