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The technical indicators warn that the US
dollar is stretched, but the combination
of disappointing auto sales and jobs report may deny it the interest rate
support needed to facilitate a resumption of the bull market. While
there are many observers talking about the abdication of the US from its global
leadership role given the decision to pull out of the Paris Accord and the TPP,
we think the dollar’s performance can be explained by changing perceptions
about the pace of US economic activity, the direction of inflation, and
prospects for significant tax reform and infrastructure spending.
dollar is stretched, but the combination
of disappointing auto sales and jobs report may deny it the interest rate
support needed to facilitate a resumption of the bull market. While
there are many observers talking about the abdication of the US from its global
leadership role given the decision to pull out of the Paris Accord and the TPP,
we think the dollar’s performance can be explained by changing perceptions
about the pace of US economic activity, the direction of inflation, and
prospects for significant tax reform and infrastructure spending.
There is a light US economic
calendar in the week ahead, and the quiet period ahead of the June 13-14 FOMC
meeting means that investors are unlikely to get much guidance from officials.
The focus will be
squarely on Europe with the ECB meeting
and the UK election.
calendar in the week ahead, and the quiet period ahead of the June 13-14 FOMC
meeting means that investors are unlikely to get much guidance from officials.
The focus will be
squarely on Europe with the ECB meeting
and the UK election.
The Dollar Index finished
the week at new lows for the year, and just above the 61.8% retracement
objective of the rally from the lows seen in May last year (96.45). A convincing break brings two technical
levels into view. The first is around 95.20. It is a measuring
objective of the old head and shoulder pattern that had been formed between December 2016 and March 2017. The second
is near 94.20. It is the 38.2% retracement objective of the Dollar
Index’s 2012-2014 lows near 78.60.
the week at new lows for the year, and just above the 61.8% retracement
objective of the rally from the lows seen in May last year (96.45). A convincing break brings two technical
levels into view. The first is around 95.20. It is a measuring
objective of the old head and shoulder pattern that had been formed between December 2016 and March 2017. The second
is near 94.20. It is the 38.2% retracement objective of the Dollar
Index’s 2012-2014 lows near 78.60.
The euro appreciated for the
sixth week of the past eight. Nearly three-quarters of the 0.7% gain on the week were scored on the back of the disappointing US jobs report.
Before the weekend, it posted its highest close since last September, as
works its way closer to the spike high last November ($1.13). The
strength of the close warns of risk of a gap higher opening in Asia on June 5.
Given the proximity of $1.1300, current volatility, and momentum, an
upside break cannot be ruled out. A break of $1.1300 could signal a move
to $1.1400-$1.1425.
sixth week of the past eight. Nearly three-quarters of the 0.7% gain on the week were scored on the back of the disappointing US jobs report.
Before the weekend, it posted its highest close since last September, as
works its way closer to the spike high last November ($1.13). The
strength of the close warns of risk of a gap higher opening in Asia on June 5.
Given the proximity of $1.1300, current volatility, and momentum, an
upside break cannot be ruled out. A break of $1.1300 could signal a move
to $1.1400-$1.1425.
The dollar has fallen
against the yen for five of the last six sessions. Before the weekend, it
was trading on either side of the previous day’s range (outside day) and closed
below the previous day’s low. Indeed, the early in the session it made a new
high for the week. Then in response to the jobs’ disappointment, it made
a new low for the week. Support is
expected in front of JPY110, and a break could see JPY109.40-JPY109.60.
However, if US yields do not find
better traction, a return to the JPY108 area seen in mid-April is possible.
against the yen for five of the last six sessions. Before the weekend, it
was trading on either side of the previous day’s range (outside day) and closed
below the previous day’s low. Indeed, the early in the session it made a new
high for the week. Then in response to the jobs’ disappointment, it made
a new low for the week. Support is
expected in front of JPY110, and a break could see JPY109.40-JPY109.60.
However, if US yields do not find
better traction, a return to the JPY108 area seen in mid-April is possible.
Sterling was range-bound
last week (~$1.2770 to $1.2920). The outside up day posted in the
middle of the week did not see follow-through
buying, but rather back-to-back inside days. The technical indicators
look constructive, but that may be a reflection of a heavy dollar.
Sterling continues to trade heavily against the euro. It fell on
the cross for the sixth consecutive week. The euro look to be headed into the GBP0.8800-GBP0.8850 area
that marked the highs in mid-January and mid-March. Against the dollar,
the $1.3000-$1.3055 needs to be overcome to be anything technically
significant.
last week (~$1.2770 to $1.2920). The outside up day posted in the
middle of the week did not see follow-through
buying, but rather back-to-back inside days. The technical indicators
look constructive, but that may be a reflection of a heavy dollar.
Sterling continues to trade heavily against the euro. It fell on
the cross for the sixth consecutive week. The euro look to be headed into the GBP0.8800-GBP0.8850 area
that marked the highs in mid-January and mid-March. Against the dollar,
the $1.3000-$1.3055 needs to be overcome to be anything technically
significant.
The US dollar snapped a
two-week decline against the Canadian dollar and rose 0.4% on the week. The Slow Stochastics have turned higher,
and the MACDs are about to, but the price action itself is more worrisome. After reaching its best level since
May 19, which corresponded with a 38.2% retracement of the US dollar’s fall since
the May 5 key reversal, the greenback sold off
before the weekend and settled on its lows. Initial support is seen in the CAD1.3450-CAD1.3480 area, but
the potential is to re-test the May 25 low below CAD1.3400.
two-week decline against the Canadian dollar and rose 0.4% on the week. The Slow Stochastics have turned higher,
and the MACDs are about to, but the price action itself is more worrisome. After reaching its best level since
May 19, which corresponded with a 38.2% retracement of the US dollar’s fall since
the May 5 key reversal, the greenback sold off
before the weekend and settled on its lows. Initial support is seen in the CAD1.3450-CAD1.3480 area, but
the potential is to re-test the May 25 low below CAD1.3400.
A good part of the technical
damage inflicted on the Australian dollar as it declined in five of six
sessions was repaired on before the weekend with its nearly 1% advance. It recovered off
the $0.7375 area on the back of the poor US jobs report, recouped half of what
it lost over those five sessions (~$0.7445). A weaker US dollar environment and
soft US rates can help lift the Aussie back into the $0.7500-$0.7700 area.
Near-term potential extends toward $0.7525 and then $0.7600.
damage inflicted on the Australian dollar as it declined in five of six
sessions was repaired on before the weekend with its nearly 1% advance. It recovered off
the $0.7375 area on the back of the poor US jobs report, recouped half of what
it lost over those five sessions (~$0.7445). A weaker US dollar environment and
soft US rates can help lift the Aussie back into the $0.7500-$0.7700 area.
Near-term potential extends toward $0.7525 and then $0.7600.
The US 10-year yield fell
nine basis points. It was the second time in three
weeks that a decline of that magnitude was
recorded. A new low yield print was recorded (~2.14%) since last
November. With falling core PCE deflator, disappointing jobs and auto sales,
and doubts over the legislation of the economic agenda, there does not seem
much in the way of a further decline toward
2.0%. Though stretched, the technical indicators for the 10-year Treasury note
futures do not suggest a top is imminent. The 127-04 area corresponds to
a 50% retracement of the sell-off since last November. The 61.8% retracement is
128-03.
nine basis points. It was the second time in three
weeks that a decline of that magnitude was
recorded. A new low yield print was recorded (~2.14%) since last
November. With falling core PCE deflator, disappointing jobs and auto sales,
and doubts over the legislation of the economic agenda, there does not seem
much in the way of a further decline toward
2.0%. Though stretched, the technical indicators for the 10-year Treasury note
futures do not suggest a top is imminent. The 127-04 area corresponds to
a 50% retracement of the sell-off since last November. The 61.8% retracement is
128-03.
From the May 25 high through
the pre-weekend low, the July light sweet crude oil futures contract fell more
than 10%. The
contract briefly dipped below $47 before recovering, leaving a possible bullish
hammer candlestick in its wake. A
move above $52 is needed to be of
technical significance. The technical indicators point to continued risk
on the downside. There is little support below $46 until $44, where
prices had spiked on May 5. The price of oil has fallen for four of the
five months this year. After falling 9.4% in Q1, it is off another 6%
in the first two months of Q2.
the pre-weekend low, the July light sweet crude oil futures contract fell more
than 10%. The
contract briefly dipped below $47 before recovering, leaving a possible bullish
hammer candlestick in its wake. A
move above $52 is needed to be of
technical significance. The technical indicators point to continued risk
on the downside. There is little support below $46 until $44, where
prices had spiked on May 5. The price of oil has fallen for four of the
five months this year. After falling 9.4% in Q1, it is off another 6%
in the first two months of Q2.
Neither weak macro data nor
valuation concerns have held back the S&P 500. It is participating in what is a global rally. Although conventional wisdom was
that European equities would rally more than US shares, so far this year, the
S&P 500 has held its own. It is up 8.8%, just nosing ahead of the Dow
Jones Stoxx 600 (~8.6%). The Nikkei 400, which the BOJ buys ETFs on, is
up almost 5.7% year-to-date. The
technical indicators are not particularly
stretched. The note of caution comes from bumping against the upper
Bollinger Band. Last week began by breaking a seven-day advance, but the
week finished on a firmer note with new record highs.
valuation concerns have held back the S&P 500. It is participating in what is a global rally. Although conventional wisdom was
that European equities would rally more than US shares, so far this year, the
S&P 500 has held its own. It is up 8.8%, just nosing ahead of the Dow
Jones Stoxx 600 (~8.6%). The Nikkei 400, which the BOJ buys ETFs on, is
up almost 5.7% year-to-date. The
technical indicators are not particularly
stretched. The note of caution comes from bumping against the upper
Bollinger Band. Last week began by breaking a seven-day advance, but the
week finished on a firmer note with new record highs.
Dollar Dogged by Disappointing Data
Reviewed by Marc Chandler
on
June 03, 2017
Rating: