Greenback Makes A Stand: What's Next?

US retail sales came in much stronger than expected — out at plus 0.6 percent, excluding autos and gas, versus the forecast plus 0.3 percent. This is also on top of an upward plus 0.3 percent revision to the September data.

In response, the greenback made a solid stand on the day, bouncing back tentatively against an extremely strong EUR and Swiss franc and partially confirming a local high in GBP/USD. USD/CAD again bounced above the key 1.0600 level after yesterday’s fleeting attempt to do the same.
Importantly, the market was able to brush aside the weak jobless claims number, which was clearly due to the Thanksgiving week plunge in claims the previous week. Averaged together, the two recent weeks are in line with the longer-term average claim in recent months.

From here, we need to see the following achievements for the greenback through to the end of next week to get a better sense that USD has posted a low for the cycle. There have been countless dovish Federal Open Market Committee (FOMC) surprises, so there is certainly the prospect that the USD won't manage to sustain a rally here. If the US Federal Reserve issues either no specifics on the taper timing at next Wednesday’s FOMC meeting or gives an overly cautious indication of the pace of purchase reductions, this could see the USD weakening again.

Market volatility often dies out quickly as the end of the year approaches, but an especially pivotal FOMC meeting next week means the market will have to react to developments either way and should certainly lead to a flurry of activity.

EUR/USD: so far, this is just the first sign of caution in the brutal rally. 1.3800/33 is the key resistance zone and a strong dive back below 1.3600 is needed to suggest the cycle highs are in. Such a move might require more than a week to accomplish even if the USD rallies from here. To the upside, a weak FOMC taper message could mean a try at 1.4000 before the first European Central Bank meeting in January.

GBP/USD: local confirmation of the sell-off, although a much deeper cut is needed to confirm a bigger top — well through 1.6250.

Chart: GBP/USD rallied to the swing level today, which held and thus partially confirmed the local high above 1.6450 from this week. A follow-through move through local lows could set up a try at the bigger structural support of about 1.6250.
GBP/USD" title="GBP/USD" width="792" height="563" align="bottom">
USD/CHF: effectively a mirror image of EURUSD, although it is interesting that USDCHF managed to take out new lows, so any significant rally puts those new lows in doubt. However, a very sharp return above 0.9000 is only a start to neutralising the very heavy action.

USD/JPY: 103.74 is the obvious target that could open for 1.0500 if taken out — some chance that USDJPY does its own thing regardless of how the USD looks elsewhere if risk appetite is exceptionally weak.

AUD/USD; break of 0.9000 confirms weakness and sets up a try of the cycle lows below 0.8900.

USD/CAD: nice smart reversal back above 1.0600 looks promising as a neutralisation of the near-term downside risks. Need to be pushing above 1.0700 after the FOMC meeting to unleash further rally prospects.

NZD/USD: NZD is in its own bubble, but a renewed break of 0.8160 would look bearish.

USD/SEK and USD/NOK: looking higher again as the USD/G10 smalls trade looks alive and well after today’s action.

Chart: USD/SEK
A solid re-acceleration of the upside in this pair today could set up a try at the recent highs, which look a bit like the headline of an upside-down head and shoulders formation. This could lead to a major new trend next year towards 7.00/25.
USD/SEK" title="USD/SEK" width="1043" height="563" align="bottom">