Breaking News

Greenback Momentum May Carry Over While S&P 500 Looks Heavy

By Marc ChandlerForexJul 22, 2019 02:38AM ET
Greenback Momentum May Carry Over While S&P 500 Looks Heavy
By Marc Chandler   |  Jul 22, 2019 02:38AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

The U.S. dollar rose against most of the major currencies last week, with the Australian and New Zealand dollars were the main exceptions. The greenback was whipsawed over the last two sessions. First, it sold off hard when the market confused the case of a preemptive move with a larger cut. Then it rebounded as the investors' views were corrected. The unusual step by the NY Fed to clarify and set the market straight reinforces our conviction that the only a quarter-point cut is delivered. Still, there is much wood to chop before getting to the conclusion of the FOMC meeting on July 31. Our general bias is for a stronger dollar in the first part of the week and then softer in the second half.

Dollar Index

We suggested selling into strength in the first part of last week, and the Dollar Index peaked on Wednesday near 97.45. It fell into our support area in the 96.50-96.70 area (low on Thursday was ~96.67). It closed firmly ahead of the weekend, encouraged by the scaling back of expectations for an aggressive Fed move and Iranian claims that it caught a U.K. oil tanker. The positive momentum may carry over into next week. The 97.50 area seen as the upper end of the recent range. It has not closed above there in a month. A range extension may find offers in the 97.75 area. On the downside, the trendline drawn off the last month's low (~95.85) begins the new week near 96.75 and rises about five basis points a day. The 200-day moving average, which was frayed last week, is near 96.80 now.


For the third consecutive week, the euro was confined to a $1.12-handle. It has not closed above the 20-day moving average (~$1.1280) so far this month. The euro surrendered the gains scored on the misinterpretation of the Fed comments, roughly in half in Asia and Europe and the other half in the North American session. The technical indicators are soft, though the Slow Stochastics appear to be trying to bottom. An apparent bull trap was sprung. The momentum may see the euro trade below $1.1200 around the ECB meeting on July 25, where the market is expecting a dovish message and is split on a rate cut. Secondary support is seen in the $1.1180 area and then $1.1150.


The dollar posted a key reversal lower against the yen on July 10 as it turned back from JPY109. Our initial band of support in the JPY107.50-JPY107.80 held until what we think was self-induced confusion around the Fed comments. Even then, stronger support at JPY107.00 held and was a springboard back to JPY108 that was tested ahead of the weekend. The technical indicators give little reason to expect further recovery. The momentum and ideas that both monetary and fiscal policy can come back into this year may encourage a dollar push higher. The JPUY109 remains an important cap that needs to be overcome.


The prospects of a no-deal Brexit despite Parliament's efforts or that Brexit continues to cast a pall over investment and distract from other pressing issues continue to weigh on sterling. It extended its losing streak against the euro for a record eleven consecutive weeks. However, the euro's upside momentum has faltered, and it closed below its 20-day moving average (GBP0.8975) against sterling for the first time since early May. Even if there is some cross-rate related demand, sterling may continue to escape its trough against the dollar. Sterling recorded new lows for the year in the middle of last week near $1.2380. The recovery on the back of the misconstruction of the Fed comments fizzled near old support, which is now resistance around $1.26.

Canadian Dollar

Even though the U.S. dollar made new lows for the year against the Canadian dollar ahead of the weekend, unlike sterling, it does not appear to be moving into a new range. The MACDs and Slow Stochastics continue to trend higher, leaving a (U.S. dollar) bullish divergence intact. A base has been forged near CAD1.30 over the past week or so. However, it may mean little unless CAD1.31 can be overcome, and even then the CAD1.3150 area may offer formidable resistance. Perhaps, the unexpected decline in May retail sales marks the end of the string of news that fueled the four percent Canadian dollar rally since the end of May. We do not attribute much near-term significance to the fact that in the middle of last week, the 50-day moving average fell below the 200-day moving average (death-cross of golden-cross) for the first time since late Q1 18. It is the third major currency to give such a U.S. dollar sell signal. The moving averages crossed in the dollar-yen pair in January and crossed in the Swiss franc on July 10. It is consistent with our view that the U.S. dollar is carving out a broad top at the end of its third significant rally since the end of Bretton Woods.

Australian Dollar

The New Zealand and Australian dollars were the strongest against the U.S. dollar last week (~1.0% and ~0.35% respectively) and for the month-to-date (~ 0.65% and ~0.35% respectively). We had thought the Aussie had potential toward $0.7100, but it reversed lower from just above $0.7080. The close above the upper Bollinger Band on July 18 was a false break and the Australian dollar. Initial support may be seen in the $0.7000-$0.7015 area, but we suspect there is potential toward $0.6975.

Mexican Peso

Worries about Pemex may have weighed on the peso last week, though net-net it lost a little less than 0.2% against the dollar. Within our larger MXN18.80-MXN19.20 range we identified, the dollar traded between roughly MXN18.92-MXN19.12. We look for some follow-through gains in the first half of the week ahead. Year-to-date, the peso has gained about 3.25% against the U.S. dollar, with about a third of it being recorded here in July.


Although WTI for September delivery closed almost 1% ahead of the weekend, it still was off around 7% for the week, the worst showing since the end of May. The technical indicators warn of additional losses and support is seen in the $52-$54 area after finishing the week a little below $56, but geopolitical concerns may limit near-term losses.

U.S. Rates

The two-week backing up of U.S. 10-year yields ended last week with a seven basis point decline and paring more than half of its increase in the previous two weeks. The yield has not traded below 2% since July 5. On the upside, the nearby cap is seen near 2.15%. The September note futures stalled around the (61.8%) retracement (~127-25) of the decline from the July 3 high. The MACD and Slow Stochastics are trying to turn higher (lower yields). Key support is seen near 126-24. When everything was said and done, implied yield of the August fed funds futures contract closed a single basis point higher on the week. It closed at a 2.105%, which the CME's model says implies about a 22% chance of a 50 bp rate cut is discounted. The implied yield of the January 2020 fed funds futures contract fell two basis points last week to 1.69%. The current effective average is about 2.40%, indicating that a market is discounting three cuts in the next four FOMC meetings.

S&P 500

The S&P 500 fell 1.25% last week. The highs for the week were set near 3018, a little below our 3030 target. It finished on its lows, just above the 20-day moving average (2972.7), which it has not closed below since June 5. The technical indicators point to more downside potential. Our initial target is the bottom of the July 1 gap that extends to about 2944. A break of there would open the door of a deeper pullback that could extend toward 2900. Year-to-date, the S&P 500's 18.7% gain is the most of the major G7 bourses. The MSCI Asia Pacific Index is up around 12.25% and Europe's Dow Jones Stoxx 600 has risen 14.7%.

Greenback Momentum May Carry Over While S&P 500 Looks Heavy

Related Articles

Greenback Momentum May Carry Over While S&P 500 Looks Heavy

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email