The dollar has continued to gain ground this week after it broke above some key levels that I
have been monitoring in my bi-weekly updates for a long time now. Earlier in the week, I
said I thought that would be the case so the question now; is how many more miles has the
US currency got left in the tank?
Personally speaking I think there is more mileage left in this dollar move and I shall provide
some technical levels that I think we could see reached, in particular on the USD index and
the EURUSD, but first let’s have a brief look at the not so proud pound. If you remember the
other week I said that a weekly close below 1.3000 on the GBPUSD would not be technically
positive. Well since such a close was posted last Thursday, the price has continued to leak
lower, reaching as low as 1.2866 on Wednesday.
Granted a lot of that move is more down to the rising dollar than necessarily anything in
particular about the pound, but nevertheless the technical outlook doesn’t look especially
good for the GBPUSD right now. The close on Wednesday at 1.2892 was below that 50%
Fibonacci level I previously mentioned (at 1.2911) as was the close last night too. Therefore,
I think the next stop on this one is for a test of the 1.2800 handle, where another important
Fibonacci support level comes into play. To see exactly what I am talking about please take a
look at the chart below.
As you can see the green horizontal line which defines the 61.8% retracement of this year’s
range, up from the 1.2441 lows posted right at the start of January, to the 1.3381 high
reached mid March, comes in at exactly 1.2800.
Meanwhile, the US equity markets have remained buoyant led by the Nasdaq setting fresh
all time highs yesterday. However, the other main US bourses have so far failed to follow
suit and once again yesterday the S+P 500 continued to run into a brick wall ahead of that
2940 level I have been forever banging on about.
Perhaps the interesting thing, already noted by some pundits, is that besides the dollar
rising, most recently so has the CHF and JPY in relative terms too. Consequently, the brunt
of the dollar’s recent G10 gains have been posted versus the commodity currencies along
with EUR and the GBP. This dynamic has also taken place against what has been an
extremely benign and positive equity market backdrop.
That’s certainly not usual and has led some to conclude that the FX markets have not exactly
bought into the back end of this whole Q1/Q2 equity market rebound. What is also
noticeable is that the most recent gains in the equity space have occurred on the back of
very low volumes too, which if nothing else underlines a general lack of participation.
Consequently, that makes this rally potentially vulnerable to much heavier volumes in the
other direction should the right catalyst come along to deliver that.
So, with all that in mind let me now touch on the technical outlook for the USD and the EUR
via a couple more charts. The chart below of the USD index tracks the upside Fibonacci
retracement targets following the move, down from 103.82 down to 88.25. As you can see,
the most recent push above the 97.87, 61.8% horizontal green line, now opens up the
potential for a test of the next important level just above 100- to be more exact, at 100.146.
So, if the USD index can push up to test levels around 100 then that would imply a move
well below 1.10 on the EURUSD which is also possibly identifiable via a similar, Fibonacci
retracement chart which I have also included in this update below.
As you can the price has extended its move below the 61.8% Fibonacci support level at
1.1187 to as low as 1.1118 just yesterday. That’s surely increased the chances of a move
now towards the next and final retracement level at 1.0864. Right now a move to around
that level would most likely tie in with a test of the 100 level on the USD index, that I just
mentioned and hence both look entirely possible from hereon in.
However, since I peeled off all these charts late yesterday evening the dollar has given back
a little ground this morning with the EURUSD edging back up, off what was a fresh 52- week
low yesterday at 1.1118, with the GBPUSD moving back above 1.2910 as I write. That’s
entirely understandable I think as we do have some important US data due out later this
The latest revision to US Q1 GDP will be revealed at 1.30pm today and is expected to come
in slightly higher in terms of the actual growth print. However, and certainly worth keeping
a close eye on; is whatever the personal consumption and price index components of that
report reveal. Core PCE (Personal consumption expenditure) is expected to be revised
sharply lower as is the GDP price index, and by just how much will probably determine how
the dollar fares into the weekend.
Given that some seriously downward revisions are expected here, then I think its possible
that the dollar might get more of a lift if those revisions don’t actually show up in the
numbers. We shall just have to see, but provided there are no serious surprises here then I
think the dollar will continue to steal the show.
Important Economic Releases Due Later Today
26/04- 1.30pm US Q1 Revised GDP Estimate