The USD looks like it might be breaking higher again, Euro and Aussie to suffer

November 4, 2013

What a big turn around we saw last week and one that I don’t think anyone other than the technicians would have seen coming. The weekly bar on the USD Index is phenomenal and a break as well so on Friday it was another night of US dollar strength with the Euro, Pound and Aussie under pressure.

As noted above the US dollar indeed closed the week breaking back up through the weak period that has persisted since July. The key drivers have been a bit of FOMC aggression -even though subtle – data like the Chicago PMI which is juxtaposed against the data in the EU which has reinforced the ECB needs to do something about disinflation which is accelerating and record unemployment which continues to persist – the Euro’s week was a poor one and it closed at 1.3465, Sterling closed at 1.5924 and the Aussie dollar closed at 0.9435 – not far off my target of 0.94 and the guys from Iquant Systems target of 0.9330.

The USD kicked Euro’s butt last week and the 94.00/50 level is a big one for the Euro as you can see int he chart below given it is the bottom of the uptrend channel Euro has been in for some time. As I discussed on the weekend on my BTFDtv show and also showed in the presentation that was associated with the show the US dollar might just have broken back up through a decisive level in USD index terms. It is tentative given the Euro hasn’t broken completely down at the moment so we aren’t too excited but we are watching closely as we think a USD bounce means not only Euro, GBP and AUD weakness but also an end to the stock markets rally.

As you can see in the 1.3450 is the line of the uptrend and 1.3400 is other technical levels – so this is the zone to be wary off. Not too bearish but watching.

Likewise the Aussie is still biased lower.

RBA Governor Stevens got his way last week and the Aussie fell to close the week at 0.9425 and technically it looks like it is going to fall further on the basis of my usual system which includes the moving averages, bolly bands and MACD histogram.

The guys at Iqantsystems are looking for lower and the 0.9300/30 region looks a fair target and maybe the recent low at 0.9270ish. Well see.

I can’t highlight this US dollar move enough because the a weaker USD has been synonymous with Taper on, Taper off and if the US dollar is breaking higher then it suggests that the Fed might have hit the mark with the slightly more aggressive, and 5.5 points lower reflecting the moves ve language last week about the chances of Taper sooner rather than later might have just done enough to increase uncertainty in the mark and end the one way bet that was the the stock market rally and the US dollar fall. European data helped but its the FOMC that took the foot off the US dollar. USDJPY finished the week at 98.67.

On stock markets it was a positive day with the Dow, Nasdaq and S&P 500 all closing higher. The increases were 0.45%, 0.06% and 0.3%1 respectively. The S&P made a high of 1775 this week which was just above the top of a big weekly uptrend that came in at 1769 – the weeklies look like they are running into resistance but the dailies have turned according to some technicians – non-farm payrolls on Friday are very important in this context.

It seems to me that Stocks are stalling both in the US and here at home. The SPI 200 looks like it banged into the uptrend line…from the underside on the weekly charts and faile4d last week and while it’s no so stark on the daily charts below the price is certainly rolling over. As discussed above this should be a better day on the physical but my target this week is 5360 in SPI terms and then 5300/20.

Across the Atlantic only the FTSE managed to have a positive return on the day rising 0.05% but the rest of Europe, no doubt worried by the early US fall, finished lower. The DAX fell 0.29%, the CAC was 0.69% lower while in Milan and Madrid were 0.97% and 0.71% respectively.

On the Sydney Futures Exchange the SPI 200 rose 24 points to 5412 bid. On the bond boards the 3’s and 10’s were 6 and 5.5 points lower reflecting the move higher in US Treasuries which closed the week at 2.62% up 7 points on the day, Friday.

Looking at commodity markets Light Sweet Crude was lower by 1.84% closing at $94.60. Gold dropped again and closed at $1311 oz down about $40 over the week. Silver was largely unchanged, Copper closed at $3.29 lb while on the Ag’s soybeans fell 1.11% but corn and wheat were fairly boring by their standards down 0.29% and up 0.04% respectively.Bitcoin opens the week at 213.

On the data front looking back to Friday and we see a decent run of Australian and Asian PMI’s which is great news for the globe and Korean exports surging 7.3%.

Today it’s a holiday in Japan but in Australia we get the early month data that is so important for the RBA. TD inflation kicks off the program then ANZ Job Ads, house prices and retail sales in Europe it is Markit PMI day along with ISM in New York and factory orders.

Have a great day and good hunting

Greg

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