Navigating USD Price Action

We anticipated that the dollar would be pressured in the first part of the week. Tuesday’s losses came despite slightly wider US 2-year premiums. Position adjusting seems to be the main factor, but it is not immediately clear if it is ahead of Wednesday’s ADP jobs estimate and FOMC meeting or the US election. Trump’s support had bottomed before the FBI re-opened the investigation into Clinton’s emails and his support appears to be continuing to edge higher.

We noted in our last technical view that the Dollar Index snapped a three-week advance last week. We identified initial support in the 98.00-98.20 area and warned that a break could see 97.60. Tuesday’s mid-day low was 97.74. The Dollar Index has fallen through the 20-day moving average for the first time in a month. A break of the 97.60 area would suggest a deeper correction is in store that could carry it toward 96.75.

The euro recorded a seven-month low on October 25 near $1.0850. It reached nearly $1.1065 Tuesday, which is the best level since October 12. We saw potential toward $1.1030-$1.1040. Tuesday’s high meets 50% retracment of the slide since the September 26 high near $1.1280. The 61.8% retracement of that move is found at $1.1115.

We had envisioned the dollar testing JPY104 area, and that is also where the 20-day moving average is found. Our idea that a break of JPY104.00 could spur a move toward JPY103.20 still seems reasonable. Recall that unlike the euro — and sterling — speculators in the CME futures are net long yen.

Sterling extended Monday’s gains as Carney announced his intentions on stay at his post until mid 2019. It took out last week’s highs (~$1.2270) by a handful of ticks, but sellers appeared to re-emerge near the 20-day average (~$1.2285). It does not appear to be going anywhere quickly. Support is seen ahead of $1.22.

The Australian dollar approached the $0.7700 cap on the back of the less-than-dovish central bank statement and rising copper prices. However as the ceiling neared, sellers emerged and knocked the Aussie back to the middle of the session’s range. Look for buyers to make a stand in the $0.7620-$0.7640 area.

The Canadian dollar’s firmness seems to be more a reflection of US dollar weakness than of anything positive about the Loonie. It has been confined to Monday’s ranges. For the third time in as many sessions, the US dollar has been able to sustain gains above CAD1.34. The market looks like it wants to try again.

We had cautioned that the S&P 500 looked vulnerable. Anticipating that the October low near 2114 could be taken out, we suggested near-term potential toward 2100. Given the momentum, we now suspect it could fall a bit further, maybe toward 2090 before bottom pickers show their hand.

Crude oil looked bearish and even with the heavier dollar, oil has struggled to find a bid. The December light sweet crude oil contract is sitting on one-month lows ahead of $46.30 A trendline connecting the early August and mid September lows comes in a little below $46 for the next couple of sessions and $45.65 is the 61.8% retracement of the rally since those August lows (~$41.60).

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