Sterling Extends Overnight Rebound, Dollar Starts Another Falling Leg in Consolidation

Market Overview |  Written by ActionForex.com |  Dec 31 09 07:01 GMT |

Sterling staged a strong broad based rebound overnight as traders pared short positions ahead of year end. Momentum in Sterling continues today which saw it staying firmly above 1.6 level against the greenback while EUR/GBP is also trading below 0.895 level. Dollar's recovery fades as gold rebounds back to above 1100 level. The development argues that dollar's consolidation is still in progress and would remain soft on the last trading day of the year. Looking at the dollar index, the recovery from 77.33 failed below 78.45 resistance and weakens sharply today. Consolidations from 78.54 is likely still in progress and should have just started another falling leg to 77.33 support and possibly below. Nevertheless, we'd still expect downside to be contained by 38.2% retracement of 74.19 to 78.45 at 76.82 and bring rally resumption. GBP/USD Daily Outlook Daily Pivots: (S1) 1.5907; (P) 1.6001; (R1) 1.6169; More GBP/USD's strong rebound from 1.5829 and the break of 1.6064 resistance indicates that a short term bottom is formed. Bias is flipped to the upside for stronger rebound towards 1.6408 resistance next. On the downside, though, below 1.6047 minor support will turn intraday bias neutral again and bring retreat first. In the bigger picture, we're still favoring the bearish case that medium term rebound from 1.3503, which is is treated as a correction to down trend from 2.1161, has completed at 1.7043. Focus now turns to 1.5706 cluster support (38.2% retracement of 1.3503 to 1.7043 at 1.5691) for confirmation. Break there will argue that whole down trend form 2.1161 is likely resuming for a new low below 1.3503. On the upside, break of 1.6408 resistance will indicate that fall from 1.6875 has completed and GBP/USD is still bounded in medium term range of 1.5706/7043. In other words, whole medium term rise from 1.3503 might not be finished yet and another rise could still be seen to 1.7332/8236 (50% and 61.8% retracement of 2.1161 to 1.3503) before completion. Source : Dailyfx.com