Constructive Price Action Leads Technicals

Turmoil in the equity market helped spur the technical pullback in the dollar we anticipated. The greenback finished the week on a firm note as equities stabilized.The technical indicators, which signaled the likely correction, have not turned in the dollar’s favor, but the price action itself was more constructive. Dramatic equity market losses weighed on the dollar and the Canadian dollar, arguably because it would more likely impact their respective central banks which are expected to hike rates again here in Q4. Given the modest economic calendar, equity market developments may have greater impact on the dollar fortunes than may usually be the case.  

Dollar Index

Technical support near 95.00 was frayed but it did not close below there. The area corresponds to the 50% retracement of the last leg up that began on September 21. The 20- and 100-day moving averages are found near there (~94.95 and ~94.85 respectively). The 96.00 area is the nearby cap. It has seen minor intraday penetration, but here too it failed to confirm the breakout at the close. The mixed technical indicators do not give much hope of a sustained break from this range in the days ahead.  

Euro  

The gains in the euro stalled ahead of technical resistance seen in the $1.1625-$1.1630 area, which corresponds to the 100-day moving average, the month’s high and the 50% retracement of the euro’s decline from the September 24 high above $1.1800. Support now is seen in the $1.1500-$1.1520 area.  The technical indicators remain somewhat constructive for the euro, suggesting broad consolidation may be the most likely scenario.  

Yen

The dollar has fallen against the yen for seven consecutive sessions. It is the longest declining streak since March of last year when over an eight-session period, the dollar fell from near JPY115 to about JPY110.60. During this streak, the dollar has fallen from a JPY114.50 to close to JPY111.80, where the 50-day moving average is found. The technical indicators give no reason to think that a dollar bottom is in place yet. Initial risk extends toward JPY111.30-JPY111.50. A move above JPY112.50 would begin neutralizing the negative technical condition.