USDOLLAR Outlook Mired by Downside Inflation Risk- CPI in Focus

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Talking Points:

- USDOLLAR Fails to Break Monthly Opening Range as FOMC Highlights Downside Risk for Inflation.

- USD/JPY Extends Advance on Dovish BoJ- RSI Resistance in Focus.

- GBP/USD Rebounds from Fresh Monthly Low as BoE Sees Greater Risk for Inflation.

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• The Dow Jones-FXCM U.S. Dollar Index may hold the monthly opening range as the Federal Open Market Committee (FOMC) highlights the downside risk for inflation; still waiting for a bullish break in RSI for conviction/confirmation for another leg higher.
• With the U.S. Consumer Price Index (CPI) expected to slow to an annualized 1.6% in October a further downtick in the headline reading may generate a larger pullback in USDOLLAR as the Fed remains in no rush to normalize monetary policy.
• Lack of momentum to close above 11312 (78.6% retracement) and 11351 (78.6% expansion) raises the risk for a larger correction; will watch former resistance around 11120 (161.8% expansion) to 11138 (61.8% expansion) for new support.

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USD/JPY

Chart - Created Using FXCM Marketscope 2.0

• USD/JPY extends advance as Bank of Japan (BoJ) Governor Haruhiko Kuroda sounds less confident in achieving the 2% target for inflation; .
• May see a further advance in USD/JPY as the Relative Strength Index (RSI) pushes deeper into overbought territory but will keep a close eye on the 87 figure for resistance on the oscillator.
• DailyFX Speculative Sentiment Index (SSI) shows retail crowd is net-short USD/JPY since November 12 with the ratio sitting at -1.41.

GBP/USD

• GBP/USD rebounds from a fresh monthly low (1.5588) even though the Bank of England (BoE) Minutes showed another 7-2 split as a growing number of central bank officials highlight a risk of overshooting the 2% target for inflation.
• With U.K. Retail Sales projected to rebound 0.3% in October positive data prints should heighten the appeal of the sterling as the BoE remains on course to normalize monetary policy in 2015.
• As GBP/USD continues to hold above 1.5540 (78.6% retracement) to 1.5550 (61.8% expansion) will watch former support around 1.5890 (61.8% retracement) to 1.5900 (50% expansion) for new resistance.

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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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