Strong Dollar Optics, Less Clear-Cut Details

Australian Dollar

The Aussie extended its recent losses to see its lowest level in a decade (~$0.6660) at the start of last week before bouncing to $0.6750 in the middle of the week. It spent the previous two sessions consolidating at lower levels. A break of the $0.6680-$0.6700 area now would suggest a durable low is not in place. The low from the Great Financial Crisis was near $0.6000, and a secondary low was near $0.6250. Still, the MACD and Slow Stochastic are turning higher, and the latter did not even confirm last week's new low. A close above the 20-day moving average (~$0.6755 to start the new week), something not done since January 6 would lend support to those thinking the Aussie may be bottoming.

Mexican Peso

The dollar has not bottomed against the peso. Our MXN18,50 target is being approached. A convincing break leaves the greenback with little support until the MXN18.00 area. The MACD and Slow Stochastic are not generating strong signals but also have not confirmed last week's lows. Note that speculators in the futures market have taken some profits recently. The net long position, which reached a record at the end of January, has fallen for the past two weeks (through February 11). Gross longs have fallen for three weeks. Even after Banxico's 25 bp rate, Mexico's high real and nominal interest rates attract asset managers and levered accounts (some of whom use the yen, Swiss franc, and perhaps, more recently, the euro to fund the peso position). 

Chinese Yuan

Since returning from the extended Lunar New Year holiday, Chinese officials have accepted roughly a CNY6.95-CNY7.0260 range for the dollar. The logic of the situation, i.e., a negative economic shock, easier monetary policy, and a push not to miss economic growth targets seems most consistent with a weaker yuan. A move toward CNY7.05 would be unlikely to raise the American's ire.  

Gold

The price of the yellow metal rose by about $14.5 last week (~0.9%) after falling $18.7 (~1.2%) the prior week. The MACD is trying to turn-up from a decline that began last month around the escalation of US-Iran hostilities. The Slow Stochastic is curling up. Gold found support around $1550 after spiking to a little above $1611 in January. The month's high near $1592 is the next hurdle for gold, which finished last week at $1584. 

Oil

The April light sweet crude oil futures contract ended a five-week 20% plunge with a 3.5% bounce. The contract appears to have put in a double bottom (~$49.50-$49.60), and the neckline is about $52.35. The high before the weekend was roughly $52.55, but the close was a few cents below the neckline. The measuring objective of the double bottom is around $55.50, which corresponds with the 200-day moving average (~$55.70) and the (38.2%) retracement objective of the decline from last month's spike (~$65.00). The MACD and Slow Stochastic have turned higher.  

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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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