Downside for USD as death cross strikes
The technical downside has been triggered for the US dollar with the Dollar Basket witnessing the 50-period simple moving average (SMA) crossing down below the 200-day SMA.
(Video Transcript)
The week sees indices start at recent highs and the dollar near nine-month lows after Friday's US jobs report created more posts in the US economy than anticipated.
NFP data
Let's remind ourselves of the numbers that we saw on Friday: 223,000 jobs created, markets expecting 203,000. But there was a small downward revision, the November reading unemployment rate falling to 3.5% from 3.6% in the previous month.
DXY
Let's take a look at the dollar basket as we see things there ahead of the all important inflation data out later on in the week.
This has just seen a death cross. Now this to technical analysts is a trigger point to sell this market. We've got support here at 10308. As you can see the death cross occurs when the 50-period moving average crosses below the 200 SMA, and that's exactly what we've got here. I
t's only marginal at the moment but we see the MACD losing a little bit of steam and this all for me continues to indicate that the pressure remains on the downside.
You've seen a number of touches of this line of 10308 and always what happens when you get the several attempts at a line, when you get a break, you normally then see a fair bit of trade on the downside. The next line of support is at 10110 and the next big test for the greenback will be the consumer price index (CPI) later on in the week.
The market is expecting US CPI growth to have cooled in December 6.5% year-on-year (YoY) after 7.1% rise in November partly driven by a drop in energy prices in the States.
In December, motor fuel prices fell by 13% but the cooling in prices is expected to be more broad based core CPI, which excludes food and energy components, which is forecast at 5.7% in December year-on-year, after a 6% drop in the previous month.
EUR/USD
I just want to quickly catch up on some of the other major crosses that we got.
This is the euro/dollar trade after big gains for the euro on friday against the US dollar. We've got the markets building on that at 10673. Long on this with your stock below recent price action done at just below the 105 level.
GBP/USD
Sterling is making some big strides against the US dollar. In as much as we are at levels not seen since the 21st of December, so three-week highs there for sterling against the US dollar.
USD/CNH
And the US dollar is falling considerably against the offshore Chinese yuan down at 67757.
Now, I think this is beginning to price in some positive activity for the Chinese economy as we look out towards the second and third quarters of this year. On Friday, we dipped below the 200-day SMA, and we're building on that negative move there at the moment.
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