Greenback Looks Vulnerable


The economic and political news from Europe is not good. The economy is slowing, and price pressures are falling. The Yellow Vest demonstrations in France continue. Spain's minority government is being handcuffed by parliament. The risks of an election are rising. Brexit uncertainties are as great as ever. The single currency itself remains in a $1.13-$1.15 trading range that has prevailed since late October, with a few false breaks to the downside. Both ends of the range were tested last week, and they held. The 100-day moving average is found just inside the upper end of the range (~$1.1480), and the euro has not closed above in more than three months. On balance, the technical indicators favor the upside. A move above $1.1500 would likely trigger stops, but above $1.1520, and could likely signal an advance that could carry it another cent. 


Although flash crashes may have become more common, it is difficult to draw many conclusions from limited occurrences in the foreign exchange market. The dollar appears to have rebounded quicker than other cases, but it still needs to resurface above JPY109 to confirm it. Even then, it would seem weak below JPY110, the old shelf. Less volatile equities and higher US yields may provide the fundamental impetus for a move the technical indicators suggest is likely. The lack of BOJ intervention make speak to both the acceptance of the new best practices of limited intervention and inability to react quick enough, even if it wanted. That said, the OECD's model puts the yen about 9% below fair value. 


Amid the disruptions on January 3, sterling fell to a low since April 2017 near $1.2440. It had traded as high as $1.2815 on New Year's Eve. Technically, sterling looks poised to re-challenge the high, although it has not closed above $1.2800 since late November. There may be a cent potential on a break, which is also where the 100-day moving average is found and the retracement objective (61.8%) of the leg lower than began in early November. Separately, the price action reinforces the technical significance of the GBP0.9100 area for the euro.Support is seen near GBP0.8880.  

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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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