These 2 Currencies Are Fliritng With Key Levels
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Despite a bounce in the
dollar last night around 6 PM PDT, thin volumes due to a Japanese
holiday appear to have allowed for some erratic price action as the dollar was
taken back to new lows just hours later. The move up and then down took us out
of our two open positions and we are no flat.
While the activity level may die off in the next
day or so due to Thanksgiving, we have a few currencies flirting with some key
levels.
EUR/USD 1.3075 major trend-line from 1999 should
prove to be near-term resistance. There decent offers suspected at 1.3100 and
1.3150 from options players, so upside, while possible will not be a slam dunk.
USD/CAD monthly trend-line at 1.1819 should keep
the move lower contained. Short-term model may allow for oversold bounce if
1.1862 is breached and allow for a move back towards 1.1900-10.
On a macro note, the
widening of yield spreads in favor of the US in recent weeks has failed to
support the dollar, even though it has largely been due to improving
expectations of US growth and declining expectations of growth in the Euro-zone
(and elsewhere). Correlation with yield spreads is by no means a consistent
guide to currencies, but over most of the last 20 years, it has been an
important determinant of currency movements. The same observation was made back
during the late 80’s when the current account deficit had reached record levels.
While the current account is not a new story to
FX traders, it seems clear now that unless the current account begins to
contract, there is little hope, in the long run, of a move higher in the dollar.
As traders we see the current situation as being a bit overdone, rhetoric in the
press and media is reaching levels that indicate a short-term bottom. If such an
event unfolds, we will be looking to build some short dollar positions which is
consistent with our 3 and 6 month views.
As always, feel free to send me your comments and
questions.