If the worst of the market panic is behind us, it's a worthwhile exercise to see what the charts are saying about the dollar. One advantage of technical analysis is that the fundamental causes and considerations behind large moves need not be determined.
As is often the case, the large market moves were likely over-determined in the sense of having many contributing factors. Market positioning after sustained market trends created vulnerabilities. The drop in oil prices and fear that global headwinds would derail the U.S. economy and postpone Fed tightening -- or as the Fed's Bulllard argued Thursday -- extend QE a bit longer.
In any event, the selling climax appears to have passed and significant technical damage has been done to the U.S. dollar. At the same time, the breaking of what appeared to have been a one-way bet is a salutary for medium- and long-term investors who focus on value, even though such dramatic moves hurt short-term speculators.
The euro's 5-day moving average has crossed above the 20-day average for the first time since mid-July. A base has formed near $1.26, and on Wednesday, the euro posted an outside up day, which solidified that support. It is most certain that the market is not bullish the euro. However, further position squaring ahead of the FOMC meeting at the end of the month, especially given the risk that QE is continued. Initial resistance is seen in the $1.2850 and then $1.2900. The RSI which had been over-extended is now neutralized. A break back below $1.2700-15 would likely be seen as a sign that a top is in place.
Sterling is more interesting from a technical point of view. Shifting rate expectations and market positioning weighed heavily on sterling. On Wednesday it traded at its lowest level since last November. Yet, the RSI and MACDs have failed to confirm the recent lows, which has left a bullish divergence in its wake. A low looks to be in place. The first hurdle is seen near $1.6165, but a break could spur a move toward $1.6225-50.
The dollar had been confined to a two-yen range between April and August (JPY101-JPY103). On Wednesday it traversed more than a two-yen range (JPY105.23-JPY107.50). This range may dominate activity in the coming days. Initial resistance within that range is seen in the JPY106.50-75 area. The RSI's suggest a low is in place. The dollar spent much of the U.S. session near the lower Bollinger Band® (~JPY106.15), but pushed up to new session highs in late turnover.
Technical indicators do not appear to be generating strong signals in the dollar-bloc. The U.S. dollar looks poised to pullback from the multi-year highs it recorded Wednesday against the Canadian dollar. Initially, the CAD1.1200 may offer support, additional support is seen near CAD1.1160. The Australian dollar is too choppy to get a good read.