Reply #2: Dollar Fails to Find Needed Momentum, Stock Futures Fall

[54anickel]

Forex News & Analysis

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The euro reached a one-week high of 1.1954 in late Tokyo trade, effectively ending a strict definition of a downtrend by rising above its previous high of 1.1940 and through trendline resistance from 1.2380 crossing at 1.1880 today. The move may mark the incipient signs of a reversal but would first need to overcome key Fibonacci resistance at 1.1955 to confirm. Hinting that the dollar rally may be losing steam was the greenback’s indifference to this week’s data showing a surprise jump in consumer confidence in April and record new home sales and surging existing home sales. Given that yields have also stalled near their one-year highs of 4.48% in the 10-year note, the dollar may have exhausted its yield play rally. A leveling off of yields could therefore lead to some profit taking in the dollar’s strong gains since mid-February.

No key data is due from the US or Canada today. Instead traders will look to Thursday’s revision of Q1 GDP, which is expected to show an annualized gain of 5%, above the preliminary estimate of 4.1%. Despite robust growth over the past three quarters, the Fed’s optimistic view on inflation is part of the Fed’s attempt to ease rates higher, which appears to be working as the dollar and yield rally has stabilized, while stocks chop higher, looking take out last month’s highs, but remain constrained by rate fears and valuation concerns.

EUR/USD

The euro rose to a session high of 1.1954, stopping right at the 61.8% retracement of the 1.2380-1.1760 decline. The euro has rallied 2 cents from Monday’s new 5-month low and trendline support at 1.17 is likely to hold in the near term. Yesterday we said that while it is still very close to call, the euro has indeed held above a trio of trendline support cited in last week’s article “Euro Finds Trio of Support.” The subsequent move through downtrend resistance at 1.1920 may be the preliminary indication of a larger relief rally in store to correct its 11.5 cent decline from February’s all time high of 1.2925. But it will take a move through cited resistance at 1.1954. Until then support is seen at 1.1850, which marks the 50% retracement level of the 1.1760-1.2925 rally, followed by Monday’s low of 1.1760 Only a move below here would target 1.1575, the 61.8% retracement of the 1.1760-1.2925 rally.

USD/JPY

The dollar held above support at 108.60 but was unable to overcome resistance at 109.80 after twice testing last week’s new one month high of 109.83. While the rise back above the 61.8% retracement of the 112.32 to 103.40 decline at 109 yen is a bullish development for the dollar we continue to warn that the dollar may come under pressure if EUR/USD were to rally from trendline support at 1.17, thus dragging the dollar lower in its wake. Resistance is seen at 109.80 followed by 112.35. Support is seen at 108.60, 107.50 and 106.50.