The US dollar moved higher in September and October after falling broadly since late April when it became clear that populist-nationalist forces would not sweep across Europe, as many had feared in the aftermath of the Brexit referendum and Trump’s unexpected victory in the US. It has fallen out fallen out of favor again. This month, the yen and euro are leading the broad move against the greenback.  

Heading into the last week of the month, only the Australian dollar, among the major currencies, is weaker than it had started the month. It has a central bank that is steadfastly neutral and a government that may be hamstrung by the loss of a majority over dual-citizenship problems among its members of parliament. The fact that the Australian dollar is on the verge of completely losing its interest rate premium over the US also weighed on sentiment. 

The highest US two-year yield since Q4 2008 and the largest premium over Germany since the late 1990s has been insufficient to give the greenback a strong bid against the euro. The euro will begin the new week with a four-session advance and a three-week rally in tow. It has traded above the mid-October high and key retracement objective found in the $1.1880-$1.1885 area. Technically, it suggests a return to the early September high near $1.2090. Above there, the 50% retracement of the euro’s decline since the mid-2014 peak is found near $1.2165-$1.2170. This area also appears to correspond to a measuring objective of a possible head and shoulders bottom pattern in the euro. A note of caution comes from the fact that the sharpness of the euro’s advance as left it above the upper Bollinger Band.  

The dollar’s recovery against the yen since hitting JPY107.30 in early September coincided with the recovery in the US 10-year premium over Japan from 203 bp to almost 240 bp by late October. This month the premium has stopped trending higher and moved sideways between 227 bp and 235 bp. This has coincided with a pullback in the greenback against the yen. The dollar peaked near JPY114.75 in the first week of November and slumped to nearly JPY111.00 last week. The lows corresponded with a 50% retracement of that dollar’s recovery. A break would open the door to the next retracement objective near JPY110.15. A move back above previous support in the JPY111.65-JPY111.80 would help stabilize the technical tone.