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CURRENCIES: The Dollar Needs Higher Equities and Positive Data

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USDollars-595DOLLAR: Up-trend channel support in the March Dollar index is seen down at 98.31 and the path of least resistance is seen up at 99.11. While the Dollar isn’t seeing definitive flight to quality conditions to start today, the Dollar hasn’t been a safe haven instrument this week. Therefore we get the impression the Dollar is set to behave like a physical commodity or a recovery currency in the wake of the US Non-farm payroll result. In fact, the bull camp might only need an as-expected payroll result to continue its initial corrective bounce.

EURO: The Euro is overbought and vulnerable to corrective action. In fact, if the US Non-farm payrolls are at and certainly above expectations that might sink the March Euro quickly back toward 1.0849 and perhaps even 1.0828. Another potential undermine for the Euro today is news that French November Industrial Production declined by 0.9% from October and that German Industrial Production also declined for the month of November.

YEN: Like the Euro, the Yen this morning lacks an extension of the risk-off vibe that was present for most of this week. We think that the Yen rally into the highs yesterday was a significant overreaction and that a wider than expected corrective slide is in the cards today and perhaps Monday if Chinese equities open next week higher. A normal correction of the late December/early January rally targets 84.40 on the downside and perhaps even 83.89.

SWISS: Since the flight to quality rally in the Swiss wasn’t as significant as the rally in the Yen and Euro this week, the magnitude of the corrective action in the Swiss today might be less significant. Initial support in the March Swiss is seen down at 99.99 and then not until the 99.73 level.

POUND: The Pound has already forged a recovery bounce from extremely oversold levels in the prior trading session. However, with the Pound unable to forge a significant recovery thrust this morning in the face of a slight narrowing of their trade deficit and a modest risk-on vibe in place in equities one might have expected a bigger rally this morning.

CANADIAN DOLLAR: The Canadian has remained in a negative chart pattern overnight as if the trade is poised to press the currency back to the lows following the US payroll result. In short, unless the Canadian payroll readings are patently supportive and that offsets an as expected result from the US we can’t argue against a return to the prior low. Forecasts for Canada’s unemployment rate in December are for no change from last month’s 7.1% rate.

TODAY’S MARKET IDEAS: Without a higher than expected US payroll result the early bounce in the Dollar might be reversed. The normal action in the Dollar this week should have been to rally on financial panic but instead traders viewed the Dollar as the most overvalued from a currency and equity market perspective. Therefore a payroll result of +210,000 or higher and or a slight up-tick in wages could vault the Dollar back toward this week’s highs.

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