Dollar Still Rangebound After Strong Data, Traders Await FOMC
Dollar is still in range ahead after strong data from US, UK and Eurozone as traders await FOMC announcements. US Oct trade deficit narrowed significantly by 8.4% to $58.9b, biggest improvement in 5 years. Also, this is the first time since Aug 05 that the trade deficit was below $60b. Exports increased by 0.2% to $123m while imports reduced by 2.7% to 182b.
Sterling was boosted mildly earlier today on stronger than expectation consumer inflation data. Yoy growth in CPI reached 2.7% in Nov, highest in at least nine years. This is reinforcing the expectation that BoE is not done with the tightening cycle yet. German ZEW Economic Sentiments improved more than expected from -28.5 to -19 in Dec, comparing to expectation of -25. Current Situation Indicator continues its up trend and rose to 63.5. It’s believed that the worse was over and the ZEW index will likely continues to climb back to historical average of 35.3.
FOMC is expected to keep rates unchanged at 5.25% for the fourth consecutive time today and again the focus will be on the accompanying statement. After last meeting, housing market continues to cool down. Last round of data showed slowing in the manufacturing industry and reduced wage pressure. However, with core CPI and PCE still above Fed’s comfort zone, the Fed is still struggling on the dilemma of growth and inflation. It will be interested to note if there’s any change in Fed’s description of growth and inflation, but Fed could just leave the prior languages unchanged to maintain its inflation fighting credentials. This could dampen the speculation that Fed will have a rate cut in first quarter and give dollar a lift.
GBP/USD
Daily Pivots: (S1) 1.9494; (P) 1.9543; (R1) 1.9622;
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Cable edges higher to 1.9649 today but lacks decisive upside momentum yet. As discussed before, 4 Hours MACD’s turn above signal line suggest that the fall from 1.9846 has possibly completed at 1.9463 already. Hence, at this point, intraday bias will be on the upside as long as cable stays above 1.9560 minor support and further rebound is in favor to follow to 1.9729 resistance. Break will encourage a retest of 1.9846 high. But still, a decisive break of 1.9846 is needed to signal recent rally has resumed for next upside target of 138.2% projection of 1.8090 to 1.9142 from 1.8517 at 1.9971. Otherwise, consolidation might extend further.
On the downside, below 1.9560 will suggest that the fall from 1.9846 has resumed and below 1.9643 will encourage further correction towards 1.9338/40 cluster support (50% retracement of 1.8834 to 1.9846 at 1.9340 and 38.2% retracement of 1.8517 to 1.9846 at 1.9338). But we’d expect downside to be contained there and bring rally resumption.
In the bigger picture, break of 1.9554 high added much credence to the case that multi-year up trend from 1.3680 has resumed but this is not confirmed yet. Nevertheless, medium term up trend from 1.7047 is still treated as in force before a break of 1.9177 cluster support (50% retracement of 1.8517 to 1.9846 at 1.9182) or clear reversal pattern forms. Hence, at this moment, we’d still expected the medium term rise from 1.7047 to continue. On the upside, 2.0106 cluster resistance (1992 high, 100% projection of 17047 to 1.9024 from 1.8090 at 2.0067) will be the key resistance to watch out for. Decisive break of this resistance will confirm that long term up trend from 1.3680 has resumed.
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Shing-Ip Tsui is the founder and CEO of
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