Dollar's Downside Reversal May Set Tone For The Week Ahead


The US dollar entered the last trading session of the week with modest gains against most of the major currencies but sterling and the yen.  The upticks were surrendered in full, and the greenback finished the week in the red across the board.  Technically it looks vulnerable, which fits into our macro-view where the focus turns back to the US.  The FOMC's "patient and flexible" approach will not persuade investors that a rate hike will be delivered any time soon, though the end of the partial government closure removes a headwind.  Both sides will likely put a positive spin on the next round of US-China trade talks and the mere fact that there are talks unlike, say six months ago, is constructive, as are reports of continued Chinese demand for US wheat and soy. The jobs report at the end of the week likely to show a significant pullback after the 312k rise to close 2018.   

Dollar Index:  In response to a more dovish than expected ECB and the BOJ's forecast cut lifted the Dollar Index to its best level since January 3.  It came with a tick of meeting the 61.8% retracement of the decline since the high from last year recorded in the middle of December (near 97.70).  The pre-weekend sell-off took it to two-week lows (January 15) and through the 20-day moving average.  Initial support is seen in the 95.50-95.65 area.  A break sets up a test on the low for the month set on January 10 near 95.00.  The MACDs and Slow Stochastics are poised to turn lower.  The 200-day moving average, which the Dollar Index has traded above since last May, is found near 95.20. 

Euro:  In the first half of January, the euro broke its $1.13-$1.15 trading range to the upside, reaching $1.1575.  It proved a false break, and last week the euro slipped briefly below the $1.13 in response to the ECB meeting and Draghi's press conference.  However, that break was also no sustained, as we had anticipated.  The euro finished at the highs for the week above $1.14.  The session came to an end with the euro stalling near the 20-day moving average a little above $1.1415.  The nearby technical targets cited around $1.1430 and $1.1465.  The risk-reward changes as the upper end of the range ($1.15) is approached. 

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Read more by Marc on his site Marc to Market.

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