The currency market is turning off recent U.S. Dollar Index weakness, notes Bill Baruch.
Session close: Settled at 1.1476, up 31.5 ticks
Fundamentals: U.S Dollar Index weakness through Friday pushed the euro out above a significant resistance level that aligned with the 100-day moving average and there was follow-through on Monday. We say U.S dollar weakness was the catalyst for euro strength because it certainly wasn’t bullish developments in Europe. Although Flash PMIs on Friday weren’t overall as bad as analysts had expected the German Manufacturing read still contracted for the sixth straight month and the Eurozone number was shy of low expectations. Furthermore, climate data through the week was overall underwhelming.
The backend of this week will rely heavily on U.S.-China trade talks at the G-20 Summit and safe haven premium coming in or going out of the dollar. Today’s economic calendar is quiet in Europe, but we look to packed lineup in U.S hours. New York Fed President Williams speaks at 7:45 am CT, Case Shiller is released at 8:00 am CT and Consumer Confidence is due at 9:00 along with New Home Sales. Atlanta Fed President Bostic speaks at 11:00 am CT, there is a two-year Treasury note auction at noon CT and Fed Chair Powell also speaks then.
Technicals: Friday was the first front-month close above the 100-day moving average for the euro since September. A continued close above our pivot of 1.1415-1.14375, which aligns with the 100-day will keep a path of least resistance pointing to key resistance at 1.15345 and ultimately to our new upside target of 1.1591-1.1621, which aligns a previous peak with the 200-day moving average. We are bullish until this market gives us a reason to doubt the current breakout action.
Resistance: 1.15345-1.1546**, 1.1591-1.1621***, 1.1743***
Support: 1.1339-1.1359**, 1.12615**, 1.1212***, 1.11265-1.11565***
Session close: Settled at .93755, up 7.5 ticks
Fundamentals: The Japanese yen is basking in dollar weakness and low rates topped off with a Bank of Japan that left policy unchanged. The biggest fear for dollar bears right now is that if Federal Reserve dovishness paves the way for broadly looser central bank policy elsewhere. That is potentially lesser of a concern when talking about the Bank of Japan, which already has their benchmark rate at -0.10% and has been steering loose policy with diminishing returns for more than two decades. Still, the bank said its ready to act if needed. For now, as long as the U.S 10-year Treasury note yield stays closely tied to 2%, the path of least resistance in the yen is higher.
Technicals: The dollar is breaking down and the yen has been rising since equity markets peaked in late April. Keep a close eye on the Russell 2000 whose 50-day moving average is crossing below the 100-day today, which could signal that equities are getting tired. This would be a great development for the yen which is steadily consolidating above resistance and sitting in breakout territory. We are bullish the yen and the path of least resistance is higher as long as it stays above .9326-.9347.
Resistance: .94585***, .9524**, .9614***
Australian dollar (ADU)
Session close: Settled at .6984, up 40 ticks
Fundamentals: The Aussie dollar is enjoying a bit of relief supported by U.S dollar weakness and as shorts cover ahead of U.S.-China trade talks at the G-20 Summit. The Federal Reserve policy shift, which was widely expected and seemingly priced-in, has brought it more closely aligned with that of the Reserve Bank of Australia who had already cut rates earlier in the month. When this week concludes, the Aussie would have relied heavily on the developments between the two leaders at the G-20 Summit. The interesting thing is that leveraged traders are not leaning one way or another after such a sharp decline in the Aussie. Typically, you see those leveraged traders attempt to squeeze the last bit of juice from the orange. This leads us to believe that negative developments could have catastrophic effect on the price of the Aussie.
Technicals: We mentioned the supply/demand technicals above and this exemplifies how we could see renewed selling in the Aussie if there are bad developments at the G-20. Price action could not chew through major three-star support at .6809-.6861, a level that aligned the 2016 low with the Jan. 3 fallout and coupled with U.S dollar weakness is providing relief ahead of the G-20. Still, the Aussie faces the 50-day moving average directly overhead which aligns closely with major three-star resistance at .7001-.7024. We would expect a close above here to provide a secondary tailwind north. However, a move back below .6943-.6946 could signal a budding failure.
Support: .6943-.6946**, .6809-.6861***, .6300***
Session close: Settled at .7595, up 12 ticks
Fundamentals: Yes, the Canadian dollar has seen not only support from the weaker U.S dollar but tremendous strength from crude oil. However, its gains stalled Friday for the exact reason we have highlighted here; inconsistent or poor data. On Friday, Retail Sales was the latest data point to disappoint and price action will not be able to sustain a recovery if this continues. For now, while U.S dollar weakness is fresh, if crude continues to strengthen and we see positive developments at the G-20 the Canadian dollar will find itself higher. At that point if the data continues to be poor, it should provide for a good fade. Wholesale Sales are due tomorrow at 7:30 am CT.
Technicals: Price action is out above the 50-, 100- and 200-day moving averages. This provides a firm trend. However, watch this 200-day, the last time the Canadian dollar was above here was the day the amended Nafta deal was announced in October and it only spent three days above that level. Prior to that was April 2018 and it was six days before failing. That is your line in the sand for a firm tape.
Resistance: .7613-7630**, .76595***
Support: .7543-.7570***, .74575***