Another solid US employment report on Friday and subsequent price action suggests that the broader USD can move into a consolidation/correction phase, with US rates looking set to do the same. We have little data out of the US this week until the very important inflation release on Friday.
Ahead of that we get a few Fed speakers who will be listened too in regards to the
language change around the inflation risks. Today, we have Bullard and Kashkari speaking. We still believe the USD bear trend remains intact and has further to run and view rebounds as corrective at this stage. OPEC meet today to discuss output compliance. Oil prices have been consolidating around mid-range, after recovering from the June lows. Overnight, we will get the latest trade report from China, which may also have some bearing on commodity and commodity currency prices if there is significant shift in the readings. AUDUSD and USDCAD have been in a steady correction phase since the 27th June, which are ongoing but approaching important levels in the 0.7875-0.7825 and 1.2750-1.2800 region respectively.
The double whammy of the BoE and then US employment data supported the broader dollar and has seen this rate drop sharply from Fibonacci resistance at 1.3265. Daily momentum remains down suggesting a broader correction can be seen, but intra-day studies suggest in the near term we may be limited to the 1.3000-1.2930 support region. A clear break down through there and next support is not seen till the 1.28- 1.26 region.
Resistance lies at 1.3115-1.3150, with a break up through here suggests an upper range developing and probably a re-test of the 1.3265 highs. Long term, we believe we are in the final stages of the cycle that started back in 2007 at 2.1160. We are still monitoring price action to determine whether the 1.1490 “flash crash” move was a significant low, or not. Even if that is the case, over the medium term we look for a range, although that range
seems to be shifting from 1.20-1.30 up to 1.25-1.35.
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The underlying bull trend remains intact, but Friday’s reversal has turned the momentum studies across time frames lower and suggests a broader correction can be seen. Main support lie in the regions around 1.1705, 1.1600 and then the key trend support is around 1.1540. We still see pullbacks as corrective at this stage, with a run back through 1.1820 1.1835 negating the current downside momentum and suggesting more of an upper range will be seen before a return to trend.Long term, we believe 1.0350 was a major low, which completed the cycle from the 1.60 2008 highs. As such, we look for an eventual move back to the main medium-term resistance region between 1.2000 and 1.2350, while long-term targets lie in the 1.30-1.35 zone.