Dollar Rallies On Thin Trading Volume

Trading was slow on Monday with a poor Pending Home Sales and little other fundamental news of any significance, which makes the day’s dollar rally slightly unexpected. Some market commentators have hypothesised that there were fundamental factors from Iran at play causing risk off behaviour, but it seems more likely that this was a technical play on thin volumes, since numerous pairs met support or resistance simultaneously, allowing for an exaggeration of the pull-back. Thanksgiving and month end flows may have also contributed to the market’s reluctance to hold position.

Tuesday sees CB Consumer Confidence and delayed Building Permits from the US and an Inflation Report Hearings from the BOE, which will hopefully coax some liquidity back into the markets, although the week looks set to be quiet and messy given Monday’s price action.

USD% Index

After the drop back to support, the dollar found it’s feet in early trading and continued to push higher throughout the day, with few willing to step in with fresh dollar shorts. As such we have posted a higher low so the market’s willingness to post a higher high next will be keenly watched for directional clues. It is entirely possible that a double top may happen before a drop lower for the end of the year and a potential Santa Claus rally in risk currencies to push the dollar back down again, so this may just be pre-December positioning. RSI is just about above the 100 day moving average which is weak bullish signal.
I remain bearish USD

USD% Index Resistance (EUR/USD support): EUR/USD 1.3477, 1.3450
USD% Index Support (EUR/USD support): EUR/USD 1.3531, 1.3561, 1.3600

EUR% Index

The EUR% index’s double top is proving tricky to defeat with Monday’s attempt higher sold off with more vigour than expected. Trend remains bullish so this may just be a waiting game, although it’s not comforting that the dollar rallied on moderately poor US data. We are definitely in a cautious wait and see mode for the time being although our bias remains bullish EUR

EUR% Index Resistance: EUR/USD 1.3543, 1.3565, 1.3600, 1.3617
EUR% Index Support: EUR/USD 1.3500, 1.3450, 1.3415, 1.3400

JPY% Index

The JPY% index also found it’s feet today with a mild show of strength although not from a technically significant level or due to any major fundamental news. The strength of the Dollar and Yen make Monday appear like a risk-off day, pushing the Yen up, although this wasn’t reflected in stocks and there really wasn’t a significant catalyst to trigger the moves so we will need to see how things develop for the time being. The rate of decent recently for the Yen could have contributed to the keenness to take profit but it seems odd that we didn’t test the 200% Fib expansion first. I remain bearish JPY

JPY% Index Resistance (USD/JPY Support): USD/JPY 101.18, 101.00, 100.56
JPY% Index Support (USD/JPY Resistance): USD/JPY 102.16, 103.00

GBP% Index

The GBP% index broke above the recent highs on Monday although the move was quickly faded. Interestingly the break of GBP% index highs was not negatively correlated with a break of EURGBP lows, instead the Euro advanced against the pound and took the wind out of it’s sales somewhat. Either way the GBP% index has retraced back below major resistance having not tested the long standing resistance shown at GBPUDSD 1,6280. We should still see a test of this big number which will be the big decider for medium term direction. I remain bullish GBP

GBP% Index Resistance: GBP/USD 1.6171, 1.6220, 1.6280
GBP% Index Support: GBP/USD 1.6116, 1.6064, 1.6000

AUD% Index

A long continuous drop in the AUD% index has almost retested the bottom of the bearish channel, which could see a slight bounce now that the index has become oversold. However the overall theme will likely remain bearish within this defined range following the expectations of a rate cut or other further stimulus from the RBA. RSI is now reading quite oversold on AUD/USD and overbought on EURAUD so we could see a slight consolidation of the recent moves before continuation. I am bearish AUD although we may see a slight bounce

AUD% Index Resistance: AUD/USD 0.9165, 0.9233, 0.9300
AUD% Index Support: AUD/USD 0.9136, 0.9093

CHF% Index

The Swiss Franc sold off from resistance all day on Monday although trend remains bullish. The sell-of is still within acceptable tolerances for a continuation higher, and given the 170pip drop in EUR/USD recently we may expect some bumpy trends and cautious trading for the time being. I am bullish CHF

CHF% Index Resistance (USD/CHF support): USD/CHF 0.9093, 0.9058
CHF% Index Support (USD/CHF resistance): USD/CHF 0.9150, 1.92000, 0.9238