U.S. Dollar Index Halts Three-Day Advance, Major Trends Remain In Tact

The near-term correction in the greenback was certainly short-lived as the 244K rise in U.S. Non-Farm Payrolls spurred a rebound in market sentiment, and the dollar is likely to further retrace the advance from earlier this week as risk trends continue to dictate price action in the foreign exchange market.

FOREX: Dollar Maintains Congestion Between Positive Risk Trends and Disappointing Data

Through the past week, the dollar has essentially gone nowhere – yet that is better than suffering the continued pain of a selloff that has already driven the pair the currency down for months. Looking at the Dow Jones FXCM Dollar Index, we see that the currency has moved little more than 100 points since last Wednesday (now at 9418).

British Bound Diverges from Risk Trends as Growth Outlook Becomes Driver

The GBP/USD rose sharply following a robust manufacturing report but failed to break from its bearish trend as the pound has been under pressure on the back of a dimming growth outlook. The December PMI reading improved to 58.3 from 57.5, besting expectations for a decline to 57.2 and reaching the highest level in 16 years. We have started to see yield expectations grow in importance in determining direction for the pair with its correlation rising to 32%, putting a greater focus on U.K. fundamentals.