Selloff in the Dollar was the main theme in the currency markets last week. With the arrival of coronavirus vaccines, the global economy looks set to return to normal next year, despite some cautious comments from central bankers. Yen might look worst than Dollar but it is indeed still holding above near term support against most major currencies. Canadian Dollar was the strongest one as boosted by upside breakout in oil prices, as well as solid job data. Euro and Swiss Franc closely followed as next strongest, while Sterling was not too far away. Australian and New Zealand Dollar ended mixed, with Aussie weighed down by rising tensions with China.
Recent decline in the greenback was accompanied by steady rally in treasury yields, and strength in Asian markets in general. While some funds flowed into US stocks to fuel the record runs, at least part of them should have flowed into Asia. As Dollar index’s down trend resumed, there is prospect of some near term recovery near 90 handle. But that’s subject to a retreat in risk appetite, and as Gold is rejected by 1850 resistance. On the other hand, China’s Shanghai SSE poses some upside risk to Asian stocks, which could in turn draws more funds out of the US, thus triggers deeper selloff in the greenback.
Dollar index to take on 90 handle after downside breakout
Dollar index finally resumed the medium term down trend from 102.99 last week and hit as low as 90.47. While daily MACD shows sign of downside acceleration, RSI indicates that DXY is already is deep oversold condition. There is prospect of some support 90 psychological level, which coincide with 61.8% projection of 102.99 to 91.74 from 94.30 at 90.00.
That is, DXY might turn into near term consolidation soon to close the year. But even in case of rebound, we’re not expecting a firm break of 91.74 support turned resistance. On the other hand, sustained break of 90 could prompt further downside acceleration through 88.25 (2018 low) to 61.8% projection of 87.34.
DOW losing some momentum but SSE set for upside breakout
One possible pre-condition for rebound in Dollar would be pull back in record running stocks. DOW is now in proximity to 38.2% projection of 18213.65 to 29919.35 from 26143.77 at 30340.30. The index is losing some upside momentum as seen in 4 hour MACD. Failure to sustain above 30000 handle could bring some retreat back to 29231.20 support. Though, even in that case, near term bullish will be retained as long as this support holds. Further, firm break of 30340.30 could prompt upside acceleration in stocks which would be accompanied by downside acceleration in Dollar index.