The US dollar had been sold hard in the second half of December through last week. Regardless of one’s medium or longer-term views, the technical indicators warn that the sell-off is stretched and in need of consolidation, if not a correction.
The Dollar Index has formed a shelf near 91.75. Recall that the 91.55 area, which was briefly violated last September, marks the 50% retracement of the 2014-2016 rally. The 61.8% retracement is near 88.40.A move above 92.30 may be needed to lift the tone. We see the 92.60-92.85 area as an important area. The RSI has already begun moving higher and the Slow Stochastics are set to turn higher. The MACDs remain soft.
The euro approached last year’s high, and even with the disappointing headline US jobs report, the euro’s advance stalled. Important support is seen near $1.20, and a break would signal a move toward $1.1955 initially. The RSI did not validate last week’s high, while the Slow Stochastic appears poised to turn lower early next week. The MACDs look to take a bit longer to cross over. On the upside, the $1.2165 area corresponds to a 50% retracement of the drop from the 2014 high. The 61.8% retracement is near $1.26.
The dollar ended last week with a three-day advance against the yen, which is the longest streak since the end of November. It held the 100-day moving average, which is found near the JPY112 chart support. The greenback bounced smartly to test a trend line drawn off early November and late December highs. It is found near JPY113.20 at the start of next week. The next hurdle is seen in the JPY113.65-JPY113.75 area. The technical indicators are mostly constructive, though the Slow Stochastic has not turned higher.
Sterling briefly poked through $1.36 but stopped well shy of the last September’s high near $1.3655. Initial support is seen near $1.3500. The technical indicators appear stretched but not as much as the euro and Dollar Index. A slew of UK data will be reported next week and Q4 growth seems largely on pace with Q3. There are also widespread expectations of a cabinet reshuffle as early as next week. Sterling may respond positively (vs. euro) on signs that the hard line camp is weaker. There has been much talk of the strong foreign demand for UK Gilts, and next week’s external account may be a useful reminder that a good part of inflows is simply the mirror image of the trade and current account deficits.
