The dollar has been in retreat at the start of this week. Yesterday, with European markets closed and liquidity light, it probably didn’t take much selling of the greenback to see major dollar crosses move significantly. These moves have seen major dollar crosses approach key technical levels. In my view, it’s more than likely that we are seeing the necessary position cleansing before the dollar starts to rally again. It would make sense as those levels are where I am expecting the new bullish dollar trend to start from.
Here’s weekly chart for EUR/USD, note that equality for the corrective pattern which has been in force for over a year comes in at 1.1775….
And here’s the daily chart for cable (GBP/USD), where what looks like an A-B-C wave (iv) of 5 has seen the currency pair retrace almost exactly 61.8% of the preceding wave 3. From an Elliott Wave theory (EWT) standpoint the bearish GBP/USD trend is still intact and it would take a move above 1.5025 (EWT states that wave 4 cannot violate the territory of wave 1) to invalidate the downtrend.
And finally here, a weekly chart of USD/JPY which has reached a key support level. This is the cross that I’ll be keeping an eye on most because we really are right at the limit on this one. Any further declines and it threatens to call into question the whole bullish dollar rally.
Elsewhere the theme of slowing global growth is still impacting the macro-economy at large, and the Reserve Bank of Australia has reacted accordingly by cutting interest rates to a record low of 1.75%. Despite the stabilisation in China, the reality is that pressure in the domestic housing market and lower inflation has given the Australian central bank room to ease monetary conditions. We see a similar theme in the Eurozone where the European Commission (note.. not the ECB) has cut its forecasts for inflation in 2016 and 2017 blaming lower oil prices and a slower global economy. The IMF has also weighed in cutting the forecast for African growth in 2016 from 4.3% to 3% on the back of lower commodity prices. I’m not sure if that forecast change captures the bounce back in commodity prices, but to be honest, I consider the bounce temporary, there has been no change in the fundamentals that makes me believe it is sustainable. There is nothing that makes me want to retreat from a longer term bullish dollar view either…
Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416. It is for informational purposes and is not an official confirmation of terms. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.
Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.
Follow our tweets @parityfxplc
Follow us on LinkedIn ParityFX Plc; and at www.parityfx.com