Dollar Pared Gains As Focus Turns To Non-Farm Payroll This Week

Dollar index jumped to 14 year high last week as markets continued to bet on Fed's December rate hike. Nonetheless, traders turned a bit more cautious in holiday mood as the greenback will now November employment data to be released this week. Meanwhile, stocks struck a hat trick with DJIA, S&P 500 and NASDAQ making new record higher on anticipation of president Donald Trump's expansive fiscal policies. Treasury yield also extended recent rally, in particular, with 30 year yield closing above 3% handle for the second straight week. Meanwhile, gold spent some unfruitful effort to hold on to 1200 but failed and dived to close at 1183.4. WTI crude oil also reversed initial gain to 49.2 and closed nearly flat for the week at 46 as markets once again question the chance of OPEC making agreement on production freeze. More volatility is anticipated this week as US is back from holiday and with non-farm payroll report featured.

In the currency markets, Dollar closed the week mixed on profit taking as traders adjust their positions again of NFP. Nonetheless it should be noted that the expectation of Fed's rate path is getting firmer. As of Friday, fed fund futures are pricing in 57.6% chance of another rate hike by June next year, after the fully priced in December hike. We'd maintain that surging stocks and treasury yields would continue to solidify such expectation and provide support to the greenback. Meanwhile, Sterling is set to end the month as the second strongest major currency ahead of Dollar on BoE's neutral stance. Yen and Euro would likely end as the two weakest major currencies. In particular, Euro will be vulnerable for more weakness, depending on what ECB would announce in the December meeting, regarding what's next to the current asset purchase program that ends in March.

Technically, dollar index has met long term fibonacci level of 61.8% retracement of 121.02 (2001 high) to 70.69 (2008 low) at 101.79 already. While a bit of brief set back cannot be ruled out, downside should be contained above prior resistance at 99.11. The index is expected to extend the up trend to 61.8% projection of 78.90 to 100.39 from 91.91 at 105.19 next and probably to 100% projection at 113.40 next year.

DJIA is showing upside re-acceleration as seen in the weekly chart. The break of 61.8% projection of 17063.08 to 18668.43 from 17883.56 at 18875.66 now indicates that medium term rise from 15450.56 is at most in its middle part only. That is, it's far from nearing to completion. We'd expect DJIA to head to 61.8% projection of 1040.49 to 18351.36 from 1540.56 at 20361.72 in medium term.

Momentum in 10 year yield also remained strong and showed acceleration in weekly MACD. 2.489 is the key resistance next. TNX could consolidate at around that level on initial attempt. But even though, current momentum warrants a test on the key resistance level 3.306, which will be the real indication on where the long term trend is heading to.

Regarding trading strategy, we're holding on to AUD/USD short, sold at 0.7550. The rebound from 0.7310 was relatively stronger than we expected. But then, as mentioned last week, we kept a rather "wide stop" at 0.7550 to give the trend a large breathing room for the time being. Based on our view, medium term consolidation pattern from 0.6826 low should have completed and the larger down trend is ready to resume. Hence, we're expecting a test on 0.7144 support in near term, as first target. And decisive break there will likely extend the larger down trend through 0.6826 low. Hence, we're viewing current rebound as another selling opportunity and will add to our short position at 0.7480 this week.