Mixed Outlook Remains For The Dollar

Monday saw the BOJ Governor Kuroda on the wires, although the sense is that the market is already fully updated on Japanese monetary policy at the moment regardless of how doveish his comments are, so there was nothing too market moving. Other news on the calendar for Monday includes UK manufacturing PMI, which given the recent performance is expected to post a good number although may not beat forecast. We also have the Fed Chairman Bernanke on the wires so any hawkishness from him will be a shock to the market, which is now expecting a spring taper. We also have the US ISM Manufacturing PMI, which is expected to print a good number and has beaten forecasts for the last five prints, which suggests perhaps some dollar strength for the afternoon if the data plays ball.

For the rest of the week, the data focus will be on the following:

Tuesday, Dec 3
12:30am AUD Retail Sales m/m
3:30am AUD Cash Rate
3:30am AUD RBA Rate Statement
9:30am GBP Construction PMI

Wednesday, Dec 4
12:30am AUD GDP q/q
9:30am GBP Services PMI
1:15pm USD ADP Non-Farm Employment Change
1:30pm USD Trade Balance
3:00pm USD ISM Non-Manufacturing PMI
3:00pm USD New Home Sales

Thursday, Dec 5
12:30am AUD Trade Balance
12:00pm GBP Asset Purchase Facility
12:00pm GBP Official Bank Rate
TBA GBP MPC Rate Statement
12:45pm EUR Minimum Bid Rate
1:30pm EUR ECB Press Conference
1:30pm USD Prelim GDP q/q
1:30pm USD Unemployment Claims

Friday, Dec 6
8:15am CHF CPI m/m
1:30pm CAD Employment Change
1:30pm CAD Unemployment Rate
1:30pm USD Non-Farm Employment Change
1:30pm USD Unemployment Rate
2:55pm USD Prelim UoM Consumer Sentiment

All times are London time (GMT)

USD% Index

The Dollar fell in early trading back to support, helped by a bullish Pound and Australian Dollar and is now trapped inside a rapidly narrowing wedge which makes a breakout in one direction likely for the early new week. The mixed outlook seems set to to continue although a break to the upside seeming marginally favourable, simply due to the likelihood of a drop in EUR/USD and the market-wide effect that that has. RSI is below 50 and also below the 100 period moving average which is a bearish signal although we’ve been stuck sitting on the fence now in terms of RSI for some time so this is not a strong indication of downward momentum. There is the sense that what can’t go sown, will reluctantly have to go up. I am mildly bullish USD

USD% Index Resistance (EUR/USD support): EUR/USD 1.3581, 1.3570
USD% Index Support (EUR/USD support): EUR/USD 1.3600, 1.3613,

EUR% Index

The EUR% index is showing a reluctance to adhere to falls in the Dollar, and is still sat at the right shoulder of a daily time-frame bearish head and shoulders formation. As such further downside is to be expected once we get a break below 1.3570 in EUR/USD. The bearishness of EUR/GBP has so far been preventing the index from rallying with the pound which may be helpful until the suspected dollar rally gets going. our bias is bearish EUR

EUR% Index Resistance: EUR/USD 1.3608, 1.3628, 1.3648
EUR% Index Support: EUR/USD 1.3571, 1.3500

JPY% Index

We are within touching distance now of the years low, but we seem to have run out of gas somewhat in the Nikkei so the Yen is finding it a struggle on the final straight. A test of this strong level still seems likely although a relief rally before a final drop can’t be ruled out. The Bearish trend line at shown equivalent to USD/JPY 102.54 seems to be doing a good job of containing price action but there only seems a week or two until that too meets the yearly low so it may just be a waiting game. Once the yearly low is met, profit taking is expected to push the index higher. I remain bearish JPY but expect a bounce from here in the short term

JPY% Index Resistance (USD/JPY Support): USD/JPY 101.96, 101.35
JPY% Index Support (USD/JPY Resistance): USD/JPY 102.54, 102.89

GBP% Index

Early strength from the Pound has pushed us up to the 238.2% fib expansion from this rally up, before profit taking set in. EURGBP has pushed below support slightly although has not convincingly made a run lower from there yet. It is still plausible for a turn around in the index now that this resistance level has been met however this would require a broad based dollar rally, which if we get, may see the same thing happen as last time, whereby the Euro drops but the pound holds it’s ground somewhat. Longer term the pound seems undervalued, but in the shorter term, a profit taking consolidation drop seems preferable I am cautiously bearish GBP in the short term

GBP% Index Resistance: GBP/USD 1.6430
GBP% Index Support: GBP/USD 1.6400, 1.6350, 1.6300, 1.6233

AUD% Index

Positive PMI data from China over the weekend and overnight from the HSBC PMI along with the market wide expectation that the RBA will refrain from policy change at this weeks RBA rate decision have lifted the Aussie and will likely to continue to to do so for the immediate future. We remain in a bearish channel although it now seems likely that the upper resistance of this channel will be tested and defeated for the time being. I am bullish AUD

AUD% Index Resistance: AUD/USD 0.9200, 0.9230
AUD% Index Support: AUD/USD 0.9159, 0.9125, 0.9100

CHF% Index

Much like the EUR% index, the CHF% index seems to be forming a nice bearish head and shoulder formation, although we have yet to see a failure of the current rally. If we do post a lower high then we should see a reasonable push lower from here. I am cautiously bearish CHF

CHF% Index Resistance (USD/CHF support): USD/CHF 0.9036, 0.8989
CHF% Index Support (USD/CHF resistance): USD/CHF 0.9890, 0.9100, 0.9142