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Morning Brief

The overall USD performance across G10 currency pairs ended last week mixed, with the pound gaining but the likes of the Aussie dollar dropping. The US Treasuries are keeping the US dollar from collapsing as bond yields are elevated but unable to break and hold above the 1.70% level.


Maybe the market is waiting for President Biden to get the infrastructure bill passed before any more exuberance ensues, as the risk-on nature that we saw, is diminishing and even the reflation trade is showing signs of a possible peak.


Commodities are finding it difficult to keep their parabolic moves to the upside going, with the likes of Lumber and Copper coming off their highs. The equities markets and crypto space are obviously not trading risk-on currently, with the traditional high growth assets looking fragile just under all-time highs and the new supposedly future stores of wealth collapsing as much as 50% from their highs. News out of China is being sold into now and the lack of good news elsewhere is not supportive.


EURUSD tested and held below 1.2243, which is the February high but with a strong start this Monday during the London session I doubt that there are many sell orders left above there now, which means the January/year high should at least be tested. The daily RSI is signalling that these new price highs are relatively weak, and unless we can clearly break and hold above last week’s range, the RSI will be showing a stronger divergence to price, which would be another sign of a possible reversal at the next resistance levels.


The 20,50 & 200 daily exponential moving averages are indicating that there is momentum to the upside and the test of the 50 ema in May was a sign of the buy the dip traders were primed to buy more given a chance. The weekly and monthly charts concur that the trend to the upside is the strongest and the path of least resistance, so we should expect the US dollar index to find lower lows at some point unless new news comes into the mix.


The divergence on the daily RSI may have something to do with the ActivTrader sentiment indicator showing that 66% of traders on the platform are bearish and should we see that figure rise, I would like to see them get squeezed further as we head towards the 2018 highs now that the monthly chart shows price moving away from the break of the down trend line and price approaching the upper bounds of the 2015-2021 sideways consolidation.


Where the bulls will get nervous is a test below the daily 200 ema and then a break below the April 2021 swing lows.

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