Technicals: The Underlying Signal

The heightened geopolitical risks and then the unwind drove the price action in the capital markets last week, the first full week of the new year.  These are the kind of markets that whipsaw even the most experienced and nimble among us.  We review the recent price action and technical condition of some of the major currencies and other instruments that are frequently driven by the same macro forces, or influence the foreign exchange market with the hope of being able to identify the underlying signal.  One takeaway is that there has been a move to underwind the price action recorded at the end of last year.  That phase is over.

Dollar Index:  The Dollar Index rose from 96.35 on New Year's Eve to hit a high near 97.60 shortly before the US employment data disappointed.  It reversed lower, leaving a bearish shooting star candlestick pattern in its wake.  Although the MACD and Slow Stochastics are still moving higher, respecting the price action now may mean looking for a pullback. If the recent leg up is being retraced, the 96.80-97.00 offer a proximate target.   From mid-October through mid-December, the Dollar Index was mostly confined to a 97.00-98.50 trading range.  It appears to found a new range over the past month, 96.50-97.80.

Euro: After falling to 2.5-week lows ahead of the weekend (~$1.1080), the euro reversed higher, with the help of the disappointing US employment data and stronger than expected European industrial production figures.  The five, 20, and 200-day moving averages converge near $1.1140, which also roughly corresponds to the (38.2%) retracement objective of the decline since New Year's Eve.  The technical indicators are not supportive, but follow-through buying after the key reversal ahead of the weekend could push the euro toward $1.1180.

Yen:   The dollar posted its key reversal against the yen in the middle of last week when the collective wisdom of the markets was that the US and Iran conflict would remain chronic rather than acute.  The greenback shot-up from nearly a three-month low (~JPY107.65) to the upper-end of a seven-month trading range (~JPY109.70), where the 200-day moving average is found.  Momentum would seem to favor an upside break, but the US jobs report, lower rates, and a heavier tone reinforced the significance of the resistance.  That said, the technical indicators favor the upside. A break above it would likely trigger stops and bring in new buying that could lift the greenback toward JPY110.70 initially.

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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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