Dollar surged broadly last week after some Fed officials raised the point that a rate hike in June is an "option". Friday's disappointing non-farm payroll number triggered a knee jerk selloff in the greenback. However, Dollar stabilized quickly after traders reassess the picture since solid wage growth continued and would finally feed through into inflation. Dollar has indeed closed Friday and the whole week higher. That is a strong indication of underlying momentum. Meanwhile, Australian dollar was the weakest major currency after the surprised rate cut by RBA and the downward revision in the bank's inflation projections. Other commodity currencies also struggled on risk aversion. DJIA closed the week slightly lower with the help Friday's recovery. Gold retreated after failing to stand firm above 1300 handle. WTI crude oil extended the consolidation around 45 handle.
DJIA's pull back from 18167.63 short term top continued last week but managed to hold above 55 days EMA and 17484.23 support for the moment. As long as 17484.23 holds, favor is still on the case that consolidation pattern 18351.36 has completed with three waves down to 15450.56. Rise from there is resuming the long term up trend for a new high. However, firm break of 17484.23 will argue that fall from 18167.63 is another leg inside the medium term consolidation pattern and would extend to 61.8% retracement of 15467.95 to 18167.63 at 16499.22 and below. And in that case, commodity currencies would be dragged down and yen would be given another push.
Developments in the China stock market will be another factors affecting risk sentiments. Looking at the Shanghai composite, we're holding on to the view that corrective rebound from 2638.3 has completed at 3097.16 after hitting 38.2% retracement of 3684.56 to 2638.30 at 3037.97. Friday's selloff now put focus back to recent support at 2095.04. Break will extend the fall from 3097.16 and target 2638.30 low. In that case, Aussie and Kiwi will be very much under pressure.
Dollar index dipped to 91.91 initially last week but quickly recovered. Strong support was seen around key zone of 92.18/62 (38.2% retracement of 78.90 to 100.39 at 92.18). The break of 93.62 support turned resistance is also taken as the first sign of reversal. This is consistent with the view that price actions from 100.39 are a sideway pattern with choppy fall from 100.51 as the third leg. Initial focus will be on 95.19 resistance this week. Break should confirm near term reversal.
Regarding trading strategies, we'd like to point out that while it's far from being certain, there is prospect of more selloff in commodity currencies this week. Aussie is the weakest one but as it's oversold in 4 hours chart, we're prefer to wait for a recovery there before selling. Instead, we'll turn to Kiwi for selling short this week as it may play a catch up in case of risk aversion. On the other hand, there is prospect of more dollar strength as seen in dollar index. Swiss Franc and Sterling both displayed sign of near term reversal. But Euro is so far very resilient against the greenback. Though, we'd still slightly prefer Dollar to Euro due to the outlook in dollar index.
Looking at NZD/USD, the price actions from 0.6102 are clearly corrective. The pair also lost momentum just ahead of 38.2% retracement of 0.8835 to 0.6102 at 0.7146. There is prospect of medium term down trend resumption, or at least a test on 0.6102 low. We'll sell NZD/USD on break of 0.6757 support this week.
