State Of Dollar's Upside Correction

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

Our analysis had led us to expect a dollar bounce after sliding sharply since the US election. We had linked the technical recovery to our expectations of fundamental news and specifically the December jobs report. The ADP stole the thunder from the non-farm payroll report. When the dollar did not sell off further on the back of the disappointing ADP estimate on January 6 or the events in the Capitol, it signaled a dollar recovery. However, the dollar has been soft in recent days. The euro rose nearly a cent last week. Sterling, the Canadian dollar, and the Mexican peso made new highs. As we discuss below, it is messy, but broadly speaking, we look for the dollar's corrective advance to resume in the days ahead. 

Dollar Index

The Dollar Index recovery from the January 6 low near 89.20 was stopped at the start of last week around 90.95, about 20 ticks shy of the (38.2%) retracement target of the decline since early November. It pulled back to almost 90.00, stopping a little less than 20 ticks from an important retracement of its recovery (61.8% near 89.85). The momentum indicators look toppish, but a move above the 90.50-90.60 area improves the technical tone. We note that the momentum indicators on the weekly bar charts are considerably more constructive. Perhaps a head and shoulders bottom is being carved out, with a neckline near 91.00. If the neckline is overcome, the minimum measuring objective would be around 92.80. The (61.8%) retracement of the Dollar Index decline since early November is about 92.35.  

Euro

The euro tested the $1.16-level the night of the US election and rallied to almost $1.2350 on January 6. It pulled back and briefly dipped below $1.2050 at the start of last week. The decline met the (38.2%) retracement objective near $1.2065. It traded higher most of last week and reached almost $1.2190 ahead of the weekend before steadying. The MACD and Slow Stochastic are turning higher. However, the euro's recovery held the (50%) retracement objective at $1.2200, which is also where the 20-day moving average is found. The next retracement objective (61.8%) is about $1.2235. Initial support may be in the $1.2100-$1.2120 area. Like the flash PMI readings, the first look at Q4 GDP (US, Germany and France) will again highlight a stark growth divergence that could fuel the downside correction.   

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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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