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Yen, Gold and Oil Jumps as Geopolitical Risks Cloud Markets

The financial markets took a roller-coaster ride as 2020 started with a bang. US stocks jumped to new record higher to celebrate new year. But sentiments took a great turn after abrupt escalation in Middle-East tensions. Safe-haven flows into Gold, Yen and US treasuries came in unison. Oil prices also surged in response.

In the currency markets, Yen and Canadian Dollar were the strongest ones last week. New Zealand Dollar and Australian Dollars were the weakest, followed by Euro. Dollar was somewhat caught in the middle. The greenback somewhat staged a strong rebound against Sterling, Euro, Aussie and Kiwi. But it also suffered steep selloff against Yen and Loonie. Looking ahead, we’d expect risk aversion and falling yields stay as hindrance to Dollar’s rebound attempt. Meanwhile, Australian Dollar is probably setting up for deep fall should risk aversion intensifies.

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Dollar index still in corrective fall despite rebound attempt

After being sold off broadly initially last week, Dollar staged a notable rebound towards the end of the week. But the performance of Dollar index was not too convincing, mainly thanks to selloff in USD/JPY. DXY is staying in the fall from 99.66 high. It’s still on track to 100% projection of 99.66 to 97.10 from 98.54 at 95.98 and possibly below.

Technically, as the structure of the decline suggests it’s a correction, we’d expect strong support from 38.2% retracement of 88.25 to 99.66 at 95.30 to contain downside, at least on the first attempt, to bring rebound. Sustained break of 55 day EMA will bring stronger rebound through 98.54 resistance. However, that would very much depends on how risk aversion, treasury yields and USD/JPY play out.

DOW and NASDAQ pressing key resistance, risk pull back

Major US indices hit record highs last week. While there was some set back on Friday due to Middle East tensions, the pull back was not too serious. However, both DOW and NASDAQ are now pressing key resistance levels. Some form of profit-taking pull back is possible should tensions escalate.

DOW hit 61.8% projection of 15450.56 to 26951.81 from 21712.53 last week but couldn’t sustain above it. As long as 28376.49 support holds, further rally is still in favor to long term channel resistance. But break of this support will indicate short term topping. We might see deeper pull back to 55 day EMA (now at 27866.72).

NASDAQ, on the other hand, is pressing long term channel resistance. Break of 8909.10 support will also indicate short term topping and bring pull back to 55 day EMA (now at 8613.44).