Dollar ended last week broadly lower as positive job data failed to counter the negative impact from Fed Chair Janet Yellen's dovish talks. Nonetheless, overall developments in the financial markets were rather mixed. Stocks ended up high with DJIA closed at 17792.75 and S&P 500 at 2072.28. Both are on track for retesting records highs even though they started to lose moment. On the other hand, WTI crude oil looked like it finally topped out earlier at 41.90 with last week's fall to close at 36.79. Weakening oil price had no impact to stocks so far. Meanwhile, gold continued to struggle in range of 1200/90 as recent consolidation extended. In the currency markets, commodity currencies ended generally higher. However, it were the late strength of Yen that caught most attentions.
Dollar index took out 04.57 support last week to resume the choppy decline from 100.51. Near term outlook stays bearish as long as 96.40 resistance holds. We'd expect deeper fall towards 92.62 support. But still, such decline from 100.51 is viewed as the third leg of the consolidation pattern from 100.39. Hence, we'd expect strong support from 38.2% retracement of 78.90 to 100.39 at 92.18 to contain downside and bring rebound. This is in line with the development in EUR/USD which saw a break of 1.1376 resistance last week. And EUR/USD is possibly heading for a test on 1.1713 resistance before reversing the near term trend. Also, weakness in dollar could later be seen in USD/JPY with a break of 110.66 support too.
WTI crude oil's rebound from 26.05 could have finally completed at 41.90 after hitting 61.8% retracement of 50.92 to 26.05 at 41.42. The 35.96 support mentioned last week wasn't taken out yet. But this level will be in focus this week. Break there will likely send WTI back to retest 26.05 low. USD/CAD edged lower to 1.2856 last week but lost momentum ahead of 100% projection of 1.4689 to 1.3638 from 1.3858 at 1.2807. We're expecting strong support from 1.2807 to bring rebound. And break of 35.96 in WT would likely accelerate the selloff and send USD/CAD through 1.3295 resistance. Canadian dollar already underperformed Aussie and Kiwi last week. But reversal in Canadian dollar could drag down both.
Stocks were firm as markets continued to price out Fed rate hike. Yellen indicated that she prefer a gradual pace for tightening. Fed fund futures are currently pricing in 66% of "one" rate hike by December. Just last month, Fed fund futures priced in 63% of "two" hikes by December. And there was 97% chance on June hike last month, comparing to the current 26%. Technically, DJIA's close above medium term falling trend line maintains the bullish outlook in spite of some loss of momentum. Consolidation from 18351.35 high could have completed with three waves down to 15450.56 already. DIJA will stay bullish as long as as 17399.01 and target a test on 18351.35 next. Such development might continue to "correlate" with weakness in Dollar.
Regarding trading strategies, our USD/JPY short was caught by the stronger than expected rebound and was stopped out. Nonetheless, we'll continue to look for yen long opportunities but will turn to CAD/JPY. The main reason for that is the possibly reversal in oil price. And, USD/CAD looks like bottoming soon, which makes CAD a preferred choice for short. And for CAD/JPY, the consolidation pattern from 78.93 could have completed at 87.44 after facing resistance from 87.35 again, as well as medium term falling trend line. So, we'll sell CAD/JPY on break of 84.54 support with 78.93 low as first target.
