The Dollar May Be At An Inflection Point

Euro: Thr outside up day on April 5, which seemed to complete a small head and shoulders pattern with the close above $1.18.  It set the technical tone for the rest of the week, and the euro met the minimum objective of a bit more than $1.19.  However, disappointing European industrial production figures and a jump in US rates (before the US PPI jump that was twice the median forecast in Bloomberg's survey) stalled the euro's recovery.  A little shelf has emerged near $1.1860.  A bit lower is the (38.2%) retracement of the bounce since the end of March and the 20-day moving average (~$1.1840). A break of the $1.1790-$1.1800 area would signal a retest on $1.17.  Some think a new range may be emerging, roughly $1.17-$1.20 (FXE).   

Japanese Yen:   The  15 bp decline in the US 10-year yields from its March 30 peak above 1.77% seemed to drag the dollar lower against the yen. Speculators in the futures market had jumped with both feet into short yen positions.  The gross short yen position by non-commercials jumped from 13.3k contracts, a multi-year low, in the first half of January to 84.7k contracts as of April 6. Last week was only the third (weekly) decline in the dollar since the end of January. The dollar peaked in the last session of Q1, just shy of JPY111.00.  It hit JPY109 on April 8 before jumping back to almost JPY110 ahead of the weekend as higher US (and China) inflation lifted yields.  The JPY110.20 area is the next retracement (61.8%) of the dollar's pullback.  It takes more than a pre-weekend dollar bounce to turn the momentum indicators.  A break of last week's low could spur a move toward the JPY108.30-JPY108.40 area (FXY).  

British Pound:  Sterling fell for the fifth week of the past seven.  It flirted with the lows from late March, near $1.3670 ahead of the weekend, before recovering back to almost $1.3750.  The MACD remains in its trough, while the Slow Stochastic is turning lower from the mid-range.  The five-day moving average has held below the 20-day since early March.  Cable also appeared influenced by the dramatic recovery of the euro against sterling.  The euro fell to its lows level since March 2020 against sterling at the start of last week (~GBP0.8470) (FXB).  It recovered smartly to almost GBP0.8700 before the weekend, which corresponds to the (38.2%) retracement of the leg lower that began on January 6 near GBP0.9085, where it met strong selling pressure.  It was the biggest euro advance against sterling in about seven months. While we cast a jaundiced eye over many seasonality claims in the foreign exchange market, we note April tends to be a good month for sterling.  In the past 20 years, sterling has risen in 17 Aprils.  However, May is cruel and sterling has fallen in 16 of the past 20 years in May.  

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Read more by Marc on his site Marc to Market.

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