Near-Term Dollar Technicals Mixed

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

The dollar rose against all the major currencies last week, except for the British pound and New Zealand dollar, which eked out minor gains. We have been suggesting two views. The first was a near-term pullback in the dollar, a correction to the November-December slide. The second was for the underlying downtrend to resume.  

The combination of the emerging divergence between the US and other high-income countries and our technical analysis warns this corrective phase for the dollar could last longer than we initially thought, and perhaps, run a bit higher. As we note below, the dollar's momentum studies look more robust on the weekly charts than the daily. The bearish dollar trade may have become too crowded, as it were.  Two currencies look particularly vulnerable.  

A convincing break below $1.2050 would likely confirm a larger topping pattern (possible head and shoulders) for the euro. It would suggest a pullback toward $1.1750 was possible. A deep retracement of its gains since the election (61.8%) would bring it a little below $1.19, and the $1.1975 (50% retracement) and the psychological support of $1.20 needs to be overcome first.  

The Australian dollar also appears vulnerable from a technical perspective. The roughly 42% rally from the March 2020 low surely exaggerates the nine-month rally, but it is also up almost 12% since the US election. The Australian dollar appears to be rolling over. A move toward $0.7275-$0.7300 cannot be ruled out, with intermittent support in the $0.7450-$0.7500 range. 

Dollar Index

The Dollar Index trended higher in the first half of January but has been in a 90.00-91.00 range since mid-month. Only a move outside of this range is important. The sideways activity has made the momentum indicators less than useful. However, on the weekly charts, both the MACD and Slow Stochastic look constructive. If the 91.00 area can be overcome, the next target is 91.75-92.00.  

Euro

In the middle of last week, the euro tested the month's low near $1.2055. It held, and the euro recovered, and although it closed the week on a firm note, it remains within that midweek range (~$1.2060-$1.2170). The 20-day moving average is near the upper end of that range, and the euro has not traded above it since January 8. The MACD looks like it is bottoming, but that was the case in the previous week. The Slow Stochastic has recovered, but the slope has moderated. Since peaking near $1.2350 on January 6, the euro has been below the (50%) retracement near $1.22 and has more or less held the (38.2%) retracement objective of the rally since the US election (~$1.2065). Here too, we note that the technical indicators are more bearish on the weekly charts than the dailies. 

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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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