Saturday, March 18, 2017

"Dollar's Technical Tone has Deteriorated"

From Marc to Market:

The failure of the Fed to signal an increased pace of normalization and the prospects of other central banks raising rates spurred dollar losses, which deteriorated its technical outlook.

The Dollar Index has been sold through the 61.8% retracement (~100.40) of the rally since February 2 low near 99.25. If the 100-level is breached now, a return to the early February low, looks more likely.
That 99.25 area is very important from a technical perspective. It corresponds to a 38.2% retracement of the rally since last May's low and it is also a neckline of the old head and shoulders pattern. The measuring objective of the head and shoulders pattern is near 94.75, which is just above the 61.8% retracement of the rally since last May's low. The five-day moving average is below the 20-day average for the first time in a month. Technical indicators are also aligned favoring the downside.

The euro appears set to test the early February high near $1.0830, which also corresponds to the 50% retracement of the losses since the US election (~$1.0820). The spike from the December ECB meeting was near $1.0875. The 61.8% retracement of losses since the US election is roughly $1.0935. Technical indicators favor additional gains, though the proximity of the upper Bollinger Band (~$1.0750) may deter new aggressive buying before a pullback.

The euro's five- and 20-day moving averages crossed after the US jobs data, but the dollar's moving averages against the yen are only now set to cross. As often is the case, the dollar-yen rate is in a range. The JPY115 area marks the upper end of the two-month trading range. The lower end is near JPY111.60. The technical indicators are consistent with a test on the lower end of the range. If that fails to hold, the next target would be JPY110.

Sterling recovered smartly off the $1.21 area tested at the start of the week and finished the week near $1.24, which is the 50% retracement of its decline since February 2. A move above there would test the down trendline drawn off that February high and the high late in the month (~$1.2570). It begins the new week around $1.2430. The 61.8% retracement is near $1.2480. The five- and 20-day moving averages are set to cross in the coming days. The technical indicators warn against picking a top.... ...MORE