Dollar Index To 95.48 Resistance In A Jam Packed Week
ActionForex | Mar 02, 2015 04:15AM ET
Fed chair Janet Yellen's testimony last week as relatively balanced and triggered little reactions in the forex markets. Nonetheless, US equities were shot up to new record higher as Yellen reaffirmed that there would be no rate hike before June. On the other hand dollar attempted to rally after data saw pick up in core inflation. Also, St Louis Fed James Bullard, a known hawk, urged FOMC to drop the word "patient" in March statement so as to give itself flexibility to act in summer. But overall, the greenback was still held inside recent range against other major currencies. And it's strength was somewhat overshadowed by Canadian dollar, Kiwi and sterling. CAD was supported by BoC governor Stephen Poloz that the latest rate cut already provided "insurance" to the economy. Euro stayed weak even though Greece finally secured a four month extension to the bailout.
A number of heavy weight events are scheduled for this week which could finally trigger breakout from recent dull trading. We'll have four central bank meetings and numerous important data. Dollar will face the test on ISM indices and non-farm payroll. Technically, we'd favor EUR/USD to recent recent down trend while GBP/USD should complete the corrective rebound. But the dollar still need some stimulus to build up momentum for a rally and solid ISM and NFP are needed.
EUR/GBP is now pressing 0.7250 key support level. We originally turned cautious on the cross as it lost some downside momentum. But the outlook changed a bit as EUR/GBP built up downside momentum again. It will face the test of PMIs from UK which could solidify selling pressure. Eurozone will release CPI data which is expected to show some improvements. Also, ECB and BoE will meet.
Elsewhere, Australian dollar will have a close eye on RBA, which some analysts expect another rate cut. Also, GDP, retail sales and trade balance will be released. BoC will also meet but governor Poloz already played down the chance of another cut. Loonie traders will instead look into Ivey PMI, building permits and trade balance.
Here are some highlights for the week:
- Monday: Eurozone PMI manufacturing revision, CPI estimate, unemployment; UK PMI manufacturing; US personal income and spending, ISM manufacturing
- Tuesday: Australia building approvals, RBA rate decision; UK construction PMI; Canada GDP
- Wednesday: Australia GDP; Eurozone PMI services revision; UK services PMI; US ADP employment, ISM services, Fed's Beige Book; BoC rate decision
- Thursday: Australia retail sales, trade balance; German factory orders, Eurozone retail PMI, ECB rate decision; BoE rate decision; US jobless claims, factory orders; Canada Ivey PMI
- Friday: Swiss Foreign currency reserves, CPI; Eurozone GDP revision; Canada building permits, trade balance; US non-farm payroll, trade balance
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Dollar index could have just completed the triangle consolidation from 95.48 at 94.05. In other words, recent up trend might be resuming. However, decisive break of 95.48 is still needed to confirm. In that case, the index would target 61.8% projection of 87.62 to 95.48 from 94.05 at 98.90 next. However, rejection from, or failure to sustain above 95.48 could bring another pull back to 55 days EMA (now at 92.68).
Regarding trading strategy, we'd prefer to buy dollar this week. The question is which currency to sell against the greenback. Sterling is still clearly strong against both Euro and yen and thus we'll avoid it. EUR/USD, USD/JPY, AUD/USD and USD/CAD are also staying in sideway range and breakout and needed to confirm resumption of the prior trend. Comparing them, we're holding on to the view the EUR/JPY's rebound from 130.13 is a corrective move and break of 130.13 is expected at a latter stage. So, selling Euro is preferred over yen. We're viewing EUR/AUD's choppy fall from 1.4893 as a corrective and thus, we'd slightly favor Euro than Aussie. But that's is far from being certain. EUR/CAD is also possibly drawing some strong support from 38.2% retracement of 1.2126 to 1.5885 and thus, is building up a base for sustainable rebound. But then, it's also far from being certain. The range trading in AUD/CAD also provide little help to decide whether Aussie or Canadian is stronger.
However, EUR/USD's break of 1.1269 was seen as a early sign of down trend resumption last week and showed that euro is possibly taking the lead. Hence, we'll sell EUR/USD at market this week with a tight stop at 1.1280. We'll monitor the reaction at 1.1096. Meanwhile, we'll try to sell AUD/USD on break of 0.7739 minor support and buy USD/CAD on break of 1.2662 minor resistance.
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