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G10 FX: Dollar Down

TJ Marta from The Overnight Express at 10/14/09


The key theme overnight was USD selling. The greenback underperformed all major currencies. The key US-specific development was Kohn’s relatively dovish rhetoric, in which he opined that inflation and growth would likely stay below the central bank’s objectives for some time, supporting a low target rate for “an extended period”. USD/JPY was also weighed by rhetoric – that from Japanese Vice Minister Minezaki, who stated that the USD’s weakness would likely continue and that Japan should not try to intervene. Positive economic prints out of China (trade, lending), the Eurozone (industrial production), and the UK (labour) all underpinned the notion of the global economy recovering, which help the carry trade generally.

DXY – Falling out of bed – The DXY index (75.525) is down again overnight, breaking decisively to a new low since Aug ’08 after hesitating around 76 since mid-Sep. Support lies at 75.452 (Oct 14 low), 75.165 (76.4% retracement of Mar ’08 to Mar ’09 rally, and 75.00 (psychological). Resistance lies at 76.668 (Oct 12 high), 77.475 (Oct 2 high), 77.688 (Dec ’08 low) and 78.00 (psychological). Currently, DXY correlates most strongly with gold, crude oil, and the CRB index (all negative). The S&P 500 is less significant (negative).

EUR/USD – Another new high. EUR/USD (1.4896) is up again overnight and reached a new high since Aug ’08. Resistance lies at 1.4913 (Oct 14 high), 1.50 (psychological) and 1.5083 (Aug 11 ’08 high). Support lies at 1.4742 (uptrend off Oct low), 1.4481 (Oct 2 low) and 1.4447 (Aug high). The short-term correlates for EUR/USD are crude oil (positive) and, to a less extent, the S&P 500 (positive).

GBP/USD – Rebounding to 1.60. Cable (1.5981) bounced overnight and regained 1.60 temporarily. Cable traded an outside day up yesterday, even as it traded briefly to a new low since May. This – combined with the record speculative short position established last week – strongly supports the notion of a GBP/USD rebound. Technical support lies at 1.5708 (Oct 13 low) and then 1.55 (psychological). Resistance lies at 1.6126 (Sep 30 high), 1.6742 (Sep 11 high), 1.6743 (Jun high) and then 1.7043 (Aug high). The strongest correlates over the past two months for GBP/USD have been the DXY (negative), EUR/USD (positive). Crude oil (positive) and the S&P 500 (positive) are still significantly correlated, but the relationships have waned.

USD/JPY – Falling below 90. USD/JPY (89.29) is down overnight, failing to hold above 90. Resistance now lies at 90.46 (Oct 12 high), 92.53 (Sep 21 high) and 93.30 (Sep 7 high). Support lies at 88.01 (Oct 7 low) and then 87.13 (Jan ’09 low). The correlations of USD/JPY with the U.S. 10yr yield and U.S.-JP 10yr spread remain strongly significant but are slipping.

USD/CAD – New low since Aug ’08. USD/CAD (1.0282) continues to test lower, trading to a new low since Aug ’08 last night. Support lies at 1.0263 (Oct 14 low) and then parity. Resistance lies at 1.0592 (Sep low), 1.10 (psychological) and then 1.1125 (Aug high). In terms of other assets correlating with USD/CAD, watch the CRB, and crude oil (both negative). The USD index (positive) and SPX (negative) are also strongly significant.

AUD/USD – New high since Aug ’08. AUD/USD (0.9145) is up overnight and traded another new high since Aug ’08. Technical resistance for AUD/USD exists at 0.9156 (Oct 14 high) and 0.9275 (May ’08 low). Support lies at 0.8859 (Oct 1 high), 0.8570 (Oct 2 low), 0.8545 (Sep 14 low) and 0.8478 (Aug high). AUD/USD has correlated most strongly with equities (S&P 500, positive) and commodities (CRB, positive). The correlation with gold (positive) is slipping.

NZD/USD – Holding on near high. NZD/USD (0.7420) is up overnight and clawing nearer to a new high since Jul ’08 traded Thursday. Resistance lies at 0.7454 (Oct 8 high) and 0.7500 (psychological). Support lies at 0.7255 (Oct 12 low), 0.7079 (Oct 2 low), 0.7000 (psychological) and 0.6897 (Aug high). The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), stocks (S&P 500, positive), the USD index (negative), and commodities (CRB index, positive).

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