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. 

Yen:  The dollar tried in vain to push above JPY110.  The poor close ahead of the weekend warns the market may be giving up.  There looks to be a bearish divergence in the RSI and the Slow Stochastics are about to turn lower.  A break of JPY109.30 may be an early signal of further losses.  Initial support is seen near JPY108.80 with stronger support, not until JPY108.00.

Sterling:  It would seem to confound logic, but sterling rose 2.5% last week to extend its advance for the sixth consecutive week.  It was the largest weekly gain since last September and the highest level since October 11.  The risk of a no-deal exit is perceived to have fallen sharply.  We are concerned that sentiment has run ahead of the events, though the technical indicators, while stretched, have not turned lower.  The next important chart points are found near $1.34 and $1.36.   Prime Minister May has not escaped the scissors the UK is stuck in: the closer she moves to parliament, the more distance between the UK and the EC opens. May's Plan B if approved by Parliament has already been rejected by the EC, and when it does so again, it would seem to be sterling negative.  If it does not pass, it is difficult to see it as a reason to buy sterling.  A break below $1.30 may be the first sign a top is in place. 

Canadian Dollar: The US dollar's recovery from the slide in the first part of January stalled near CAD1.3375, but it was the reversal ahead of the weekend the saw the greenback post a 0.3% loss for the week.  The dollar-bloc led that reversal, but the Canadian dollar was the laggard.  Still, the close was poor, and the dollar seems set to test support in the CAD1.3180-CAD1.3200 area. If that gives way, the next target would be near CAD1.3120.  This seems exaggerated, and the widening the of the two-year interest rate differential to 73 bp before the weekend, the most since before Christmas. 

Australian Dollar:  The Australian dollar posted a key reversal ahead of the weekend by first making new lows for the move (~$0.7075) and then proceeding to rally and close above the previous day's high.  Resistance is seen at $0.7200 and then $0.7240.  Like we saw with the Canadian dollar, the Australian dollar's complete retracement of its losses came despite a sharp widening in the US two-year premium over Australia as the market priced in an increased likelihood of an RBA rate cut. 

Mexican Peso:   The Mexican peso trends.  It rose against the dollar last week for the ninth consecutive week.  Before this rally, the peso fell for eight weeks. Ahead of the weekend the dollar tested and held above the low set earlier this month a little below MXN18.88. There is little chart support below MXN18.80 until around MXN18.50.   Mexico is expected to slower growth (0.2% quarter-over-quarter after 0.8% in Q3) and contracting (sub-50) manufacturing and non-manufacturing PMIs for the third consecutive month in January.  Its high interest rates continue to draw interest. A move above last week's high near MXN19.25 would lend credence to ideas that a bottom is being carved.  

Oil:  For two and a half weeks the March light sweet crude oil futures contract has chopped between $50 and $55 a barrel.  Last week it finished off 0.65% to snap a three-week advance.  The losses would have been larger if it weren't for the 1% rally ahead of the weekend spurred by concerns of the supply disruptions posed by the turmoil in Venezuela.   There appears to be a potential head and shoulders bottom pattern, with $55 being the neckline and the object is near $67.  The weekly Slow Stochastics and MACDs have only recently turned up from oversold.  The weekly RSI signaled the advance may showing a bulling divergence at the end of last year.  

US Rates:  The 10-year yield traded between 2.70% and 2.80%, which translates roughly 122-123 basis the March futures contract.  With the government re-opening, an economic risk has been removed, and we suspect the short-term market is vulnerable to a push higher in yields.  The technical indicators favor further losses for the futures contract, with scope for a full point range-extension toward 121.  The July Fed funds futures contract implies an average effective rate of 2.465%, which is equivalent to a 30% chance of a 20 bp increase in H1 19.  

S&P 500:  The S&P 500 gapped higher on January 18, and it was closed the following session, confirming it was what is considered a normal gap.  After pulling back from 2675 to almost 2612, the S&P 500 found a bid and gapped higher on January 25.  The RSI is moving higher, so are the MACDs, but they are stretched, and the Slow Stochastics have already turned lower.  The re-opening of the government and the next round of trade talks are favorable, while the FOMC is sidelined for the next several months, at least and Q4 GDP and the January jobs data is unlikely to change that judgment.