Since Friday’s strong Non-Payrolls report which flipped what had been a corrective outlook of the US dollar on its head, there has been a struggle for the dollar bulls to really hammer home the renewed positive outlook on the greenback. However, the key supports on the major currencies which have been holding on by a thread since Friday remain under pressure. But now it seems as though the dollar bulls are slowly getting their way. The dollar is on the brink of a breakout, but can it make the decisive move?
On Euro/Dollar we have seen the support at $1.1300 giving way once more this morning. This level is now consistently being breached and this has opened what I now see is the final line of support which prevents a full decline back towards the recent lows at $1.1098. The support at $1.1260 is the key low across the last few weeks that is effectively the higher low above $1.1098. Intraday momentum indicators are falling away and with the euro losing over 40 pips today it looks increasingly like the support will be severely tested.
Dollar/Yen is another pair that moved sharply on Friday but could not quite achieve the decisive break needed to see the dollar bulls in firm control. Subsequently, we have had to sit back and wait for further confirmation. With support forming at 118.30 today’s rally is back above the 118.87 old resistance (although still below below the 119.22 Friday peak) and the bulls are gaining control again. A close above 119.00 tonight would now be a strong statement for the dollar bulls.
However, there is still a fly in the ointment. Sterling has remained supported today as other major currencies have fallen away. A positive set of UK Manufacturing Production numbers have helped to lend a floor under sterling. That floor is the key near term pivot level at $1.5200 on GBP/USD. This is a level that has been tested and held for three days in a row now. Certainly the more pressure that is mounted on $1.5200, the more the bulls will creak in their resolve and the chances are that there will be some cracks forming in the support.
However, for now the support holds. I am still of the opinion that if $1.5200 fails then the Cable bears (or should that be dollar bulls) would not be in true control until a failure of the support at $1.5135 is breached.
However, I am also of the belief that in a couple of days time, Sterling could be set for a bit of a boost – from the Bank of England’s Quarterly Inflation Report. I feel that the market has become a bit too stretched in its expectation of a UK rate hike being pushed out to 2016. I think that there could be a few hawkish signals from Mark Carney on Thursday that drag these forward a a bit and subsequently induce a sterling rally. I see this as one of the reasons behind why Cable has been outperforming the other forex majors in the past few days. Watch this space on Cable…