Dollar Ready For A Sustained Rally?

by Phil Moore March 22, 2014

The US dollar bounced back strongly this week making gains across the board. Partly driven by risk sentiment, partly by surprisingly upbeat comments from the Federal Reserve the greenback bounced off of recent lows.

Key failures of the EUR/USD and GBP/USD to break multi-timeframe highs and a breakout on the USD/CAD point to the potential for a follow through in the current dollar rally. Looking ahead to this week there could be potential for this rally to accelerate.

In a week that packs a large amount of heavy weight news, it is primarily the Eurozone, UK and US economies that will come into focus. German manufacturing figures kick off the week while a raft of data midweek will put the US economy firmly under the spot light.

With Consumer confidence, New Home Sales and GDP figures up for release midweek there is considerable risk in the markets. However following last week’s moves, there is little expectation for any major shifts in Interest rate expectations this week. Data could be greeted with aplomb of a whimper.

Across the water the British economy is expected to print lower CPI figures which will once again pressure the Pound. Sterling remains week with 1.6400 a key area needing to hold. Retail figures and Fridays upcoming Year on Year GDP figures could also add pressure to the Pound.

Key News

Forex

EUR/USD – The pair fell heavily over the week, turning the outlook bearish. 1.3810 should counter any rallies over the coming week. We would expect further falls to 1.3660-80 initially, which coincides with a rising trend line in place from June last year.
USD/JPY – The pair ended the week on a bullish note, closing at 102.26 although this was off of earlier higher reached during the week. The pair looks set to continue range bound trading over the coming sessions. 101.19 support and 103.10 provide the range extremities.
USD/CHF – In line with the fall on the EUR/USD, USD/CHF powered higher over the week. The pair smashed through 0.8800, closing off of highs to end at 0.8826. Looking higher a close above 0.8830 is needed, then a close above 0.8895 to add credibility to a longer term move higher.
GBP/USD – Cable again ended the week lower. Five red days in a row saw the pair end just above support at 1.6484. The pair now sits at a critical juncture. A break lower below the trend-line since November 2013 would indicate a broader downtrend is in place. Look lower from here. 1.6440 provides first support. Back above 1.6580 negates this outlook.

Major Indices

DOW – Holding above 16000 the Dow closed higher, although off of highs at 16309. We would now look to a range at 16000-16500 to govern price action over the coming week. A break either side will dictate the next broader move.
NASDAQ – The Index struggled to hold onto gains over the week, closing at lows at 4275. The bearish pullback on the weekly candle hints at further losses over the course of this week. 4200 and 4100 are key support levels from where a bounce could be seen.

FTSE – After briefly testing support at 6500, the FTSE managed to push higher to close at 6559. The outlook looks broadly bearish. Support begins at 6500 and 6450. Resistance sits at 6600 and 6650.

Commodities

Oil – Last week we wrote that key support for Crude was $97 and price bounced from this level during the week. However price was unable to hold above $100 ending at $99.35. With good support we would tentatively look higher.
Gold – The yellow metal pulled back over the week but found solid support just above the $1330 level. Expect sideways movement over the coming week with a bias to the upside. A move above $1357 is needed to establish a broader bullish trend.