What goes up must eventually come down. And probably that is the question on everyone’s mind this week in regards to the US Dollar, which has enjoyed months of uninterrupted bullishness, to a point that it’s starting to get a bit boring.
While the Dollar Index has seen a few down weeks in the past 6+ months since the rally started, of interest is the price action on the trade weighted index since last week, which opened higher last Monday only to settle lower for most of the week.
In fact, looking back at last week, if it wasn’t the FOMC statement that the markets took as being hawkish, we would have probably seen a lot more declines. While the Fed insists on rate hikes any time after April, the markets still look a bit doubtful, with some analysts postponing rate hikes by as much as a year to January 2016.
For the technical trader, the Dollar Index holds quite a bit of juice this week.
For starters, the daily chart time frame shows a shooting star/spinning top candlestick pattern. What makes this even more interesting is the up gap that was formed, typical of reversal candlesticks. But, of course, the Dollar Bears can only smile at ease when the most immediate support at 94.21 is broken.
The weekly chart also paints a bearish picture with a neat hanging man type of candlestick pattern being formed, which is yet again indicative of a correction at the very least. But with weekly candles, we will most likely have to wait until the end of the current week in order to ascertain future price direction. For all we know, this week could either turn out to be choppy or we will indeed see a decline as signaled by the candlesticks.
Ever since the US Dollar embarked on its rally since April/May last year, there was only two instances where we saw a decline for two weeks in a row and in both these previous cases, there were no clear indications of a correction, as much as the current weekly candlestick points to.
Fundamentally, with the FOMC risk done with, the markets look forward to a month full of data in terms of the PMI’s and other secondary market data, which incidentally has not been that impressive for quite a while. The main event worth noting, however, will be this Friday’s Nonfarm payroll, which markets are currently looking at estimates of 231k alongside a stable unemployment rate.
The lowered estimates from last month’s 252k print might well mean that we could yet again see a bit of a positive estimates beating jobs being added, but there is always the risk of the fact that of the last four weekly unemployment claims, only one managed to beat estimates, which is something to bear in mind.
