Greenback's Weekly Technical Condition Suggests Medium-Term Trend has Changed

The dollar's technical tone is nuanced. The short-run advance may have a bit more room to extend, but many of the daily technical studies are getting stretched.  However, the technical indicators of the weekly bar charts are considerably more constructive.  The general takeaway is that we suspect that the combination of the German election results, increased likelihood of another Fed hike before the year, and extreme short dollar positions have changed the bias toward buying dollar dips instead of selling rallies.  This has not been the case at least since late April when it became apparent Macron was going to defeat the National Front in France.  

The euro dropped from a little above $1.20 on September 22 to a low last week a just below $1.1720.  The euro recovered ahead of the weekend, on the last trading day of the month and quarter.  There is scope for additional near-term gains, perhaps spurred by the weekend press, much of which seems critical of the White Houses tax proposals for being sops for the wealthy and corporations.  The disappointment over the unexpected decline in the core PCE deflator keeps investors skeptical about the scope for continued tightening next year.  

In any event, the euro can recover into the $1.1860-$1.1890 area without jeopardizing out the negativity evident in the weekly bar charts, and signified by the end of the six-month advancing streak in September. We have noted the potential head and shoulders topping pattern, which projects toward $1.16, which is around the 20-week moving average.  The mid-August lows were set a bit higher near $1.1660.  The weekly Slow Stochastics have turned down, and the MACDs appear poised to cross lower. The weekly RSI is showing a bearish divergence by not confirming the recent highs in the euro.  

The dollar appreciated against the yen for the third consecutive week.  It rose in five of the past six weeks.  It snapped a two-month losing streak in September.  However, it has advanced to levels that may prove difficult to breach.  The MACDs and Slow Stochastics are getting stretched. Initial support is seen around JPY112.00 and then JPY111.50.  

The dollar has been largely confined to a six-yen trading range for the past six months of JPY108 and JPY114.  It is not perfect, there have been several violations, but if value (in this context) is a function of price and time, this range approximates it.  The technical indicators are constructive on the weekly charts.  One implication is that the pullback that the short-term technical indicators point to may provide an opportunity to medium term traders.  

The BOE's apparent hawkishness on September 14 spurred a nickel rally in sterling from roughly $1.3155 to $1.3655.  Since then sterling has slipped to back to $1.3350 in a flag pattern, which corresponds to a 61.8% retracement of the pole and just above the 20-day moving average (~$1.3335).  The  38.2% retracement of the rally from the August 24 low is found a little lower at $1.3320.  Sterling could find support in this area and try the highs again, especially if the PMIs surprise on the upside.  The five-day moving average is still above the 20-day average, and the weekly technical indicators are not as dollar-friendly as they are for the euro and yen.  

The US dollar slumped against the Canadian dollar from May 5 high near CAD1.3800 to the September 8 low of almost CAD1.2060. The greenback has staged recovery to test CAD1.2500 in the second half of last week, helped by signs from the governor and deputies of the central bank that a hike this month, which would be the third in a row, is unlikely.  The CAD1.25 area also corresponds to a 61.8% retracement of the greenback's decline since the mid-August high (~CAD1.2780).  The RSI and MACDs are still trending higher, but the Slow Stochastic may cross lower over the next few sessions   The weekly technical studies are becoming more US dollar friendly.  

The Australian dollar is flirting with the lower end of its two-month trading range near $0.7800.  That area could also be the neckline of a double top crated in July near $0.8065 and last month's high near $0.8125.  A convincing break of the neckline would suggest potential toward $0.7500. That corresponds to the 61.8% retracement of this year's 10-cent rally by the Aussie.  The technical indicators are getting extended, and while a break of the $0.7800 may be likely, sharp losses are not.  We see initial technical support near $0.7760.   That said the weekly technical indicators favor the Aussie's downside in the medium-term.

Except for scare in late August and early September, the US 10-year yield has held above 2.10% and has held below 2.40%, but for a couple of days in May, since the end of Q1. The yield snapped back after nearing 2.0% on September 8 to reach almost 2.36% by the end of last week.  To put some perspective on it, the 200-day moving average is near 2.32%.  The December note futures contract is finding some technical support near 125-00.  A break would target the June low near 124-14.  The Slow Stochastics have turned higher, but the MACDs and RSI allow for a limited push lower.  The weekly technical indicators favor lower prices (higher yields) over time.  The gap lower on September 11 is taking important technical significance--signaling a top of some import is in place. 

The November light sweet crude oil futures contract reached its best level since April last week (~$52.85) but then proceeded to reverse lower and settle below the previous day's low.  This is what technicians call a key reversal, and is understood to be a bearish signal.  Several technical levels converge in the $49.50-$50.00 area, which should offer solid support.  There was no follow-through selling after the key reversal.   The technical indicators are extended but do not appear to preclude some near-term gains, though last week's high may remain intact.  

The S&P 500 finished Q3 at a record level.  At the start of last week, the S&P 500 filled the downside gap from the higher opening on September 12, and found support in front of the 20-day moving average (~2482) and proceeded to advance in the following four sessions.  It was the third week of higher closes, and five of the past six.   The S&P 500 has recorded a losing month only once this year, and it was less than a 0.1% decline in March, which itself was the first decline since last October.  

It was the eighth consecutive quarterly advance (almost 4%). The Russell 1000 Value Index rose 0.7% on the week for its third weekly advance. The entire Q3 gain (2.5%) was recorded by last month's 2.8% rise.  It was the sixth monthly advance this year of the Value Index.  It is up nearly 6% thus far this year.  The Russell 1000 Growth Index also gained about 0.7% last week.  It has spent September alternating between advancing and declining weeks in September and managed to finish the month with a 1.2% gain.  For the quarter it is up 5.5% to bring the year-to-date advance to a 19.4%.   It is the eighth quarterly advance.  

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