The US dollar had another good week; rising against most of the major currencies. Among the majors, the relatively high yield and modest easing of near-term rate cut speculation allowed the New Zealand dollar to shine, rising a little more than 1% last week. The yen also strengthened in the four sessions last week for a 0.4% gain.
After briefly consolidating in the first part of the week, the greenback closed the week near its best levels, especially against the European currencies. The main consideration seems to be the contrast between Fed officials like Fischer and Dudley who have been signaling a rate hike before the end of the year, while the ECB has arguably signaled a likely extension of its asset purchases.
The Dollar Index rallied to seven-month highs ahead of the weekend. It is about one percent from the year's high set in late-January, a little below 100.00. A week ago, the Dollar Index was bumping against its upper Bollinger® Band. This helped us anticipate the sideways movement at the start of the new week. Now that upper band is found near 99.10. Initial support now is seen near 98.20. We note that the 50-day moving average crossed above the 200-day moving average, which technicians refer to as the "Golden Cross." Other technical indicators suggest additional upside potential.
In the euro, which is the largest component of the Dollar Index, the same moving averages will cross to the downside early next week. The crossing of the 50-day moving average below the 200-day moving average is dubbed the "deadman's cross".
The euro broke the trendline off the January, June and July lows on October 12. It retested it from below on seeming confusion during the ECB's press conference (algos?). After setting new highs for the week, the euro reversed lower and posted an outside down day. Follow through selling was seen before the weekend. The next immediate target is $1.08 and then $1.0710. There is an increasing chance of seeing a move closer to $1.05 before the end of the year. The RSI and MACDs allow for additional dollar losses, though the Slow Stochastics are set to turn higher. The euro closed the week hugging its lower Bollinger Band ($1.0870).
The dollar snapped a three-week advance against the yen and fell in four of last week's five sessions. The greenback rallied from near JPY100 in late-September to JPY104.20 on October 13. It may be tracing out a small head and shoulders top, with an upwardly slowing neckline, found near JPY103.15 on Monday, October 23. The measuring objective is near JPY101.80, which is also the 61.8% retracement objective of the advance. The Slow Stochastics have turned lower. The MACD is poised to roll-over early next week. The RSI is neutral near 56.
Since the flash crash on October 7, sterling has been confined to the range set on October 11 between $1.2090 and $1.2375. Having tested the upside a few days ago (~$1.2330), it is poised to test the lower end next week. However, the technical indicators warn against expectations of steep losses. The Slow Stochastics have crossed higher, while the MACDs are set to turn up early next week. Choppy, but broadly sideways trading seems like the most likely near-term scenario.
After testing the CAD1.30 level on October 19, the US dollar rallied 2.7% to new seven-month highs near CAD1.3350. Although the Bank of Canada statement, following the policy meeting, tweaked the risk assessment to balanced from the asymmetrical downside bias previously, Governor Poloz's admission that easing was discussed put the loonie on the defensive. Disappointing retail sales and slightly softer than expected headline inflation ahead of the weekend, pushed on an open door. The technical condition largely favors further US dollar gains. Our medium-term target is near CAD1.35, but in the bigger picture, a move back into the CAD1.38-CAD1.40 area seems reasonable. A near-term note of caution comes from the pace of the US dollar's rise. It is edging through the top Bollinger Band (~CAD1.3320).
Poor employment data reinforced the significance of the $0.7700 ceiling for the Australian dollar. It posted a potential key downside reversal on October 20 and fell further ahead of the weekend. A break of the $0.7590 area warns potential toward $0.7500. The technical indicators are not generating strong signals presently.
The December light sweet crude oil futures snapped a four-week advance, losing about 0.6% last week in mostly broad sideways trading between $50 and $52. A convincing break of the $49.70 area is needed to boost confidence in our suspicion that oil is rolling over. The 20-day moving average is near $49.80, and the contract has not traded below that average since late-September. The Slow Stochastics are trending lower while the MACDs are turning down.
US 10-year Treasury yields are also moving sideways. Since rising above 1.70% on October 5, the yield has stayed above there but has been unable to get a toehold above 1.80%. The December futures note looks mildly constructive but is near initial resistance see around 130-15, which corresponds to Oct 20 high and the 20-day moving average, which the futures contract has not closed above since October 3. The technical indicators suggest near-term scope to the upside. Gains toward 131-00 would still be consistent with a correction, but beyond there and the bulls may move back into ascendancy.
The S&P 500 was virtually flat last week after slipping 1.5% over the past two weeks. The 2150 area we had marked as resistance proved to be a formidable cap. However, ranges were narrow, and the market appears to lack near-term conviction. The Slow Stochastics are turning up, but the MACDs and RSI are a week. We also note that as the US earning season winds down, corporations will likely restart their share buyback operations which are suspended around earnings releases. A break of the October 13 spike low near 2115 could scare investors and likely coincide with higher volatility (VIX).