The dollar extended the down move that began at the start of the month last week. It fell against nearly all the currencies in the world but the yen and Turkish lira. However, the near-term decline may be exhausted, and a recovery is likely in the days ahead. With interest rates low and much of the perceived event risk being alleviated, this is the kind of environment investors ought to like. Holiday-thin markets and year-end vagaries can be particularly treacherous.
Dollar Index: The Dollar Index has moved higher in only two of the last 11 sessions. During this run, it sold off by 2%, before consolidating ahead of the weekend, to reach five-month lows near 96.70. The technical indicators are consistent with a low being in place or approached. The Slow Stochastics are poised to turn higher. The MACD is almost there. The Dollar Index spent part of the past three sessions below the lower Bollinger Band, and closed back inside it (~97.05) ahead of the weekend). A move above 97.35 would confirm a break in the downside momentum, and above the 97.55-97.65 band would lift the tone. It may require a foothold above the 97.80 area, which houses the 20-day moving average and the (61.8%) retracement of the decline that began at the end of November.
Euro: The euro failed spectacularly at $1.12 ahead of the weekend and closed on its lows of the session just above $1.11. It left a bearish shooting star candlestick. The immediate risk extends toward $1.1065, which corresponds to the (61.8%) retracement objective and the 20-day moving average. The Slow Stochastics have flatlined at elevated levels, set to turn lower, while the MACD is still gradually rising. If the $1.1175-1.1180 area, seen last month, and almost $1.12 seen last week mark the top end of the euro's range, the bottom end is closer to $1.10.
