The US dollar turned in a mixed performance in the week following the ECB’s surprise and the healthy US jobs report. In some ways, the greenback was like a fulcrum, not the driver.

The dollar-bloc currencies and the Norwegian krona were on one side, and the euro, Swiss franc, yen, and sterling were on the other. The continued, and sharp drop in energy prices and commodity prices more generally, coupled with risk-off impulses spurred by equity market declines, and year-end position adjustment were the main considerations. 

The US dollar’s last leg up began in the middle of October and ran into early December. If there were pent-up corrective pressures, then given the direction and magnitude of recent moves, the pressures are less intense now, and by extension, after the likely FOMC rate hike. However, it is not clear from a technical perspective that the correction is over.

The recent losses carried the Dollar Index to the 50% retracement of the rally since mid-October. It held the level (97.15) almost to the tick. The 61.8% retracement is found near 96.35. The technical indicators (MACD, RSI, Stochastics) are consistent with this view. The note of caution comes from the lower Bollinger Band, which is found near 97.30. However, with the 20-day moving average turning down, the lower band will also decline.

We had anticipated a $1.08-$1.10 range for the euro over the past week. However, the price action suggests the correction may not be complete. A move above the roughly $1.1045 high seen last (and the 200-day moving average ~$1.1035) opens the door to $1.1100-25, and possibly $1.1200. Be attentive to divergences and/or a daily reversal pattern to boost confidence that the counter-trend move is over. 

The dollar fell about two percent against the yen in the second half of last week. Falling equity markets and US yields, c and unwinding of carry-type trades, like against some emerging markets currencies or the dollar-bloc, spurred demand for the yen. The dollar posted a big outside down day (trading on both sides of the previous day’s range and a close below the previous day’s low). Although the technical indicators do not suggest a dollar low is in place, the greenback finished below the lower Bollinger Band (~JPY121.35).