The Dollar Stages A Comeback At The Start Of The Week

by Phil Moore May 7, 2014

Markets moves as much on speculation as they do fundamentals. This week kicks off with dollar strength as markets look towards US data due for release this week which could spark cutbacks in the current QE3 program.

Having taken a hit last week, the USD dollar is looking to cut back its recent losses. News for release this week could help to see gains as early as Tuesday as key US data is presented to markets. This starts with the Month on Month Retail Sales figures.

Friday sees the release of two sets of important information which could provide further impetus for a dollar recovery. CPI (MoM) and Initial Jobless claim figures could further the rally as the week closes. Additional signs of a recovery in the world’s largest economy will trigger a sharp rebalancing in portfolios which will ultimaley prove to be dollar supportive.

Elsewhere the British Pound and Japanese Yen will come under scrutiny this week following strong gains last week. Sterling in particular will come into focus with the release of the MPC meeting minutes on Wednesday. Following the gains set last week, the current market euphoria could soon end. For the Pound, signs of dollar strength and/ or weakness in the Bank Of Englands minutes could quickly see last weeks gains retraced.

Market Indices will also be in focus following a period of conslidation. Will this week see support breached or additional gains on towards new market highs?

Key News This Week

In Focus

EUR/USD - Pushing initially higher last week, the pair pulled back to find support above the 1.3300 level. A strong break here is likely to signal further falls but while this level holds we expect further gains and a retest of highs set in May.

Currency Majors

EUR/USD - See Above

USD/JPY - Further falls for the USD/JPY as the pair broke through the 61.8% Fib level at 96.70. Since the break the pair has failed to move back above this level, signalling further falls are likely. 95.30 looks first significant key support while the full 100% level at 93.70 should provide the bounce if moves this low.

USD/CHF - The pair continues to move lower with price hitting 0.9175 as it moved towards year lows. The bigger picture however could show the pair to be forming a base at these levels for a move higher.
Given the constructive move above the 10 day SMA we would view a stronger move and close above the 20 day SMA as supportive of further gains. A potential strong rally could ensure on a break of falling support.

GBP/USD - The pound exploded higher last week on strong fundamentals. Despite this we would see any move higher as only a temporary correction within the longer term trend. Look higher over the coming sessions but ultimately position against 1.5600 and 1.5750 for a resumption of longer term falls.

Major Indices

DOW - Although the DOW fell back last week it maintained above the 15400 level which could prove to provide a base for its next move higher. Every move encounters experiences periods of consolidation. Economic news due for release this week could change the current outlook. Tuesdays Retail Sales and Thursdays CPI figures could scupper gains but we would continue to look higher from this level.

NASDAQ - New highs for the tech index with the market breaking strongly above the 3600 level. 3700 looks to be the next target which could possibly be taken out this week. 3600 now acts as strong support to any near term pullbacks. Last week financial traders saw a slight pullback on the index but with such strong gains previously this is only to be expected. Initial support looks to begin at the 3500 level and we would stay long, awaiting a break higher.

FTSE - Little headway was made last week with the Index hovering in a two hundred point range. 6500 proved to be support. Bias remains to the upside and an eventual break above the top of the range at 6700.

Commodities

Oil – The price of Crude Oil continues to show strength with strong buying supporting the price on any intraday pullback. Expect the price to push higher this week, using pullbacks towards 104.00 as an opportunity to buy long.
Gold – Gold pulled back below the $1300 level again last week only to post higher with a bounce from $1284. Expect another move towards $1347 where a resumption of recent falls is likely to occur.