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USDOLLAR to Benefit From Dovish ECB Policy- JPY Eyes 100.00

USDOLLAR to Benefit From Dovish ECB Policy- JPY Eyes 100.00

2014-02-05 17:55:00
David Song, Strategist
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Talking Points:

- USDOLLAR Pares Decline on ISM Non-Manufacturing to Retain Bullish Trend

- Japanese Yen Correction Remains in Play on Risk Aversion

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10675.76

10691.49

10659.09

0.01

80.65%

USDOLLAR Daily

Forex_USDOLLAR_to_Benefit_From_Dovish_ECB_Policy-_JPY_Eyes_100.00_body_Picture_3.png, USDOLLAR to Benefit From Dovish ECB Policy- JPY Eyes 100.00

Chart - Created Using FXCM Marketscope 2.0

  • Remains in Basing Period; Need Close Above Trendline Support
  • Downside Break in Relative Strength Index to Negate Bullish USD Bias
  • 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

ADP Employment Change (JAN)

13:15

185K

175K

ISM Non-Manufacturing Composite (JAN)

15:00

53.7

54.0

Fed's Dennis Lockhart Speaks on U.S. Economy

18:40

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) pared the decline to 10,658 as the ISM Non-Manufacturing survey beat market expectations, and we will continue to watch the monthly opening range take shape as the greenback carves a higher low around the 10,658 (61.8 percent Fibonacci expansion) region.

Over the next 24-hours of trading, a surprise rate cut from the European Central Bank (ECB) or even a dovish policy statement may prop up the dollar ahead of the highly anticipate Non-Farm Payrolls (NFP) report, but we would need to see a topside break in theRelative Strength Index (RSI)to revert back to a ‘buy the dip’ approach.

With that said, a greater deviation in the policy outlook between the ECB and the Fed should prompt a further decline in the EURUSD, and the Governing Council may carry out its easing cycle throughout 2014 amid the growing threat for disinflation.

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

Forex_USDOLLAR_to_Benefit_From_Dovish_ECB_Policy-_JPY_Eyes_100.00_body_ScreenShot050.png, USDOLLAR to Benefit From Dovish ECB Policy- JPY Eyes 100.00

USDJPY Daily

Forex_USDOLLAR_to_Benefit_From_Dovish_ECB_Policy-_JPY_Eyes_100.00_body_Picture_1.png, USDOLLAR to Benefit From Dovish ECB Policy- JPY Eyes 100.00
  • Bearish RSI Momentum Highlights Larger Correction; 2013 Trendline in View
  • Interim Resistance: 103.50 Pivot to 103.70 (61.8 retracement)
  • Interim Support: 100.50 (61.8 expansion) to 100.70 (61.8 expansion)

Two of the four components strengthened against the dollar, led by a 0.23 percent rally in the Japanese Yen, and the USDJPY may face a larger correction over the near-term amid the ongoing shift in risk sentiment.

Interim support around 100.50-70 may give way in the days ahead as the bearish RSI momentum gathers pace, and a downside break could expose the bullish trendline dating back to the beginning of 2013, which comes in awfully close to the 100.00 handle.

Given the strong correlation between the Japanese Yen and the S&P 500, the technical patterns could suggest a further deterioration in risk appetite, and we still favor ‘selling bounces’ in the USDJPY as the bearish setup remains largely intact.

--- 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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