After a Bad Year, Dollar Index Could Revisit 91 in Jan 2018

Dollar remains generally weak as 2017 is coming to a close. It has been a rather bad year for the greenback despite Fed’s rate hike. The highly anticipated tax plan of the Republicans also provided little boost to the greenback. Dollar index’s yearly high was made back in January at 103.82. It then dropped to as low as 91.01 in September before finally staging a rather weak recovery. The sharp fall in December would very likely put 91 hand back into in the coming January. And we could see more downside in the greenback, at least in near term, before seeing a sustainable rebound.

Technically, we’d maintain the 91 represents an important support area for Dollar index in the long term. The fall from 103.82 is still seen as developing into a corrective move. There is 91.91 support, clustered with 38.2% retracement of 72.69 to 103.82 at 91.93. 55 month EMA is also around at 91.69. Hence, we’d still anticipate strong support around 91 to contain downside. But a sustain break there will probably give extend the decline for another 6-12 months towards 61.8% retracement at 84.58, before the correction completes.

The struggle in long treasury yield, despite Fed’s hikes, was also a factor capping dollar’s rebound. 10 year yield hit 2.621 back in December 2016 but then turned into corrective trading for a year. At the time of writing, there is no clear sign that such consolidation has completed. The rebound from September low at 2.034 has been weak and without conviction. The long term picture still suggest that 1.336 was the bottom on bullish convergence condition in monthly MACD. But, at least a test on 3.306 high is needed to give us some more confidence on this long term view.

The picture of stocks was very different with DOW, S&P 500 and NASDAQ in record runs in 2017. Again, that came despite Fed’s tightening. And together with strong job data, the US economy was clearly in good shape. The only missing piece for Fed is that all the economic momentum is no translating into inflation yet. There were worries that flattening yield curve is pointing to recession ahead. But so far, there is no such indication as seen in stocks. DOW is still in a long term acceleration phase and could try to target 161.8% projection of 10404.09 to 18351.36 from 15450.56 at 28308.59 in 2018.

Wish all our readers happy new year! See you again on Jan 2, 2018.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2535; (P) 1.2598; (R1) 1.2630; More….

USD/CAD’s decline accelerates again and reaches as low as 1.2547 today so far. The break of 1.2598 support now argues that whole rebound from 1.2061 has completed at 1.2919 already. Near term outlook is bearish for 61.8% retracement of 1.2061 to 1.2919 at 1.2389 or possibly below. On the upside, break of 1.2697 minor resistance is needed to indicate short term bottoming. Otherwise, near term outlook will stay mildly bearish in case of recovery.

In the bigger picture, we’re still favoring the case that USD/CAD has defended 50% retracement of 0.9406 (2011 low) to 1.4689 (2016 high) at 1.2048. And with 1.2048 intact, we’d favor the case that fall from 1.4689 is a correction. With that in mind, fall from 1.2919 is viewed as a correction. Hence, we’re not anticipating a break of 1.2061 low. In the long run, USD/CAD should have another medium term rise to take on 38.2% retracement of 1.4689 to 1.2061 at 1.3065.

Economic Indicators Update