Dollar extended its broad based rally last week as the dollar index registered the 11th consecutive week of gain, which is the strongest winning streak on record. The index hit as high as 85.68 and and hit the highest level of since 2010. Among the major currencies, commodity currencies were the weakest once as weighed down by risk aversion. Aussie and Kiwi were also talked down by respective central bankers. Elsewhere, European majors were also seen weak against dollar with Sterling being relatively resilient. Yen fluctuated between again as loss on different news and was the second strongest currency.
After a relatively quiet week, the upcoming economic calendar is rather busy. In particular, dollar will face the tests of consumer confidence, ISM indices and NFP. Sentiments towards the greenback is leaning towards the upside, meaning that strong data would push dollar higher but weak data could have mild impact. ECB meeting could be a non-event after last month's surprised announcement of additional easing. Sterling will look into PMI data for strength against Euro. Meanwhile, Aussie will look into retail sales, trade balance as well as China PMIs. Much volatility is anticipated this week. Here are some highlights.
- Monday: German CPI; UK mortgage approvals; US personal income and spending
- Tuesday: Japan household spending, unemployment, industrial production, retail sales; China HSBC manufacturing PMI; Swiss KOF; German unemployment, Eurozone CPI; UK GDP final; Canada GDP; US consumer confidence;
- Wednesday: Japan Tankan; China manufacturing PMI; Australia retail sales; Swiss PMI; Eurozone PMI; UK manufacturing PMI; US ADP employment; ISM manufacturing
- Thursday: Australia building approvals, trade balance; UK construction PMI; Eurozone PPI, ECB rate decision; US jobless claims
- Friday: Eurozone services PMI; UK services PMI; Canada trade balance; US non-farm payroll, ISM services
Technically, dollar index is still in progress for the medium term target of 61.8% projection of 72.69 to 84.75 at 86.35. Based on current momentum, this projection level would likely be taken out and the index should then target 88.70/89.62 resistance zone. In any case, near term outlook will stay bullish as long as 83.86 support holds.
From a longer term perspective, the real test is 89.62 cluster resistance level, which is close to 38.2% retracement of 121.02 to 70.69 at 89.91. The strong support as seen from 55 months EMA since 2012 is certainly a sign of underlying strength. But clear break of 89.62/91 is needed to confirm establishment of a long term up trend. Otherwise, the index would just be in range trading. At this point, we'd favor a strong break next year.
Regarding trading strategies, our EUR/USD and AUD/USD shorts are still correct. EUR/USD took out 1.2755 key support level firmly and is showing downside acceleration again. We'll stay short in EUR/USD look forward to a test on 1.2042 key support level. Aussie also showed a bit of downside acceleration last week and we're now looking at a test on 0.8695 support in near term. We'd be cautious on bottoming around there. But for now, we'll stay short in AUD/USD.