USD Outlook Hinges on FOMC- GBP to Target Fresh Highs on Strong GDP

Talking Points:

- USDOLLAR Correction in Focus Ahead of Fed Meeting

- GBPUSD to Target Fresh Highs Should 4Q GDP Highlight Stronger Recovery

USDOLLAR Daily

Chart - Created Using FXCM Marketscope 2.0

• Retain Game Plan to ‘Selling Bounces’ Ahead of FOMC Meeting
• Bearish RSI Divergence Favors ‘Selling Bounces’
• Interim Resistance: 10,753 (23.6 expansion) to 10,759 (61.8 retracement)
• Interim Support: 10,561 (100.0 extension)- Closing Basis

The near-term correction in the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) remains in focus ahead of the Federal Open Market Committee (FOMC) meeting on tap for later this week as market participants weigh the outlook for monetary policy.

As we’ve been discussing in DailyFX on Demand, we still favor ‘selling bounces’ in the greenback as the bearish divergence in the Relative Strength Index continues to take shape, and the reserve currency may face a larger decline going into February should the Fed further delay its exit strategy.

With the limited reaction to the dismal New Home Sales report, it seems as though the dollar may continue consolidate ahead of Chairman Ben Bernanke’s last policy meeting, and the fresh developments coming out of the central bank is likely to heavily influence the near-term outlook for the greenback as the FOMC starts to move away from its easing cycle.

GBPUSD Daily

• Still Searching for Higher High; RSI & Price Retains Bullish Trend
• Interim Resistance: 1.6700 Pivot to 1.6730 (100.0 expansion)
• Interim Support: 1.6300 Pivot to 1.6310 (50.0 expansion)

Two of the four components strengthened against the greenback, led by a 0.69 percent rally in the Australian dollar, while the British Pound gained 0.58 ahead of the advance 4Q U.K. GDP report, which is expected to show the region expanding another 0.7 percent during the last three-months of 2013.

In light of the better-than-expected data out of Britain, a marked pick-up in the growth rate should prompt fresh highs in the GBPUSD, and the pair may continue to track higher in February as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy ahead of schedule.

In turn, we will maintain our bullish forecast for the British Pound, and the GBPUSD should continue to carve a series of higher highs paired with higher lows amid the ongoing shift in the policy outlook.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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