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The correction in the capital markets
began shortly after the Federal Reserve
hiked rates on December 14. The correction or consolidative phase follows an otherwise strong
trending quarter, where moves accelerated after the unexpected victory by
Trump. Last week we still anticipated the
correction could persist even after the January 4 US jobs report showed
more earnings growth than expected. However, now
after the additional losses, the dollar
appears ready to turn.
began shortly after the Federal Reserve
hiked rates on December 14. The correction or consolidative phase follows an otherwise strong
trending quarter, where moves accelerated after the unexpected victory by
Trump. Last week we still anticipated the
correction could persist even after the January 4 US jobs report showed
more earnings growth than expected. However, now
after the additional losses, the dollar
appears ready to turn.
Interest rates
remain integral to our dollar narrative. It is not coincidental that the
dollar’s downside move coincided with a pullback in yields and a narrowing of
the US premium. Interest rates may be the place to begin our review of
the technical outlook.
remain integral to our dollar narrative. It is not coincidental that the
dollar’s downside move coincided with a pullback in yields and a narrowing of
the US premium. Interest rates may be the place to begin our review of
the technical outlook.
The 10-year
yield fell to nearly 2.30% on January 12, new lows
since the end of November, before recovering to close at new session highs of
2.36%. Before the weekend, and despite if
anything softer PPI and disappointing retail sales figures, the yield rose
another six basis point. The March
note futures stalled at 125-10. It tried separate sessions sine January
6. After failing for the third time before the weekend, a sell-off
ensured that brought the contract toward the week’s low of 124-07, which is
also a 38.2% retracement of the gains since December 15. The 50%
retracement is found at 123-28, and the 61.8% retracement is at 123-17.
yield fell to nearly 2.30% on January 12, new lows
since the end of November, before recovering to close at new session highs of
2.36%. Before the weekend, and despite if
anything softer PPI and disappointing retail sales figures, the yield rose
another six basis point. The March
note futures stalled at 125-10. It tried separate sessions sine January
6. After failing for the third time before the weekend, a sell-off
ensured that brought the contract toward the week’s low of 124-07, which is
also a 38.2% retracement of the gains since December 15. The 50%
retracement is found at 123-28, and the 61.8% retracement is at 123-17.
The two-year
yield peaked on December 15 at 1.30%. It pulled back to near 16 bp through January 12, when, like the 10-year note,
the yield recovered and saw follow
through gains ahead of the weekend. After five closes below the 20-day moving
average, the two yield closed above it
(~1.21% )before the weekend. The technical tone of the March two-year note
futures contract is deteriorating, which is also consistent with the completion
of the corrective phase.
yield peaked on December 15 at 1.30%. It pulled back to near 16 bp through January 12, when, like the 10-year note,
the yield recovered and saw follow
through gains ahead of the weekend. After five closes below the 20-day moving
average, the two yield closed above it
(~1.21% )before the weekend. The technical tone of the March two-year note
futures contract is deteriorating, which is also consistent with the completion
of the corrective phase.
The Dollar
Index completed a 38.2% retracement of its gains since the US election on
January 12. The small gains before the weekend saw the
RSI turn higher, while the MACDs and Slow Stochastics are getting ready to
cross higher as well. A move above 102.00 would lend credence to this
view and suggest a retest on the January 11 high near 103.00. On the
downside, a convincing break of 100.65 could spur a move to the next
retracement level near 99.80.
Index completed a 38.2% retracement of its gains since the US election on
January 12. The small gains before the weekend saw the
RSI turn higher, while the MACDs and Slow Stochastics are getting ready to
cross higher as well. A move above 102.00 would lend credence to this
view and suggest a retest on the January 11 high near 103.00. On the
downside, a convincing break of 100.65 could spur a move to the next
retracement level near 99.80.
The technicals
look further away from turning in the euro than the Dollar Index. A move above $1.0710 could signal a
further recovery toward $1.0820. The euro has not closed below its
five-day moving average, (~1.0590) since January 3. A potential trendline drawn from this year’s lows comes in near
$1.05 on January 16 and finishes the week near $1.0575. A violation of the
five-day average on a closing basis or a
break of the trendline would likely signal the upside correction phase for the
euro has run its course.
look further away from turning in the euro than the Dollar Index. A move above $1.0710 could signal a
further recovery toward $1.0820. The euro has not closed below its
five-day moving average, (~1.0590) since January 3. A potential trendline drawn from this year’s lows comes in near
$1.05 on January 16 and finishes the week near $1.0575. A violation of the
five-day average on a closing basis or a
break of the trendline would likely signal the upside correction phase for the
euro has run its course.
The dollar
initially saw follow through buying in Asia though Japan was on holiday, after the US employment data. The greenback was
buoyed from JPY117.00 to JPY117.50. However, it was greeted with fresh selling that ultimately
drove the dollar to JPY113.75. The technical indicators we use have not turned, but they are getting stretched. A
move above JPY115.60 could signal a move in the JPY116.20-JPY116.80 band.
initially saw follow through buying in Asia though Japan was on holiday, after the US employment data. The greenback was
buoyed from JPY117.00 to JPY117.50. However, it was greeted with fresh selling that ultimately
drove the dollar to JPY113.75. The technical indicators we use have not turned, but they are getting stretched. A
move above JPY115.60 could signal a move in the JPY116.20-JPY116.80 band.
Sterling
continued to trade heavily. It
was the only major to lose ground against the dollar last week. Prime
Minister May’s acknowledgment that the UK
is going to lose single market access sent sterling to $1.2040, its lowest
level since the flash crash last October. It managed to recover to
$1.2320 but seemed to attract sellers. While the five and 20-day moving
averages cross for the euro and yen, they did not
believe in sterling. May speaks again on January 17, but
speculation before the weekend that the collapse of the government in Northern
Ireland may delay the triggering of Article 50 helped sterling post corrective
upticks. Nevertheless, it failed
again to finish the week above $1.22 which had been the lower end of its range
since last October. That said, it is possible that the $1.2040 low is
more durable than the price action thus far suggests. The price action in
coming days will help clarify the technical outlook for possibly the rest of
the quarter.
continued to trade heavily. It
was the only major to lose ground against the dollar last week. Prime
Minister May’s acknowledgment that the UK
is going to lose single market access sent sterling to $1.2040, its lowest
level since the flash crash last October. It managed to recover to
$1.2320 but seemed to attract sellers. While the five and 20-day moving
averages cross for the euro and yen, they did not
believe in sterling. May speaks again on January 17, but
speculation before the weekend that the collapse of the government in Northern
Ireland may delay the triggering of Article 50 helped sterling post corrective
upticks. Nevertheless, it failed
again to finish the week above $1.22 which had been the lower end of its range
since last October. That said, it is possible that the $1.2040 low is
more durable than the price action thus far suggests. The price action in
coming days will help clarify the technical outlook for possibly the rest of
the quarter.
The Canadian
dollar extended its recent gains with a surge around
the middle of last week that carried it to the best level and through its
200-day moving average (CAD1.3100) for the first time in three months.
The US dollar
reached CAD1.3030. The greenback quickly recovered into a more stable
band between CAD1.31 and CAD1.32. The Bank of Canada meets in the week
ahead. Recent data has been constructive, include employment and trade.
The comments around the stand-pat
decision may be more upbeat. The Slow Stochastics are poised to turn
higher, followed by the MACDs. The RSI is still heavy. A move above
CAD1.3200 would help stabilize the US dollar.
dollar extended its recent gains with a surge around
the middle of last week that carried it to the best level and through its
200-day moving average (CAD1.3100) for the first time in three months.
The US dollar
reached CAD1.3030. The greenback quickly recovered into a more stable
band between CAD1.31 and CAD1.32. The Bank of Canada meets in the week
ahead. Recent data has been constructive, include employment and trade.
The comments around the stand-pat
decision may be more upbeat. The Slow Stochastics are poised to turn
higher, followed by the MACDs. The RSI is still heavy. A move above
CAD1.3200 would help stabilize the US dollar.
The Australian
dollar rose 2.5% against the US dollar last week. In fact, it rose every day last week and in eight of
the past nine sessions. It the three-week advance, it has gained about
4.25%. On January 2, it traded down to almost $0.7165, and on January 12, it reached nearly $0.7520. The high before the Fed’s mid-December rate hike was
$0.7525. The $0.7540 area corresponds to the 61.8% retracement of its
losses since the US election. The Australian dollar has not closed below
its five-day moving average (~$0.7425) since January 2. A loss of this
area could be a preliminary sign that the upside correction is over. The
Slow Stochastics look set to cross lower,
and the MACDs appear to be peaking.
dollar rose 2.5% against the US dollar last week. In fact, it rose every day last week and in eight of
the past nine sessions. It the three-week advance, it has gained about
4.25%. On January 2, it traded down to almost $0.7165, and on January 12, it reached nearly $0.7520. The high before the Fed’s mid-December rate hike was
$0.7525. The $0.7540 area corresponds to the 61.8% retracement of its
losses since the US election. The Australian dollar has not closed below
its five-day moving average (~$0.7425) since January 2. A loss of this
area could be a preliminary sign that the upside correction is over. The
Slow Stochastics look set to cross lower,
and the MACDs appear to be peaking.
The dollar’s
rise through MXN23.00 on January 11 may have completed a move. The MXN21.50 area approached before the weekend
corresponds to the 38.2% retracement of this year’s dollar advance (~MXN21.40).
The 50% retracement is near MXN21.30. The technical indicators are stretched. The seemingly
unpredictable tweets and a broader attitude of the incoming US Administration deter many from picking a bottom in the
peso.
rise through MXN23.00 on January 11 may have completed a move. The MXN21.50 area approached before the weekend
corresponds to the 38.2% retracement of this year’s dollar advance (~MXN21.40).
The 50% retracement is near MXN21.30. The technical indicators are stretched. The seemingly
unpredictable tweets and a broader attitude of the incoming US Administration deter many from picking a bottom in the
peso.
The February
light sweet crude oil futures contract snapped a four-week advance with a 2.5%
drop, despite reports suggesting Saudi Arabia has cut more output than it
promised. Price snapped back quickly from a
push below $51 a barrel, and the lowest level since the end of November.
The technical indicators warn of near-term downside risk, but as it
approaches the bottom of the range, look for buying to reemerge. A move
above $53.50 improves the technical tone.
light sweet crude oil futures contract snapped a four-week advance with a 2.5%
drop, despite reports suggesting Saudi Arabia has cut more output than it
promised. Price snapped back quickly from a
push below $51 a barrel, and the lowest level since the end of November.
The technical indicators warn of near-term downside risk, but as it
approaches the bottom of the range, look for buying to reemerge. A move
above $53.50 improves the technical tone.
The Dow Jones
Industrials and the S&P 500 slipped lower last week, while the NASDAQ
tacked on one percent. Despite this and the fact that the
Dow remains below the 20k psychological level, the underlying tone remains
firm. With the S&P 500 less than 0.5% from its record, and Dow 20k
still in view, there is no sign that equity investors are disturbed by the lack
of detail on tax reform, infrastructure spending, and deregulation. Since
the end of November, the S&P 500 have been trading in a saw tooth pattern; alternating weeks are advancing and declining.
To extend the pattern, the S&P 500 needs to close higher next week
A break of the 2250 area would weaken the market’s technical
condition.
Industrials and the S&P 500 slipped lower last week, while the NASDAQ
tacked on one percent. Despite this and the fact that the
Dow remains below the 20k psychological level, the underlying tone remains
firm. With the S&P 500 less than 0.5% from its record, and Dow 20k
still in view, there is no sign that equity investors are disturbed by the lack
of detail on tax reform, infrastructure spending, and deregulation. Since
the end of November, the S&P 500 have been trading in a saw tooth pattern; alternating weeks are advancing and declining.
To extend the pattern, the S&P 500 needs to close higher next week
A break of the 2250 area would weaken the market’s technical
condition.
Dollar Correction may be Over or Nearly So
Reviewed by Marc Chandler
on
January 14, 2017
Rating: