Dollar’s correction continued last week and ended as the worst performer. Late rebound in stocks and extended correction in treasury yields are both weighing on the greenback. Yen followed as the second weakest, mainly on risk-on sentiment.
On the other hand, Kiwi was the best performer, additionally lifted by hawkish RBNZ rate hike, which indicated that interest could peak higher than previously projected. Euro was lifted be repeated comments from ECB officials which affirmed the chance of a July rate hike. Swiss Franc was also strong on prospect for SNB to follow ECB, if the latter exit negative rates.
Looking ahead, there is much room for the overdue rebound in stocks to extend. The development would likely give commodity currencies an advantage, even against European majors.
DOW and S&P 500 finished corrections with strong rebound?
The anticipated oversold bounce in stocks finally happened last week. Current developments argues that DOW’s corrective fall from 36952.62 has completed with three waves down to 30635.75, just ahead of 38.2% retracement of 18213.65 to 36952.65 at 29794.35. Immediate focus will be on 55 wee EMA (now at 33792.10). Sustained break there will affirm this bullish case and bring further rise back to 35492.22/36952.65 resistance zone. However, rejection by the 55 week EMA would probably extend the whole decline from 36952.65 with another down leg.
Similarly, S&P 500 could have finished the correction from 4818.62 too, with three waves down to 3810.32, after hitting 38.2% retracement of 2191.86 to 4818.62 at 3815.20. Sustained break of 55 week EMA (now at 4288.07) will bring stronger rise back to 4637.30/4818.62 resistance zone. But rejection by the 55 week EMA will keep near term risk on the downside, for another fall through 3810.32.
10-year yield still extending correction from 3.167
10-year yield continued the corrective pattern from 3.167 with another dip. Outlook is unchanged that further fall could still be seen. But downside is expected to be contained by 38.2% retracement of 1.682 to 3.167 at 2.599, which is close to 55 day EMA at (now at 2.652) to bring rebound. There is little prospect of breaking through 3.248 key long term resistance for now. But the range of sideway trading should be set above 2.6.
Dollar index extending correction from 105.00, more downside
Dollar index also extended its correction from 105.00, on the back of improving risk sentiment and retreating treasury yields. It should now be correcting the whole rise from 89.53 to 105.00. Deeper decline is in favor in the near term to 55 day EMA (now at 101.26) and below. But downside should be contained by 38.2% retracement of 89.53 to 105.00 at 99.09 to bring rebound.
On the upside, above 102.65 minor resistance will bring an earlier rebound. But even in this case, long term up trend resumption should only happen at a later stage, after a deeper or longer corrective phase.
AUD and CAD to ride on improving risk sentiment
Considering improving risk sentiment, there is prospect for more upside in commodity currencies. AUD/JPY’s performance was a bit disappointing as it’s still staying below 91.15 minor resistance. But an upside breakout could be due. Outlook is unchanged that corrective fall 95.73 is finished with three waves down to 87.28, ahead of 86.24 medium term resistance turned support. Firm break of 91.15 resistance should affirm this bullish view and bring stronger rise back to 94.40/95.73 resistance zone.
EUR/CAD’s consolidation pattern from 1.3383 might have completed with three waves up to 1.3806 too, ahead of 38.2% retracement of 1.4633 to 1.3383 at 1.3861, and well below 1.4162 support turned resistance. Sustained trading below 4 hour 55 EMA (now at 1.3632) will affirm this bearish case and bring retest of 1.3383. Break there will resume medium term down trend.
USD/CHF Weekly Outlook
USD/CHF’s correction from 1.0063 extended lower last week despite loss of downside momentum. Further decline is still in favor this week. But downside should be contained by 61.8% retracement at 0.9525 to bring rebound. On the upside, above 0.9763 minor resistance will turn bias back to the upside for recovery. However, sustained break of 0.9525 will bring deeper decline to 0.9193 support.
In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 1.0237/0342 resistance zone. This will remain the favored case as long as 0.9471 resistance turned support holds. However, sustained break of 0.9471 will extend long term range trading with another falling leg.
In the long term picture, current development argues that the correction from 1.0342 (2016 high) has completed at 0.8756 (2020 low) already. Rise from 0.7065 (2011 low) might be ready to resume. Firm break of 1.0342 will confirm and target 38.2% retracement of 1.8305 (2000 high) to 0.7065 at 1.1359.