Dollar Recoups FOMC-Sparked Losses

The US dollar turned in a mixed performance last week, but the gains before the weekend, perhaps partly in anticipation of a tax bill, helped it finish well.   Still, in the face of the Fed’s rate hike, the continued signal of three more in 2018, underscores the
frustration for dollar bulls.  Nor did the yawning premium required to
secure dollars through the cross-currency swap market over the turn of the year
lend the greenback much support, though against the euro, the premium was the most since the European crisis nearly six years ago.   

The dollar was sold on a slightly softer CPI report than expected and the
FOMC that did not tweak its forward guidance despite the increase in the median
Fed forecast for growth. 
The sell-off saw the Dollar Index approach
the 61.8% retracement objective of this month’s advance, which is found just
ahead of 93.20.   It rose in three of last week’s five sessions after advancing in all five sessions in the prior week.  A  move through 94.20 would give the bulls an upper hand.  The RSI and MACDs point higher, but the Slow
Stochastic may be rolling over.  

After rallying in November, the euro has trended lower in December, but enjoyed a two day rally in the middle of the last week.  However, the bounced stop shy of a retracement objective a little below $1.1870 and was turned back.  During the last two sessions the euro, finished the North American session on its lows.    The technical indicators we use are not generating a
strong signal.  A lighter news week and thinning participation may see
range trading prevail.  Key support is seen near $1.1700, a break would likely force short-term operators, who have amassed a huge position in the futures market.  Through the day before the FOMC meeting, the speculators in the CME futures built a record large gross long euro position, and the largest net long position in a decade.  

With the US 10-year not finding much traction, the greenback was unable
to extend its recent gains that carried it from JPY110.84 in late November to
JPY113.75 at the stat of the past week. 
The subsequent decline took the
greenback to JPY112.00, which is within ticks of the 61.8% retracement
objective.  The dollar closed firmly ahead of the weekend.  To lift
the tone, the dollar needs to resurface above JPY112.70 -JPY113.10 range. 
The MACDs and Slow Stochastics warn of downside risks and if the JPY111.80 area
goes, there is little to prevent a move back to JPY110.85-JPY111.00
area.  The dollar premium on the cross-currency swaps over the yen reached its largest level since very early this year.  Of note, while the yen has risen nearly 4% against the dollar, the net speculative short position in the CME futures is about a quarter larger than at the end of last year.  

Sterling fell for the second consecutive week.   The five-day
moving average slipped below the 20-day average for first time since mid-November.  It finished last week on its lows, a little above important near $1.33, but the technical indicators warn that it
may not hold.  Below there, support is seen near $1.3240 and then
$1.3200.  That said, a move above $1.3450 would lift the tone.  In the futures market, speculators have among the largest net long positions of the year. In the five sessions through December 12, speculators trimmed the gross longs that had reached a three-year peak in the previous CFTC reporting period.  

The Canadian dollar remains stuck in a trading range that has persisted
since late October. 
For the US dollar that range is roughly CAD1.2660
to around CAD1.2910. Some US dollar longs were cut in response to Bank
of Canada Poloz comments that indicated the caution expressed does not mean
doing nothing, and that he felt more confident that additional accommodation
can be removed.  Those US dollar losses were recouped ahead of the weekend.  Speculative positioning in the futures market does not appear prepared for an upside break of the US dollar’s trading range, which seems possible in the thin markets that will prevail over the next couple of weeks.  We note that US dollar’s premium over Canadian dollars on the cross-currency swap basis reached a reached a record high before the week of almost 60 bp on top of LIBOR.  

Strong Australian jobs report helped spur the Australian dollar
  However, the advance faltered near $0.7700 before the
weekend, which corresponds to a retracement objective and the upper Bollinger
Band.  The loss of momentum has not turned the technical indicators, which
remain constructive.  The five-day moving average cross above the 20-day
average before the weekend for the first time in nearly two months. 
Support is seen near $0.7720.  The Aussie is one of the few currencies that trade at a premium (over LIBOR) for US dollars on a three-month cross-currency swap.   It may signal that Australian banks need for US dollar funding has been met.  

The February light sweet crude oil fell for the third consecutive
Gains in the last two sessions was not sufficient to offset
losses spurred by ideas that the excess oil supply was being diverted into
gasoline.   The Paris-based IEA also warned that oil supply will
likely exceed demand in 2018 even though some OPEC members are hopeful that the
balance can be restored by the middle of the year.  The technical
indicators are mixed, with the Slow Stochastics turning higher and the MACDs
continuing (since mid-November) to trend lower.   Initial support is
seen near $56 and then $55.20.  On the upside, $58-$59 has capped advances
since the first week in November.  

The US 10-year yield slipped two basis points last week to 2.35% The push above 2.40% was turned back for the third consecutive week.  The
2.30%-2.40% range is likely to persist for a bit longer.  The range in the March
futures contract, is 124-00 to 125-00, though there has been minor fraying of the
lower end.  The upper end has not been violated since early

The S&P 500 set new record highs ahead of the weekend and extended
its advance for a third consecutive week.   
 The Dow Jones Industrials and the NASDAQ also rose to new record heights. Since the end
of August, the S&P 500 have fallen in only three weeks.  The technical
indicators do not appear to stand in the way of additional near-term
gains.   Several money center banks are looking for 3000 next year
from the current 2670.  Initial support is seen near 2650, but a lower
risk entry may be near the 20-day moving average, currently found near

The Russell 1000 Growth Index continued to rally.  The 1.15% gain
on the week extended the rally uninterrupted on a weekly basis since late
September.  Last week was the 12th consecutive weekly advance and brings
the year-to-date advance to nearly 29%.  It was up 5.4% last year..   The
Russell 1000 Value Index gained nearly 0.5%, and extended its streak for a
fourth week.  Year-to-date, it has gained 10.3%.   It gained
14.3% in 2016. 


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