Dollar ended as the worst performing one, reversing much of prior week’s rebound. Risk-on sentiments appeared to be leading the greenback lower again, and boosted Australian Dollar as the strongest one. But the development in other major currencies were less clear.
The strength in stocks and oil were not much reflected in Canadian Dollar, nor New Zealand Dollar. On the other hand, While Yen was one of the worst, Swiss Franc was taken higher with other European majors. The next move could become clearer when many markets are back from lunar new year holiday.
S&P 500 taking on channel resistance as record run continued
S&P 500 continued the record run last week and closed strongly at 3934.83. It’s now at a juncture on whether to accelerate through channel resistance, or have a pull back first. Break of last week’s low of 3884.93 support will suggest the latter. But even in that case, downside should be contained by 55 day EMA (now at 3752.75) to bring up trend resumption. We’d expect a test on 61.8% projection of 2191.86 to 3588.11 from 3233.94 at 4096.82, sooner or later.
Nikkei pressing 100% projection level, break or be rejected?
Nikkei also continued to strong up trend to close at 29520.07. It’s now facing an important fibonacci level of 16358.19 to 23178.10 from 22948.47 at 29768.38. The range from here to channel resistance is a key medium term zone to overcome. Sustained break could prompt further upside acceleration to 161.8% projection at 33983.08, which will be significantly bullish for the long term outlook. Rejection from here, followed by break of 28979.52 resistance turned support, would bring pull back towards 55 day EMA (now at 27531.49) first, before extending the up trend again.
Global benchmark yields jumped, returning to “normal”
Global benchmark treasury yields were pretty strong last week. Germany 10-year bund yield rose 0.021 for the week to -0.425. UK 10-year gilt year rose 0.037 to 0.521. Even Japan 10-year JGB yield rose 0.004 to 0.064. US 10-year yield also resumed recent up trend to close at 1.200. The “back-to-normal” trend is on-going as we’d expect TNX to continue recent rally towards 1.266 key resistance next.
WTI approaching 60 on strong risk-on sentiment
Strong risk on sentiment was also seen in oil price. WTI crude oil surged to as high as 57.90 after the brief retreat was support well by 57.18 support. Near term outlook will now stay bullish as long as 57.30 support holds. With 100% projection of 47.24 to 53.92 from 51.58 at 58.26 taken out, next near term target is 161.8% projection at 62.38.
Dollar index rejected by 91.74 resistance, to retest 89.20 low soon
Dollar reacted little to rising US yield but trended lower following risk-on sentiment. Dollar’s sharp fall last week indicated clear rejection by 91.74 support turned resistance. It’s also back below the nearly flat 55 day EMA. The currently development argues that fall from 91.60 is at best the second leg of the consolidation pattern from 89.20. At worst, it could indeed be resuming the down trend from 102.99.
For the near term, DXY’s upside would likely be limited below 91.60 resistance in case of recovery. Retest of 89.20 low could be seen soon.
AUD/JPY could accelerate towards 84.60 projection target
Australian Dollar was back as a favorite for risk-on trade. AUD/JPY ended as one of the top performers and has the potential for some upside accelerations. Further rally is expected as long as 80.63 minor support holds. Current rise is part of the up trend from 59.89 and should target 61.8% projection of 59.89 to 78.46 from 73.13 at 84.60 next. Break of 80.63 support will bring some more consolidations but outlook will stay bullish as long as 79.18 support holds.
EUR/USD rebounded strongly to 1.2148 last week. While it retreated since then, some support was seen from 4 hour 55 day EMA and recovered. Initial bias is neutral this week first. On the upside, break of 1.2148 temporary top will reaffirm the case that correction from 1.2348 has completed with three waves down to 1.1951. Intraday bias will be back on the upside for 1.2188 and then 1.2348 high. However, break of 1.2053 minor support will dampen this bullish case and bring retest of 1.1951 support instead.
In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. We’d be alerted to topping sign around 1.2516/55. But sustained break there will carry long term bullish implications.
In the long term picture, the case of long term bullish reversal continues to build up, with bullish convergence condition in monthly MACD, sustained trading above 55 month EMA and long trend falling trend line. Focus is now on 1.2555 cluster resistance (38.2% retracement of 1.6039 to 1.0339 at 1.2516 ). Decisive break there will confirm and target 61.8% retracement at 1.3862 and above.