A Correction Within A Correction

Dollar, Money, Cash Money, Business, Currency, Finances

The disappointing US jobs data may mark the end of the first phase of the dollar's recovery. It may be like the US phase 1 deal from China. Many wonder if there will be another phase. We suspect that the employment data is not a game-changer. On the one hand, the divergence of economic activity between the US, Europe, and Japan, on the other, doesn't really change because of the employment data. The US economy is expanding, and Japan, and especially Europe, are contracting.  Moreover, one way or the other, the US will be delivering significantly more fiscal stimulus.  

However, against many of the major currencies, the dollar strengthened over the past month. While those positions are being adjusted, the dollar may pull back more before its upside correction resumes. Indeed, the heavier dollar tone that may emerge over the next few days or so is part of that upside correction.  

Dollar Index

The Dollar Index stalled ahead of the employment report shy of the (50%) retracement objective (~91.75) of the decline since the election.  A bearish key reversal was posted when it reversed lower after making a new high (~91.60) for the move and closing below the previous session's low (~91.08). The risk is for a near-term pullback that we initially target the 90.60 area, which also houses the 20-day moving average. The month-old uptrend line began the new week a little below there and finished a bit above 90.80.  The MACD and Slow Stochastic are stretched, and the former is poised to turn lower.  

Euro

Over the past month, the euro has fallen by three cents to about $1.1950. The disappointing employment data signals the end of that move, which is part of the correction of the euro's rally that began from around $1.16 as the US polls. The reversal suggests the euro can move into the $1.2100-$1.2150 area in the coming days, though it must first overcome the downtrend line from early January that begins next week near $1.2085. The MACDs are turning up, though the Slow Stochastics are lagging. It would probably take a move above $1.2200 to signal the euro's downside correction was over. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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