Dollar Still on Top

08/20/2019 9:36 am EST

Focus: CURRENCIES

Bill Baruch

President and Founder, Blue Line Futures

The U.S. Dollar is still the cleanest dirty shirt in the currency sector, reports Bill Baruch.

Euro (ECU)

Fundamentals: The euro currency secured its fifth straight losing session after Eurozone CPI was soft and the German Bundesbank warned of a recession in its latest monthly report this morning. Although Michigan Consumer data in the U.S missed on Friday, broadly stronger data throughout the week helped fuel the U.S. Dollar Index to the highest level since Aug. 1, the day after the Federal Reserve cut rates by a quarter. Uncertainties tied to Italy and the ongoing Brexit have also dragged on the Euro of late. Today, Boston Fed President Rosengren who is known to be a hawk advised against additional rate cuts. The debate will heat up in the back half of the week as the Fed releases the minutes from their July FOMC meeting Wednesday and the Jackson Hole symposium kicks off Thursday with the keynote speech from Fed Chair Powell Friday.

Technicals: Price action slipped below support at 1.1201 last Wednesday and has continued to slide. In fact, Friday was a new front-month settlement low by half a tick and Monday was lower. The euro is now below key support at 1.11265 and there does not seem to be much technically in the way between where it is now and a  test of 1.1011, a level that aligns multiple technical indicators and close to a psychological barrier. Strong resistance now comes in at 1.1201.

Bias: Neutral

Resistance: 1.1201**, 1.1254-1.1285***, 1.1325-1.1332**

Pivot: 1.11235-1.1149**

Support: 1.1011-1.1050***, 1.089***

Yen (JYU)

Fundamentals: The Japanese yen and safe-haven assets lost ground as the S&P 500 gained more than 1% in this risk-on session. Although the German Bundesbank sent a reminder this morning that Germany could slip into a recession, we at Blue Line believe recession fears centered around the U.S are a bit overzealous. The data last week, CPI, Retail Sales and large regional manufacturing (NY and Philly) was stronger than expected. In fact, we look forward to the smaller August regional manufacturing numbers this week, the likes of Richmond, Kansas City and Dallas. Those three struggled in July. Of course, the Flash Purchasing Manager data from Europe and the U.S as well. If these turn a corner, the yen would be in store for a sharp wave of selling.

For now, the S&P 500 struggled at strong resistance and the yen is likely to be a barometer to stocks through tomorrow. Weakness in equities will lift the yen and vice versa.

Technicals: The trend remains strong and major three-star support at .9360-.93705 controlled a potentially damaging reversal last week. However, today’s move lower marks the second such test and this means the support is not as strong. Luckily for the bulls, we broke out a second wave of support that aligns with the rising 50-day moving average; a close below here would begin to signal a near term failure.

Bias: Bullish/Neutral

Resistance: .9437**, .9478-.9487**, .9544*, .96145***

Support: .9360-.93705*** .9317-.9330**

Aussie (ADU)

Fundamentals: The Australian dollar could not follow the risk-appetite higher today although many credited the move in equity markets to an upbeat U.S.-China trade narrative. Regardless, the ongoing trade war has already had an irreversible impact on Australia and the rest of the world for that matter. The U.S Dollar Index’s late session strength pressured the Aussie to session lows into the close and ahead of the minutes from the latest Reserve Bank of Australia meeting just two weeks ago.

Technicals: Even on stronger sessions last week, price action could not chew itself out of the basement; a close out above major three-star resistance at .6809-.6849. We remain bearish.

Bias: Bearish/Neutral

Resistance: .6809-.6849***

Support: .6743*, .6685**, .6280-.6300***

Canadian (CDU)

Fundamentals: Despite a positive vibe surrounding U.S-China trade negotiations, renewed optimism around the USMCA (Nafta 2.0) and a banner day for crude oil and equity markets, the Canadian dollar finished lower on the session. The U.S Dollar Index did grind higher up until the end which added pressure. If the Canadian dollar cannot rally on good news, this could signal additional pressures on the loonie. Tomorrow, we look to Manufacturing Sales data.

Technicals: The Canadian dollar cannot seem to breakthrough resistance at .7572-.7595, which has led it to waves of selling. Still, major three-star support at .7500 has worked to keep things from falling apart and although this is positive, we must remain neutral. Overall, it would seem the bears have a bit of an edge through the rest of the week if they can secure a lower close tomorrow.

Bias: Neutral

Resistance: .7572-.7595**, .7631-.7637**, .7685-.76915***, .78355***

Support: .7500***, .74575-.7466**, .7400***

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.
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