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Marc Chandler Marc to Market Follow Following .Bearish case for dollar thickens, but bulls are …

Marc Chandler Marc to Market Follow Following .Bearish case for dollar thickens, but bulls are tough to find . 7 13 2020 11 08 49 AM .A surge in virus cases and record fatalities in several US states dampened the animal spirits at the end of last week. However, few seem emotionally or materially prepared to resist the official efforts to generate favorable financial conditions to facilitate an economic recovery. Most seem to be expecting more policy support to be forthcoming. .The bearish technical case for the dollar appears to be growing. It is a little disconcerting that it seems to have become the consensus view, and the gross and net long speculative euro positioning in the futures market is near two year highs. However, the speculative positioning in the other currency futures is not nearly as extreme. Indeed, speculators are still net short sterling, Australian dollar, and Canadian dollar. .Turns in the market often appear to have a cascading effect. The turn does not happen all at once. Given that the euro is the single most important currency in the world after the dollar, that is the real interest. The Swiss Franc can sometimes be seen as its lead indicators. The Golden Cross 50 and 200 day moving averages crossed down for last July. The euro s averages crossed late last month, and at the start of last week, the 50 day moving average moved below the 200 day moving for the Dollar Index. The moving average for the Swedish krona crossed in the middle of June, while the Aussie s averages crossed on the last session in June. .Sterling is a laggard, and the 50 day moving average is about 2.5 cents below the 200 day moving average. And so is the Canadian dollar. The New Zealand dollar s average look set to cross early next week, and Norwegian krone may take a little while longer. We note that both the S amp P 500 and the Shanghai Composite experienced the Golden Cross on the same day last week July 9 . .Also, adding to the bearish technical outlook for the dollar was the advance in gold. It has rallied now five consecutive weeks and pushed above $1800 an ounce for the first time in nine years. Nor has the greenback drawn much succor from the fact that the Fed s balance sheet has shrunk for four consecutive weeks, while the ECB s balance sheets jumped by more than 11% over the same period, which stands contrary to conventional wisdom. .Dollar Index The Dollar Index fell for the third consecutive week. The poor close warns of scope for additional near term losses. A note of caution comes from the lower Bollinger Band, which begins the new week near 96.35. The Slow Stochastic is still trending lower, and the MACD looks poised to turn lower. The first support area is seen between 95.70 and 96.00. The year s low was set in early March around 94.65 and that, or the 93.90 retracement area, are more important targets. .Euro The euro set a four week high near $1.1370 on July 9 and reversed lower to $1.1255, about 15 ticks ahead of the week s low. However, the US market has been particularly keen to sell dollars, and they did so against ahead of the weekend and sent the euro back to $1.1325 into the close of European markets for the week. The momentum indicators are still favorable. Resistance is seen around $1.14, and June s three month high was about $1.1420. A break of the $1.1170 area would undermine the bullish technical case. The $1.16 $1.18 target for seems reasonable, though the Blomberg consensus for year end is $1.1400. .Yen The market rejected the dollar when it poked above JHPY108 in early July, and it kept selling the dollar last week. It pushed it below JPY107 for the first time in a couple of weeks. The Slow Stochastic is moving lower, and the MACDs are gently easing. In May and June, the dollar found support a little above JPY106.00. The lower Bollinger Band is around JPY106.55. .British Pound In the last two weeks, sterling has recovered drop to around $1.2250 to approach the 200 day moving average near $1.2700. The upper Bollinger Band is found near there too $1.2675 . The momentum indicators allow for additional near term gains. Last month s high was almost $1.2815. However, that trendline that connects the March $1.32 and June highs starts next week a cent lower. Support may be found in the $1.2500 $1.2520 area. .Canadian Dollar The Loonie was the underperformer last week. It was the only major currency that fell against the US dollar 0.3% . The US dollar remains in a range against the Canadian dollar of roughly CAD1.3500 to CAD1.3700. The range has been intact for a month, though it did fray the lower end of the range last week CAD1.3490 low . The sideways movement has muted the momentum indicators. In a weak US dollar environment, the Canadian dollar often lags behind the other majors. The greenback is testing a downtrend line that connects the March, May, and late June highs. It appears to come in a little below CAD1.3590 at the start of the new...
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Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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