Getting Technical with the Dollar

If the worst of the market panic is behind us, it is worthwhile exercise to see what the charts are saying about the dollar. One advantage of technical analysis is that the fundamental causes and considerations behind the big moves need not be determined.  

As is truly the case, the large market moves were likely over-determined in the sense of getting many contributing factors. Market placement after sustained market developments created vulnerabilities.  The stop by oil prices, and worries that the global headwinds would derail the US economy, and postpone Fed tightening, or as the Fed’s Bulllard argued today, extend QE much more time.  

In any event, the selling climax appears to have passed, and significant technical damage continues to be done to the US dollar. Simultaneously, the breaking of what seemed to have been a one-way bet is a salutary for medium and long-term traders who focus on value, despite the fact that such dramatic moves hurt short-term speculators.  

The euro’s 5-day moving average offers crossed above the 20-day average the very first time since mid-July.  A base has formed near $1.26, and on Wednesday, the euro posted some other up day, which solidified that support.  It is most certain that the market is not bullish the euro.  However, further position squaring ahead of the FOMC meeting at the end of the month, especially given the risk that QE is continued.  Initial resistance is seen in the $1.2850 and then $1.2900.  The RSI which had been over-extended has become neutralized.  A break back below $1.2700-15 would likely be seen as a sign that a top is in place.  

Sterling is more interesting from a technical point of view.  Shifting rate expectations and marketplace positioning weighed heavily upon sterling.  On Wednesday it traded at its lowest level because last November.  Yet, the actual RSI and MACDs have failed to confirm the current lows, and this has left a bullish divergence in its wake.  A minimal of looks to be in location.  The first hurdle is seen close to $1.6165, but a break could spur a move toward $1.6225-50. 

The dollar had been confined to a two-yen range between 04 and August (JPY101-JPY103). On Thursday it traversed more than a two-yen range (JPY105.23-JPY107.50).   This range may dominate activity in the coming days.  Initial resistance within that range is seen in the JPY106.50-75 area.  The RSI’s suggest a low is in place.  The dollar spent much of the US session near the reduce Bollinger Band (~JPY106.15), but pushed up to new session highs in late turnover.  

Technical indicators don’t appear to be generating strong signals in the dollar-bloc.  The US dollar looks poised to pullback from the multi-year levels it recorded yesterday from the Canadian dollar.  Initially, the actual CAD1.1200 may offer support, additional support is seen near CAD1.1160.  The Australian dollar is too uneven to get a good read.

Some Opinion of the Dollar’s Technical Outlook Now’s republished with permission from Marc to Market