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We started off by taking a look at what could happen in the after-math of today’s U.S. jobs report. The US Dollar Index (DXY) has rallied strongly since bottoming a month-ago, but is now facing off with resistance near the August high. A couple of scenarios worth keeping in mind which could help shape the outlook heading into next week. If we see a solid report and the dollar initially reacts higher but fails to hold the rally and closes below resistance then we may have a found a saturation point which points to a pullback. Conversely, should the report be underwhelming and a reaction lower is met with buying and the DXY can close above the 94.14 August high, then it paints the picture of a market able to shrug off negative headlines and clear through resistance at the same time. In this scenario, we look for the rally to extend even further. We’re taking a reactionary approach and once the dust settles by days end we should learn a lot more about what to expect in the short-run.
US Dollar Index (DXY):Daily
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EURUSD, as ~57% of the DXY weighting, will move in opposite manner. Support comes in the area of 11662/16. GBPUSD has really come apart since sharply reversing lower last month, and aside from a couple of short-lived reprieves the trend is firmly lower. It’s late in the game to be a seller, but should it continue to decline we could soon arrive at a nice intersection of support just under 13000. There is a trend-line rising up from March, a lower parallel extending higher since April, along with a retest of a broken trend-line extending down from the ‘Brexit-day’ high. It’s a sweet spot, if you will, and if price action validates confluence as strong support a solid bounce could develop. It’s certainly in the queue as a potential opportunity from the long-side, but until then pressure on cable could remain strong.
GBPUSD: Daily
We also looked at USDJPY, AUDUSD, USDCAD & USDCHF in the dollar-spectrum. Notable cross-rates and EM-pairs examined were EURAUD, GBPJPY, CADJPY, and USDMXN.
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Gold continues to dwindle towards what could, similarly to cable, run into a confluence of support from which a bounce may develop. There is trend-line support off the December low, a swing-low from August, and the 200-day MA – all align in the vicinity of 1253/50. Coming from near 1360 in fairly straight-line fashion means at $100 gold will be running into solid support in an oversold state. Should we get down there next week, we’ll look for signs of a reversal developing. Silver has support in the 16.13/07-area.
The S&P 500 continues to extend into uncharted territory, notching its 8th consecutive day in a row of gains yesterday. It has cleared above two top-side trend-lines and doesn’t have any resistance in the vicinity now. It’s overdone in the near-term, but a tough short. We’ll need to see a strong day lower or key-reversal day before thinking about shorts. Looking to those prior lines as possible ‘dip-trips’ should price gradually easing into them. The DAX is nearing a pair of long-term top-side trend-lines in the 13000/100-area, and could at least put a wrinkle in the rally soon. The FTSE overcame the Feb ’16 trend-line and top of a range carved out in August/September, looking for 7550/600 as a point where we might see the index stall.
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---Written by Paul Robinson, Market Analyst
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