Mixed US Data Points To A Bumpy Dollar Reversal

With ISM Manufacturing PMIs, Advance GDP, Unemployment Claims, ADP Employment Change and the Unemployment Rate all impressing last week and Non-Farm Employment Change and Factory Orders disappointing, there is a lack of clear fundamental momentum in the US to allow for a clean break to the upside for the dollar. However, the technical positioning of key currencies like EUR, GBP, CHF and JPY may still allow for a reversal of the dollar in the medium term, although it may just be a slightly bumpier reversal than if the data had been a clean sweep across the board and the upside may be limited to the current range for now.

This week my data focus will be on the following:

Monday 2:30 – AUD Retail Sales 9:30 – GBP Services PMI 15:00 – US ISM Non-Manufacturing PMI

Tuesday 5:30 – AUD RBA Rate Statement 9:30 – GBP Manufacturing Production 10:00 – Italian Preliminary GDP 11:00 – German Factory Orders 13:30 – US Trade Balance

Wednesday 8:15 – Chinese PMI 10:30 – GBP Inflation Report + BOE Governor Carney Speaks

Thursday 00:50 – JPY Current Account 02:30 – AUD Employment Change + Unemployment Change Asian Session – BOJ press conference + Monetary Policy Statement 13:30 – USD Unemployment Claims

Friday 02:30 – AUD Monetary Policy Statement 02:30 – Chinese CPI

All times are London time (GMT+1)

USD% Index

Significantly, the USD% index RSI closed the week still held above 50 during Friday’s late sell-off, indicating that although Non-Farms came in much softer than expected pushing the index back down to support, the improvement to the key Unemployment Rate figure may see this as a good dollar buying opportunity. There will likely be stiff resistance at approximately EURUSD 1.3150, which will be the last chance to maintain the current bearish channel. I am bullish USD.

USD% Index Resistance (EURUSD support): EURUSD 1.3200, 1.3150, 1.3067, 1.2899 USD% Index Support (EURUSD support): EURUSD 1.3300, 1.3365, 1.3429

EUR% Index

After breaking through the bottom of a steeper bullish channel last week (the lower trend-line can still be seen in light green), the late rally in EUR retested the broken trend-line and failed to make a new high on the week indicating the potential for a move to the downside to test lower support in the coming week. Further retests of the upper bounds of this bullish channel can not be ruled out yet, but bullish dollar sentiment will likely contain any rallies. I am bearish EUR.

EUR% Index Resistance: EURUSD 1.3333, 1.3362, 1.3385 EUR% Index Support: EURUSD 1.3219, 1.3165, 1.3120, 1.3054, 1.2974

EURAUD Trade Positioning

I am short EURAUD from 1.48029

EURUSD Trade Positioning

I am short EURUSD from 1.3280

JPY% Index

Last weeks JPY% index rally up to trend-line resistance and failure to break through (which coincided with the Nikkei finding VWAP support and rallying) indicates the JPY% index’s potential for further downside to channel trend-line support and potentially further given the scale of Japan’s monetary expansion program. I am bearish JPY.

JPY% Index Resistance: USDJPY 98.84, 98.34, 96.52, 96.75, 96.10 JPY% Index Support: USDJPY 99.77, 100.43, 101.00, 102.37

GBP% Index

With an early break of bullish trend and strong downward pressure last week, helped considerably buy a strong EURGBP rally, Friday’s correction up towards trend-line resistance may provide some well priced cable shorts for the medium term, although a correction lower in EURGBP seems likely, showing a preference for EURUSD shorts to capitalise on USD strength. I am Bearish GBP.

GBP% Index Resistance: GBPUSD 1.5322, 1.5355, 1.5446 GBP% Index Support: GBPUSD 1.5200, 1.5135, 1.5087, 1.5041

EURGBP Trade Positioning

I am short EURGBP from 0.87417

AUD% Index

The AUD% index is still held at the bottom of a bearish channel, despite this weeks strong dollar, indicating the market’s liquidity shortfall on the buy side due to the extremes of orderbook positioning. I expect a relief rally up to test broken trend-line support turned resistance at AUDUSD 0.9036 and if the slew of AUD data this week does not throw up any shocks, this or the resistance above at AUDUSD 0.9150 may provide a good shorting opportunity. I am minor bullish / neutral AUD until the orderbooks clear.

AUD% Index Resistance: AUDUSD 0.9036, 0.9153 AUD% Index Support: AUDUSD 0.8900, 0.8778

CHF% index

The CHF index showed a strong break of trend-line support this week and has retested for a potential head and shoulders early in the coming week if we see a continuation of dollar strength. I am bearish CHF