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GBP Rebounds Ahead of UK CPI- USD/CAD Topside Targets Still Favored

GBP Rebounds Ahead of UK CPI- USD/CAD Topside Targets Still Favored

David Song, Strategist

Talking Points:

- GBP/USD Rebound to Benefit From Strong U.K. Core Consumer Price Index (CPI).

- USD/CAD Pushes Fresh Monthly High (1.1922) as Oil Extends Decline.

- USDOLLAR Rally Remains Supported by 10-Day SMA Post Non-Farm Payrolls (NFP).

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GBP/USD

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD may face a larger rebound as the Relative Strength Index (RSI) comes off of oversold territory; will look for a lower-high as long as the oscillator retains the bearish momentum.
  • Despite expectations for a marked slowdown in the U.K. Consumer Price Index (CPI), may see a mixed reaction if the core rate of inflation exceeds market forecast.
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long GBP/USD since October 28, with the ratio currently standing at +1.74.

USD/CAD

USD/CAD Daily Chart
  • USD/CAD climbs to 1.1922 as weak oil prices continue to dampen the outlook for the Canadian economy; will continue to favor the topside targets as RSI pushes deeper into overbought territory.
  • May see the Bank of Canada (BoC) reinforce a neutral tone for monetary policy at the January 21 meeting as Governor Stephen Poloz remains in no rush to raise the benchmark interest rate.
  • Next topside level of interest for USD/CAD comes in around 1.1950-60 (100% expansion).

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Read More:

Price & Time: EUR/JPY Rebounds Off Key Convergence

Proliferation of EURUSD Parity Calls Indicates Sentiment Extreme

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index11646.8611678.1411611.310.10151.16%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the limited market reaction to the Non-Farm Payrolls (NFP) report, Dow Jones-FXCM U.S. Dollar continues to kiss of the 10-Day SMA (11,613); continued closes above 11,623 (100% expansion) may highlight bottoming-process.
  • Beyond the data coming out of the U.S. economy, the 2015 rotation in the Federal Open Market Committee (FOMC) poses a near-term risk to the bullish USDOLLAR outlook as last year’s dissenters (Richard Fisher & Charles Plosser) lose their vote.
  • As the RSI retails the long-term bullish trend, break above 11,721 (38.2% expansion) should expose 11,774 (50.0% expansion).

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ReleaseGMTExpectedActual
Labor Market Conditions Index (DEC)15:00--6.1
Fed’s Dennis Lockhart Speaks on U.S. Economy17:40

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--- Written by David Song, Currency Analyst

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

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