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Dollar starts the week with a little profit taking


Market Overview

Into the final week before Christmas holiday season and after such a strong reaction in the wake of the FOMC the dollar bull run is seeing a little profit taking today. However this is unlikely to turn into anything more significant than simply another chance to buy the dollar as the charts are not suggesting this minor profit taking will impact too greatly. Treasury yields are marginally lower and this has driven a dollar consolidation with the trade weighted dollar index back from Thursday’s post-FOMC high of 103.6 to 102.6. There is room for a correction back towards 102 area however further dollar strength is expected in due course. Equities are likely to see subdued volumes this week and considering the huge run higher of the past few weeks, perhaps a bit of caution to end the year should not be unexpected.

dollar-profits

Wall Street closed marginally lower on Friday with the S&P 500 -0.2% at 2258, whilst Asian markets were also mixed with the Nikkei -0.1%. The European markets are mixed to slightly positive in early moves today. In forex markets the dollar is mixed to lower against the majors, with the yen being the standout performer after better than expected Japanese trade data. Gold and silver have seen a slight bounce with the mild dollar weakness, whilst oil is continuing Friday’s rally and is around 0.5% higher.

Traders have a just a couple of key data points to impact on markets today, starting with the German Ifo Business Climate at 0900GMT. The number is expected to improve only marginally to 110.70 from last month’s 110.40. The US flash services PMI is at 1445GMT and is expected to improve to 55.2 from 54.6 last month.

 

Chart of the Day – AUD/USD

On Friday I looked at the Kiwi which was moving lower towards a crucial six month support, and the Aussie is in a similar predicament against the US dollar. The dollar strength has been a drag on the pair lower in recent days and this is adding to pressure on the crucial support around $0.7300. The intraday breach of $.7300 could not be sustained and the market closed just above at $0.7304 on Friday but the fact that the market has made the initial move is a concern. With another round of bear pressure early today this support is creaking. The support is a key level dating back to June and although a confirmed breach has not yet been seen a close below $0.7300 would complete a top pattern that would imply around 450 pips of downside. The momentum indicators are bearishly configured now with the RSI recently turning lower from around 50, the MACD lines crossing lower below neutral and the Stochastics in decline. Initial support beyond Friday’s low at $0.7260 is at $0.7200 with the May low at $0.7145 now key. The hourly chart shows a band of resistance $0.7330/$0.7370 and the near term bears remain in control below $0.7430.

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EUR/USD

The euro has begun to limp higher in a recovery move following the break to a new multi-year low below $1.0456. However this is still likely to simply be another rebound that gets sold into. There is little to suggest that rallies will be anything more than another opportunity to sell and with significant overhead supply the sellers are likely to be almost queuing up. Friday’s positive candle added just over 30 pips and there is a minor gain today, however the momentum indicators show little appetite for a sustained recovery and the market is already struggling to overcome the old key support which is now a basis of resistance at $1.0456. There is further resistance $1.0500/$1.0540. The hourly chart shows the hourly momentum indicators are unwinding to levels where the sellers will be eying up opportunities once more with the hourly RSI around the 55/60 area, and the hourly MACD lines back to neutral. I am a seller into strength expecting parity in the coming weeks. The initial support is $1.0400 and then the low at $1.0365.

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GBP/USD

I discussed on Friday about the Cable chart which had turned back into a range play with the support that formed at $1.2372 coming above the old key neckline at $1.2330 the near term selling pressure has abated. The daily momentum indicators are rather mixed with the RSI pulling back higher above 40 and looking at 50 again, whilst the MACD lines are flattening around neutral. However the six week uptrend was broken by the recent decline and becomes a basis of resistance. Friday’s bull candle was positive but the market is looking more cautious today with an early doji formation. The hourly chart shows the bulls now need to push back above the resistance that comes in the range $1.2515/$1.2557. This is now becoming a mid-range pivot area. There are minor support levels at $1.2455 and $1.2400 as a neutral outlook begins to take shape, although with a mild bear bias.

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USD/JPY

This mildly dollar corrective move that began on Friday has continued early today with a further negative candle in formation. It will be interesting to see if this move can build into anything more substantial. The momentum indicators have been in strong configuration now for the past five weeks, however the RSI is beginning to drop back towards 70 again. The more significant corrections during this bull run on Dollar/Yen have tended to be around 200 pips before the buyers have stepped back in, so there could still be some legs in the recent corrective move. The hourly chart shows the rally has rolled over and the latest breakout support is at 116.12. However the initial support at 117.15 is holding and hourly RSI is already back to a level where the buyers have supported and the bulls will be eying their next opportunity. I expect dips to be bought into for a move back towards the recent high at 118.65. Key support comes in at 114.82.

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Gold

The dollar correction is also playing out in a rally for gold. The positive candle on Friday is being followed up by further early gains today but the move is still likely to simply be seen as another chance to sell. The four week downtrend comes in today at $1153, whilst momentum indicators are still very bearishly configured and suggest that rallies will be sold into. It is interesting that the support of Thursday’s low at $1122 has come around the 76.4% Fibonacci retracement of $1047/$1375 at $1124.50. However I continue to see this support being tested. On the hourly time scale momentum indicators have unwound to renew downside potential and there is considerable overhead resistance that starts in the range $1144/$1151. Once this rally has played out then the selling pressure is likely to resume to retest $1122. There is a minor higher low at $1127.50.

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WTI Oil

Friday’s reaction higher shows that there is still support from the buyers on oil and that the recent corrective move will be viewed as a chance to buy. The support forming at $49.95 which was above $49.60 keeps the bulls in control and a decisive push back above the old breakout at $51.93 early today would be a signal that the buyers are strong again for a renewed move back to $54.50. The momentum indicators are still positively configured with the RSI holding strongly above 50, the MACD lines all positive and the Stochastics looking to turn higher again. The hourly chart shows a run of lower highs and lower lows in the past week has been broken as support has formed at $50.50 above $49.95, whilst $51.50 is a near term breakout support. The hourly RSI and Stochastics are now far more positively configured for an outlook of buying into dips.

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