Dollar Bulls May Turn Cautious

While we expect that the broad economic and monetary divergence will allow the dollar's uptrend to resume, more immediately we have been expecting the recent ranges to remain intact. The ranges may have frayed, but the pre-weekend price action may reinforce them. With a slow start to the week ahead (US holiday and light economic calendar), it may be difficult to rebuild the greenback's upside momentum.It had tested the lower end of its ranges in late January and recovered in the first half of February.  Being range-bound means that it will likely soften in the days ahead.  

Dollar Index:The Dollar Index made a new high for the year before the weekend, a little below 97.40, and then reversed lower and closed below the previous session's low.Chartists call it a key reversal.The technical indicators we use are confirming the risk of a pullback.The RSI did not confirm the new highs (bearish divergence).The MACDs and Slow Stochastics are set to turn lower in the coming session or two.The Dollar Index closed below its five-day moving average for the first time in two weeks.Initial support is seen near 96.50, but we suspect the risk may extend toward 96.00.  

Euro:  The euro posted a reversal pattern before the weekend.After making a three-month low (~$1.1235), it staged a recovery that carried it to new session highs.In the Japanese candlesticks, it looks like a hammer. The RSI has a bullish divergence, and the MACDs and Slow Stochastics are poised to cross higher. The $1.1300 level has been transgressed so many times now that may have lost its technical significance, and there is scope toward $1.1350 and then $1.1400. 

Yen:The dollar reversed lower against the yen the day before the euro.It briefly poked through JPY111.10 for the first time since December 27 before being sold back a little below JPY110.50.There was a little follow through dollar selling ahead of the weekend (~JPY110.25).The dollar surpassed the retracement target near JPY110.85 but held 200-day moving average (~JPY111.30). The RSI is neutralized.  The MACDs are stretched but have not turned.The Slow Stochastics are rolling over and have not confirmed the new high (bearish divergence).The technical takeaway may be that the yen underperforms the euro in the days ahead.The euro recovered after approaching JPY124 before the weekend.The upper end of the range is around JPY126.  

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Read more by Marc on his site Marc to Market.

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