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Talking Points:

- EUR/USD Rate Negates Risk for Double-Top Ahead of More ECB Rhetoric.

- AUD/USD Outlook Mired by RSI Divergence; Australia Employment in Focus.

DailyFX TableEUR/USD

EUR/USD extends the advance from earlier this week amid the German Coalition Breakthrough, with the pair at risk of staging a more meaningful rally as it wards off the risk for a double-top.

Recent price action suggests the Euro will continue to outperform against its U.S. counterpart as the exchange rate finally breaks above theSeptember-high (1.2092), and EUR/USD may continue to exhibit a bullish behavior over the near-term as both price and the Relative Strength Index (RSI) extend the upward trends carried over from late last year.

Looking ahead, European Central Bank (ECB) board members Ewald Nowotny, Jens Weidmann and Benoit Coeure are slated to speak over the coming days, and a batch of upbeat comments may continue to heighten the appeal of the single-currency as the Governing Council appears to be on track to conclude its easing-cycle in 2018.

The ECB may increase its efforts to prepare European households and businesses for a less accommodative policy stance as ‘recent indicators pointed to a continued robust and increasingly self-sustaining economic expansion,’ and the shift in the monetary policy outlook may continue to fuel the advance from the November-low (1.15545) especially as a bull-flag formation appears to be panning out.

EUR/USD Daily Chart

EUR/USD Daily Chart

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  • Topside targets are back on the radar for EUR/USD as it ward off the risk for a double-top, with a close above the 1.2130 (50% retracement) hurdle raising the risk for a move towards 1.2230 (50% retracement).
  • Next region of interest comes in around 1.2320 (23.6% retracement) to 1.2370 (61.8% expansion), but the RSI warrants attention as it comes up against overbought territory; need the oscillator to push above 70 to provide conviction/confirmation for a further advance in the exchange rate.

AUD/USD struggles to hold its ground following an unexpected uptick in the core U.S. Consumer Price Index (CPI), with the near-term outlook clouded with mixed signals as a key momentum indicator appears to be deviating with price.

Even though AUD/USD climbs to fresh 2018-highs during the first full-week of January, the Relative Strength Index (RSI) fails to exhibit a similar dynamic, with the oscillator on the cusp of falling back from overbought territory. A growing divergence between price and the RSI raises the risk for a near-term pullback, but fresh data prints coming out of Australia may keep the aussie-dollar exchange rate afloat as the economy is expected to add another 15.0K jobs following the 61.6K expansion in November.

Keep in mind, the print may do little to alter the monetary policy outlook as the Reserve Bank of Australia (RBA) remains in no rush to remove the record-low cash rate, but signs of stronger-than-expected growth may encourage Governor Philip Lowe and Co. to strike an improved tone at the first 2018 meeting on February 6 as ‘spare capacity in the labour market was expected to be absorbed gradually and wage growth was expected to pick up over time.’ In turn, the near-term resilience in AUD/USD may persist as the RSI clings to overbought territory, with the topside targets still on the radar as the pair carves a fresh series of higher highs & lows. For additional resources, download and review the

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AUD/USD Daily Chart

AUD/USD Daily Chart

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  • Broader outlook for AUD/USD has perked up as price & the RSI break out of the bearish formations carried over from the summer months, with the 0.7930 (50% retracement) to 0.7940 (61.8% retracement) hurdle on the radar as the pair clears the October-high (0.7898).
  • Next topside region of interest coming in around 0.8030 (38.2% expansion) followed by the 2017-high (0.8125), but the near-term resilience in the aussie-dollar exchange rate may unravel if the RSI struggles to hold above 70 and flashes a textbook sell signals.
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--- Written by David Song, Currency Analyst

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