In this edition of MarketView we share some thoughts about the dollar’s price action.
The euro has retraced nearly all of the pre-weekend gains. While buy the rumor sell the fact may have played a role, the last leg down to new lows (~$1.1040) seemed to be in response to reports that the ECB did not lift the ELA ceiling. This ensures that banks remain closed, likely now through at least Wednesday.
The pre-weekend low was set near $1.1030. Last week’s low was a little more than a cent below there (~$1.0915). US operators are likely to be hesitant to sell the euro without a bounce. Initial resistance is seen in the $1.1080-$1.1100 area.
Sterling is the best performer among the majors, but is barely higher on the day. It did manage to extend its recovery for the third consecutive session. After bottoming in the middle of last week near $1.5330, it almost reached $1.56 earlier today. A close today above $1.5560 would solidify its recovery and suggest potential toward $1.5630, and possibly toward $1.57 in the coming days. The gains in sterling have been at least helped by the 15 bp rise in implied yield of the June 2016 short-sterling futures contract.
Rising equity markets, higher US (and German) 10-year has pushed the yen off about 0.5% against the dollar. The greenback bottomed last week ahead of JPY120.40. It is now approaching JPY123.50 and above the downtrend line, we have been monitoring off the multi-year high set in early June near JPY125.85. That trendline intersects today near JPY123.00. Initial resistance is now pegged near JPY123.80.
The dollar-bloc remains heavy. The Aussie cannot distance itself from $0.7400. The multi-year low set last week near $0.7370 is not thought to be particularly strong support. The Canadian dollar is weaker still. In percentage terms it is off twice what the Aussie is (-0.6% vs -0.3%), and appears to be headed lower still. The drop in oil prices is helping fan speculation of a rate cut this week. The market appears to be pricing in about a 1 in 3 chance of a cut, judging from the rates market. The US dollar neared the CAD1.28 area last week before consolidating. That area has held on a close basis on three separate occasions in Q1. The multi-year high was recorded in mid-March near CAD1.2835.