Dollar ended the week broadly lower, except versus Aussie, as markets were left confused with chance of a rate hike by Fed this year. FOMC minutes gave traders no clues on the topic. Meanwhile, despite some hawkish comments from Fed officials, market aren't convinced yet. Fed fund futures ended the week pricing in 53.5% chance of a hike by December but the number is expected to continue to fluctuate. Fed chair Janet Yellen's speech in the Jackson Hole symposium this week will be closely watched that markets could yet again be disappointed. Recovery in dollar towards the end of the week was likely technical as dollar index hit channel support. The greenback would likely stays soft against Euro and Yen ahead.
The development to note last week was the weakness in commodity currencies, led by Aussie, followed by Canadian and then Kiwi. Soft economic data from Canada was a major factor countering rally in oil prices. Meanwhile, rally in US and Europe equities seem to be losing steam, which could weigh down on commodity currencies. DJIA turned sideway after hitting 18668.44. Bearish divergence condition is seen in daily MACD. And, the index looks heavy ahead of 61.8% projection of 15450.56 to 18167.63 from 17063.08 at 18742.23. It's too early to talk about reversal but DJIA will probably try to take on 18247.79 support which is close to 55 days EMA.
FTSE also lost momentum after hitting 6955.33. It should be noted that the index is close to 7122.74 key resistance and momentum could further diminish above 7000 handle. Bearish divergence is seen in daily MACD which suggests we'll probably have some consolidations first with risk of pull back to 6615.83 support, which is close to 55 days EMA (now at 6605.50).
Pull back in stocks will provide opportunities for selling commodity currencies ahead. Comparing Aussie and Canadian, AUD/CAD's break of 0.9830 support add more credence to the case of near term reversal. That is, rise from 0.9322 should have completed at 1.0116 after hitting long term trend line resistance. Near term outlook is turned bearish for lower side of the long term range between 0.9148 and 0.9322. Also, crude oil's rally is still in progress for recent high at 51.67. Hence, Aussie is the preferred sell short candidate.
Based on the outlook of EUR/USD, USD/JPY and EUR/JPY, Yen is the preferred candidate to buy against Aussie. However, we already have GBP/JPY short. We'll avoid another position in Yen. Euro is preferred over dollar for near term bullishness in EUR/USD and the uncertainty over Fed's hike. EUR/AUD's strong rebound last week is inline with the view of near term reversal. Though, as it's close to 1.4905 resistance, we'll prefer to buy a pull back to 1.48.
We're staying short in GBP/JPY, which we sold at 135.24. We'll hold on to the short position and lower the stop to 132.50. Break of 128.66 will resume the larger down trend from 195.86 and could target next projection level at 122.71.