Breakout Continues To Be Elusive For The Greenback

The US dollar has failed to break higher, and this seems to boost the chances that it experiences a near-term setback. Elsewhere we suggest that two dominant themes--US-China trade talks and Brexit--will likely be delayed. The combination of the technical condition and the macro backdrop may deter players from looking for a break out in the week ahead. A delay in Brexit is understood to be good for sterling because it ostensibly reduces the risk of a no-deal exit. An extension of the US-China tariff freeze is understood to mean a trade agreement is likely, but consequences for the dollar are not obvious. The significant currency agreement that was announced without a lick of specifics before the weekend does not mean China will accept a re-valuation of the yuan. Driving the yuan higher now would undermine efforts to stimulate the economy.  

Dollar Index: 

The Dollar Index eight-day rally ended on February 11. In the eight sessions since, it has risen twice. Initial support is seen in the 96.25-96.35 area, where last week's low, the halfway mark of this month's rally, and the 20-day moving average are found. It has not closed below this moving average since February 4. It may take a break of 96.00 to be convincing. The MACDs and Slow Stochastics favor the downside. 


There have been a few exceptions, but $1.13-$1.15 range has contained most of the euro's movement for the past four months. The euro has been unable to rise through the mid-point of the range since February 6. Unless it does so in the coming days, it will post its second consecutive monthly decline. It finished January a touch below $1.1450. The technical indicators favor the upside after last week's 0.35% gain snapped a two-week slump. Three-month implied volatility is near 6.2%, the lowest in a couple of years. The 100-day moving average is near 7.2%. The low volatility may make options more attractive than forwards for some hedging or other strategies. 

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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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