Contrary to our expectations, there was very little follow-through dollar buying after the jump in hourly earnings reported on September 7. In fact, the dollar lost ground against all the major currencies last week but the Japanese yen. With the help of rising rates and some stability in emerging markets (MSCI Emerging Markets Index finished the week with a three-day advance), the dollar rose above JPY112.00 for the first time in six weeks.
Despite softer than expected consumer inflation (headline and core) and retail sales, the greenback’s losses were pared ahead of the weekend. This snapped a four-day slide against the euro, sterling, Australian dollar, and Norwegian krona.
The technical signals are not clear, but we can identify levels that may help sharpen the picture. The Dollar Index fell to (94.35) its lowest level since the end of July before the weekend. The 94.00-94.20 area is important support, and a convincing break would target 93.00. On the upside, a one-month trendline begins the new week near 95.20. Alternatively, if the pre-weekend lows hold, which are just a little below the late August lows, it is possible a double bottom is in place. The neckline is near the early September highs around 95.70 (which is also a 50% retracement of the decline since mid-August’s peak). If confirmed, the measuring objective is a little above 97.00.
The euro’s gains stalled ahead of the weekend (~$1.1720) in front of last month’s high (~$1.1735). It closed above its 100-day moving average on September 13 for the first time since late April, but this did not signal a breakout. A convincing break of the $1.1640 area, which houses a trendline off the June 14, July 9, and July 31 highs, and retracement objectives, would increase the likelihood that the counter-trend bounce has run its course. A move below $1.16 offers confirmation.
The technical indicators are less ambivalent for the dollar against the yen than the Dollar Index and the euro. The close above JPY111.85 is important as it marks the 61.8% retracement of the decline from the July high near JPY113.15. The JPY112.45 area represents a 50% retracement of the dollar’s decline from the June 2015 high near JPY125.85. We see potential toward JPY115.00-JPY15.60. Separately, but not totally unrelated, the Nikkei gapped higher on September 11, leaving a bullish two-day island behind. The Nikkei again gapped higher before the weekend and leapt above the key 23000 level that has been frustrating investors for several months. The high for the year is still some ways near 24130.
