Near-term Dollar Outlook Is Nuanced

The US dollar fell against all the major and most of the emerging market currencies last week. Risk appetites have been rekindled, and the yen has gone from the best performer in recent weeks to the worst over the past week.  

Major equity markets advanced for the third week.  The MSCI Emerging Market equity index has rallied more than 15% since the January 21 low, and nearly 12% since the February 11 low.The index finished the week at its best level since January 4. 

Oil prices are up 35% since the February 11 low to approached $35 a barrel.  While still low, has taken some sting off deflationary fears, and helped ease some concern about financial exposures to the energy sector.The 10-year US breakeven has risen for nine consecutive sessions through March 3 to 1.55% from nearly 1.11% on February 11.It was below 1.50% when the Fed hiked in mid-December 2015. 

One of the noteworthy exceptions to this risk-on phase in gold’s rally. It was up 4.2% last week to its best level since February 2015.It broke out of the a triangle pattern, which now targets the $1300-$1320 area.In January and the first half of February, gold was moving in the opposite direction of stocks, and now it is rising alongside equities.  

The euro peaked on February 11 near $1.1375.It fell to $1.0825 on March 2. It bounced in the second half of last week to nearly $1.1045.This completed a 38.2% of the euro’s decline (~$1.1035).The 50% retraces are found near $1.11, and the 20-day moving average is near $1.1080. The RSI is constructive, and the MACDs are about to turn higher.We think the euro has scope for additional near-term corrective upticks ahead of the ECB meeting on March 10.Initial support is seen in the $1.0940-$1.0960 area.  

The dollar appears to be carving out a low against the Japanese yen.The dollar has a double low near JPY111.00.The neckline is near JPY114.50.  The measuring objective is around JPY117.50, which corresponds to a 61.8% retracement of the dollar’s sell-off since the January 29 peak of about JPY121.70.The technical tone is constructive, with the five-day moving average crossing above the 20-day average before the weekend, and the MACDs and RSI trending higher.Initial support is seen near JPY113.00.