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G10 FX: Short Dollar Profit Taking

TJ Marta from The Overnight Express at 10/11/09


The key theme overnight was the dollar rebound, as the greenback outpaced all the other major currencies. The ostensible reason was Bernanke’s statement that the Fed would hike when the economy recovery warranted such a move. His comment strikes us as stating the obvious – not a threat of hikes. Rather we believe that market participants, with a lopsided bearish dollar skew, wanted to take some money off the table ahead of the weekend, especially in light of reported increased central bank activity earlier in the week to buy U.S. dollars.

DXY – Sitting on new low since Aug ’08 – The DXY index (76.202) is up overnight due to what we believe to be profit taking ahead of the weekend. The index traded a new low since Aug ’08 yesterday. It seems investors are pushing money into assets outside the U.S., while speculators are taunting central bankers to curb currency appreciation versus the USD. Support lies at 75.767 (Oct 8 low), 75.165 (76.4% retracement of Mar ’08 to Mar ’09 rally, and 75.00 (psychological). Resistance lies at 76.344 (Oct 9 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 – Moving to retest recent high. EUR/USD (1.4738) is down overnight but appears to be heading towards a retest of the Sep high. Resistance lies at 1.4844 (Sep 23 high) and 1.4866 (Sep ’08 high). Support lies at 1.4481 (Oct 2 low) and 1.4447 (Aug high). The short-term correlates for EUR/USD are crude oil (positive) and, to a lesser extent, the S&P 500 (positive).

GBP/USD – Back to holding 1.60. Cable (1.5973) is down overnight and seems have regained the 1.60 level.
Resistance lies at 1.6126 (Sep 30 high), 1.6742 (Sep 11 high), 1.6743 (Jun high) and then 1.7043 (Aug high).
Support lies at 1.5771 (Sep 28 low) and 1.5724 (Dec 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 – Rebounding off lows. USD/JPY (88.83) is up overnight, with the cross rebounding off the new low since Jan made Wednesday. Support now lies at 88.01 (Oct 7 low) and then 87.13 (Jan ’09 low). Resistance lies at 90.09 (downtrend off Aug high), 92.53 (Sep 21 high) and 93.30 (Sep 7 high). 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 Oct ’08. USD/CAD (1.0509) is down overnight and testing below the bottom of the 1.06-1.11 range it has plied since Jul. Support lies at 1.0502 (Oct 7 low), 1.05 (psychological) and then 1.0299 (Sep ’08 low). Resistance lies at 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 – Slipping. AUD/USD (0.9035) is down slightly overnight after making a new high since Aug’08 yesterday. Technical resistance for AUD/USD exists at 0.9090 (Oct 8 high) and 0.9275 (May ’08). Support lies at 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 – Slipping. NZD/USD (0.7393) is down overnight after trading a new high since Jul ’08 yesterday.
Resistance lies at 0.7454 (Oct 8 high) and 0.7500 (psychological). Support lies at 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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