Monday, January 24, 2011
The US Dollar ended the day modestly lower after finding short-term support from a key Fibonacci retracement at 77.852. The DXY, however, is trending lower within a short-term bearish channel pattern and will need to close above the broken 50% retracement level at 78.538 to avoid weakening further. In the meantime, a clean downside break of the 61.8% retracement support will expose the long-term trendline support and double top target in the mid-76 range.
The euro pared early gains, finishing up slightly higher on the day against a trade-weighted basket of currencies. There are tentative signs that the single currency may be at least due to consolidate here. The Euro Index and EUR/JPY both marked daily doji patterns, meriting a possible correction given overbought daily conditions. The EUR/AUD and EUR/CHF each triggered daily bearish engulfment patterns. And, the EUR/USD is once again trading within a rising wedge, which requires a loss of formation support in the 1.3580 region to confirm a meaningful reversal.
Friday, January 21, 2011
The US Dollar fell across the board following a surge in global risk appetite. Solid corporate earnings by General Electric and a record high in a German confidence survey helped drag the safe-haven greenback lower, triggering a 0.84% loss on the day against a trade-weighted basket of currencies. The Dollar Index (DXY) reversed lower after briefly probing above the key 78.820 pivot, which served as former platform support and the neckline of the latest double top formation.
Today's bearish price-action also marks the first close below the midpoint of the November advance. The next downside target is 77.842, where the 61.8% retracement lies. If a corrective rally fails to materialize above the broken 50% retracement at 78.538, then the double top target could be in the cards. Ironically, this measured move coincides with long-term trendline support that originates from the all-time lows. Moreover, this would also equate to a retest of critical support at 22 for the Dollar Index ETF (UUP).
While a weekly bearish engulfment pattern was confirmed with this week's follow-through weakness, there is a glimmer of hope for dollar bulls. Often when price-action closes at the lows of the week, it is often representive of a short-term selling exhaustion. Also, the latest CFTC Commitment of Traders report demonstrated that euro speculators had flipped to a small net-long position earlier in the week. This suggests the completion of short-covering for the EUR/USD and could limit gains in the near-term.
Meanwhile, the highly correlated 2-year EU/US yield gap tested the November high before consolidating for the remainder of the North American session. A move above the +68 basis point differential would mark a fresh 2-year high in the EU's favor. As such, the euro should continue to outperform while european peripheral yield spreads narrow and yield differentials vs. the US continue to widen.
Thursday, January 20, 2011
The US Dollar Index (DXY) finished the day modestly higher after giving up a bulk of earlier gains. The greenback broke above 9-day trendline resistance but failed to materially follow-through. The (9-period) 4-hourly RSI midpoint rejected strength once again, but could be breached in the following sessions given bullish intraday studies and the formation of a small-base in price-action. Moreover, the inability to close below the key 50% at 78.538 is also an encouraging sign for dollar bulls. Meanwhile, if the current corrective phase fails to reach 79.543 (the 38.2% retracement of recent weakness), then focus shifts back towards 78.538. A daily close below this important pivot could produce a selling capitulation towards long-term trendline support below the 77 handle.
The Japanese Yen was the weakest performer on the day, following a warning from a government report concerning the potential worsening debt problem for Japan. The currency fell more than 1% vs. a trade-weighted basket, as the USD/JPY broke out of a 10-day falling wedge. The pair then rallied 50 pips, settling right below a key downward sloping trendline. A break above resistance just above 83Y would expose the recent highs in the 84.34/84.51 region.