ISM Manufacturing Fuels Further Dollar Rebound
Dollar stages a strong broad-based rebound today that started in European session. A much weaker than expected ADP employment report has halted dollar’s rise but strength resumes after better than expected ISM manufacturing index that rebounded to 51.4 in Dec. However, price paid index fell short of expectation nand reported at 47.5. Employment index also stay below 50 at 49.7. ADP employment report, which usually serves as a preview of Non-Farm Payroll, unexpected dropped 40k jobs in Dec, much below expectation of 128k addition, the first decline since April 2003.
FOMC Minutes from the December 12 meeting will be featured next. The accompanying statement in this meeting to hold rate unchanged at 5.25% was largely unchanged from prior one with two expectations. The FOMC cited the slowing in economic growth “partly reflecting a substantial cooling of the housing marketâ€. The word “substantial†was an addition from October. Also, the statement noted that “recent indicators have been mixed”, which was new. Focus will be on how the minutes will elaborate on the above issues which could give further hint on whether Fed will cut rates this year.
Employment data from Germany was pretty solid. Total unemployment fell for a ninth consecutive month in December, marking a seasonally adjusted retreat of 108,000. Unadjusted for seasonality, total unemployment rose 12,000. The unadjusted jobless rate was unchanged at 9.6%.
Technically speaking, today’s rebound suggests dollar’s consolidation that started last month is still in progress despite Tuesday’s fall. Some more upside should be seen in dollar but still has such price actions are treated as consolidation only, upside in dollar should be limited. On the other hand, note Sterling is the weaker one in among European majors, as displayed in weakness in EUR/GBP cross too.
GBP/USD
Daily Pivots: (S1) 1.9668; (P) 1.9704; (R1) 1.9770;
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Cable’s rally was limited by 1.9747 resistance and reached 1.9751 only. Subsequent sharp decline has pushed cable through 1.9565 support, suggesting that cable is still bounded in consolidative price actions that started at 1.9846 and puts focus back to 1.9433 low. Break will encourage further decline towards 1.9338/44 cluster support (50% retracement of 1.8834 to 1.9846 at 1.9340, 38.2% retracement of 1.8517 to 1.9846 at 1.9338). However, since we’re treating price actions from 1.9846 as consolidation to rise from 1.8834 only, we’d expect downside to be contained there and bring rally resumption.
On the upside, above 1.9751 will encourage a retest 1.9846 high. But still, a firm break above this level is needed to indicate recent rise from 1.8517 has resumed for 138.2% projection of 1.8090 to 1.9142 from 1.8517 at 1.9971. Otherwise, consolidation could extend further.
In the bigger picture, cable’s medium term up trend from 1.7047 is still in progress and further rise is expected to follow towards 2.0106 cluster resistance (1992 high, 100% projection of 17047 to 1.9024 from 1.8090 at 2.0067). Close attention will be paid to sign of loss of upside momentum and reversal pattern formation as cable approaches 2.0106 cluster resistance. Though, decisive break of this resistance will confirm that long term up trend from 1.3680 has resumed for next upside target of 61.8% projection of 1.3680 to 1.9554 from 1.7047 at 2.0677 first. On the downside, sustained break of 1.9177 cluster support (50% retracement of 1.8517 to 1.9846 at 1.9182, 23.6% retracement of 1.7047 to 1.9846 at 1.9185) will turn medium term outlook neutral and argue that the whole rise from 1.7047 has possibly completed.
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Shing-Ip Tsui is the founder and CEO of
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