Aussie ended the week as the strongest major currency last week as RBA surprised part of the market by keeping interest rate unchanged. But, it was dollar's strength towards the end of the week that caught most attention. There was sign that the greenback has completed recent pull back and is resuming its up trend. GBP/USD took the lead by dropping through recent low of 1.4634. While other dollar pairs are still holding in recent range, strength in the greenback suggests that we'd likely at least see a retest on recent highs in the greenback against these major currencies. Meanwhile, European majors were the weakest ones as euro was dragged down by continuing uncertainties in Greece. Sterling was also weighed down as trader got cautious ahead of the general election, which is less than a month away.
Dollar index rose to as high as 99.68 before closing strongly at 99.34. The break of 98.66 minor resistance argues that the consolidation pattern from 100.42 could have completed at 96.32 already. And further rise is in favor to retest 100.42 this week. Break there will extend the long term up trend to next fibonacci level of 6.18% retracement of 121.02 to 70.69 at 101.79. Meanwhile, below 98.01 minor support will extend the consolidation with another fall. But in any case, outlook will stay bullish as long as 94.05 support holds (38.2% retracement of 84.47 to 100.39 at 94.30) and we'd continue to expect eventual up trend resumption.
There were talks that the FOMC minutes were a driver of the dollar strength. The minutes did reveal that "several" members were anticipating rate hike in June. However, it should pointed out that a "couple" of members preferred to wait until 2016 too. Thus, the minutes should have sent a mixed message rather than a decisively hawkish one. FOMC Minutes Show Policymakers Divided In Rate Hike Timing. Meanwhile, we'd like to point out that there are two possible underlying cause that helped the rally in dollar. Firstly, that was resilience in US equities that indicated that investors and business could be well prepared for Fed's rate hike after all the speculations. Secondly, crude oil recovered rather well after another dip in March. Last week's rally in crude oil opens up technical possibly of trend reversal. And, Fed would have less reason to delay the rate hike further, or to have an extremely slow pace of tightening, once the oil price triggered slowdown in inflation fades.
DJIA closed back above 18000 handle at 18057.65. price actions from 18288.63 are clearly corrective in structure and was held well above key trend support at 17037.76. Also, that's well above the rising 55 weeks EMA at 17191.15. Thus overall bullish outlook is maintained. Indeed, the consolidation could have completed at 17585.01 already. Further rise is likely this week for a test on 18288.63 and possibly even to a new historical high. The more important level will be at 61.8% projection of 17037.76 to 18288.63 from 17585.01 at 18358.04. Right now it's possibly that the pattern from 15855.12 is a terminal triangle. But getting through 18358.04 should clear this risk.
Crude oil recovered further last week and is now back pressing 54.24 near term resistance. Break there will complete a double bottom reversal pattern (43.58, 42.03) on bullish convergence condition in daily MACD. In such case, we'd see strong rebound back to measured target at 66.45. In that case, crude oil could only start to face some resistance near to 38.2% retracement of 107.73 to 42.03 at 67.13.
Regarding trading strategies, we'd be looking at buying dollar again this week. We'd firstly avoid selling Canadian dollar. USD/CAD's recent range trading maintained the medium term bullish outlook and favors further rally. However, the above mentioned possibility of reversal in crude oil could limit Canadian dollar's weakness. Thus, we'll avoid USD/CAD. Secondly, yen has been rather strong against European majors. Also, the lack of strength in US yields might also limit USD/JPY's strength. Thus, we'll also avoid USD/JPY.
Sterling seemed to be the weaker one for GBP/USD's break of 1.4634 near term low. However, EUR/GBP is back pressing 0.7221 support last week and a break there would trigger further fall to 0.7013 low. That is, break of 0.7221 will add additional pressure to Euro and the common currency would catch up. On the other hand, last week's sharp fall in EUR/AUD makes Euro a preferred choice for selling. Overall, as dollar index hasn't taken out 100.39 resistance yet, we'd stay a bit cautious. And we'll look at selling EUR/USD on recovery to 1.0700 and selling GBP/USD on recovery to 1.4720.