The Japanese yen and Canadian dollar were the only major currencies to gain against the US dollar last week. They are also the only major currencies to appreciate against the dollar so far this year. US President Trump's apparent playing down of the pressure to strike a partial deal with China before the 2020 election weighed on stocks and lifted the so-called safe-haven currencies ahead of the weekend. When everything was said and done, from the attack on Saudi Arabia to the money market squeeze in the US and the Fed's rate cut, the dollar remained mostly within well-worn ranges.
The exceptions were idiosyncratic. Growth concerns, both globally and domestically, saw the New Zealand dollar fall to new four-year lows ahead of the weekend. The RBNZ meets next week, and the market has about six basis points of easing, or about a 25% chance of a cut. The Australian dollar fell in four of last week's five sessions and the day rose was by 1/100 of a penny, according to Bloomberg. Sterling had threatened to break high in the second half of the week, but Ireland's Deputy Prime Minister helped put Juncker's seeming optimism in context. UK Prime Minister Johnson reportedly acknowledged that the EU is unlikely to agree entirely with his proposal at the critical summit in the middle of next month. These developments pushed sterling a cent off the highest level since July (~$1.2580).
Dollar Index: The Dollar Index was confined to Monday's range of roughly 98.00-98.70 throughout the week. With a few brief exceptions, the 98.00-99.00 confined most of the price action here in September. That range is a good approximation of the Bollinger Bands. The Slow Stochastics and MACDs have trended lower this month. It suggests that the sideways price action was sufficient to alleviate the over-extended technical readings seen at the end of August. The downtrend drawn off the two spikes earlier this month begins the new week near 98.80. A break of it could spur a move toward 99.35-99.40.
Euro: After rising a combined 0.8% in the first two weeks in September, the euro fell by a little more than 0.5% last week. Like the Dollar Index, Monday's range set the bars for the rest of the week. Most of the price action took place in a one-cent range from a little below $1.10 to a little below $1.11. Although the MACDs and Slow Stochastics have not turned lower, they are poised to do so. The inability of the euro to sustain even modest upticks and the lower highs that are being recorded suggest a test on the $1.09 area is likely. A break of $1.09 would target an old gap on the charts from April 2017 roughly between $1.0775 and $1.0825.
Yen: The dollar's three-week climb against the yen that took it from about JPY104.50 to nearly JPY108.50 ended this week. It lost about 0.75% in the last two sessions to finish the week off about 0.4%. The loss of momentum is evident by the dollar closing near the week's lows. Initial support is seen near JPY107.40 and then closer to JPY107.00. The 20-day moving average and the 50% retracement of this month's gains are found near there. Below there is JPY106.80. The MACDs and Slow Stochastics have rolled over favoring a continued pullback in the coming days.
Sterling: Although sterling made new two-month highs before the weekend, the price action is not encouraging, and the downside beckons next in the days ahead. After poking a little through $1.2580, sterling reversed course as the optimism about a Brexit deal could not last more than 24-hours as a more realistic assessment pushed back. A bearish divergence is evident in the RSI (nine-day), and the MACDs and Slow Stochastics are poised to turn down. A band of support is seen in the $1.2400-$1.2435 area. A break would boost our confidence that a high is in place. Others may want to see the 20-day average (~$1.2415 violated). When Amber Rudd resigned from the Cabinet, she said that the Prime Minister did not seem to be sincerely working toward a deal. We suspect Johnson genuinely believes that the EU will capitulate at the last moment, but we think he consistently has underestimated his adversaries.
Canadian Dollar: The Canadian dollar did not benefit from the spike in oil prices at the start of the week, and the US dollar moved sideways in a clearly defined range of CAD1.3235 to CAD1.3310 after the beginning of the week. It knocked against the 200-day moving average (~CAD1.3310) but was unable to close above it. The technical indicators are supportive and a move a convincing move above CAD1.33 would target CAD1.34. A break of CAD1.3200-CAD1.3220 would weaken the greenback's technical tone.
Australian Dollar: The Australian dollar fell 1.6% last week and pushed a little through the (61.8%) retracement objective of the bounce over the past two weeks. The momentum indicators have turned down. The New Zealand dollar, which fell to new multi-year lows before the weekend, probably portends the same for the Aussie. First comes a test on $0.6700 and then the multi-year low near $0.6675 seen on a spike down in early August. A close above $0.6800 would begin healing the technical damage.
Mexican Peso: The dollar peaked in late August after pushing through MXN20.26. Last week it recorded the lows for September near MXN19.32. However, the marginal downticks were hard-won and were not sustained. The dollar's outside down day on September 17 did not spur much follow-through selling, and the greenback appears to be carving out a low. The Slow Stochastics are poised are turning higher, and the MACDs seem poised to do so. The upper end of the recent range is near MXM19.52, but we suspect near-term potential can extend toward MXN19.65 and possibly MXN19.70, where the 20-day moving average is found. A quarter-point rate cut is widely anticipated to be delivered on September 26. After the move, another 25 bp cut is fully discounted this year, and market leans (~65%) toward one more, which would bring the cash rate to 7.25%.
Chinese Yuan: Ahead of the weekend, US-Chinese talks took a turn for the worse. President Trump seemed to rule out the short-term agreement that speculation over helped strengthen the risk-taking appetites. Trump also played down the political considerations that many argued favor an agreement ahead of next year's election. Chinese officials have little patience for such statecraft, and quickly canceled a couple of goodwill visits to America's farmland. These events would seem to weigh on the yuan. The dollar generally sported a firm profile ahead of the weekend. Beginning September 3, the dollar has been alternating between rising and falling sessions against the yuan. It eased before the weekend, so keeping the pattern intact requires a stronger dollar in any event. The dollar recorded its low on Monday last week a little above CNY7.06, which is a bit lower than we thought was going to be the bottom end of a new range. Above CNY7.10, we suspect the dollar can rise toward CNY71.2-CNY7.14.
Oil: The price of WTI for November delivery peaked in the immediate reaction to the news of the strike on Saudi facilities near $63.90. The low for the week was recorded on Wednesday a little below $57.60, and the contract proceeded to trade in a roughly $58.00-$59.50 range for the rest of the week. Saudi Arabia claims that most of its supply can recover quickly, though many market participants are skeptical. Nevertheless, with strategic reserves available, and some countries quite happy to boost production, supply consideration may not be the driver prices now. Demand concerns may move back to the fore, and global headwinds and uncertainty weigh on growth projections. With the ebb and flow of trade tensions possibly flowing, the price of oil may continue to unwind the dramatic gains scored in the wake of the attack. The $57.70 area, frayed last week, represents the (61.8%) retracement of the gains, and the 200-day moving average is closer to $57.00. Potential, we suspect exists back toward the bottom of the gap that was created by last Monday's sharply higher opening. It is found near $55.60.
US Rates: The US 10-year yield fell 17 bp last week after rising 40 bp in the previous two weeks. The US 2-year yields fell 11 bp last week. It had risen 29 bp in the first two weeks of September. While some play up the fragmentation of views at the Fed, we suspect it is more apparent than real. Despite the media playing up the three dissents, one, Bullard, favored a larger cut. We expect that Fed's reasoning--that subdued inflation allows the central bank to take out inexpensive insurance to boost the chances that the expansion extends--will allow for another cut this year with a similar voting pattern. The January 2020 fed funds futures contract implies a yield of 1.635%. This is down 3.5 bp last week after rising 14 the prior week. This means one more 25 bp cut remains discounted. Based on our current information set, we suspect the move comes in December leaving the October meeting to address the plumbing issues and helping investors keep those considerations separate from the conduct of monetary policy proper. The technical indicators for the December 10-year note favor an extension of the recovery that began last week and met the initial (38.2%) retracement objective. The next is 130-14 and then almost 131-00. This suggests the potential for the yield to slip back into the 1.60%-1.65% area from 1.72% where is settled last week.
S&P 500: The benchmark extended its three-week rally through September 19, when it came within spitting distance of the record high (~3022 vs. 3027). The momentum faltered as it closed unchanged and practically flat on the week. It was struggling around little changed levels ahead of the weekend before trade tensions flared-up. It dropped around 1% and later recouped about half. The technical indicators warn of the downside risks in the week ahead. There is a bearish divergence in the RSI (nine-day) and Slow Stochastics, which have rolled over. The MACDs are stretched and about to turn lower. Last week's low was set near 2978, but more important support is near the September 10 low and 20-day moving average (2956-2957), which is also the top of a gap from earlier this month. The bottom of the gap is the high from September 4 near 2938.85, which may be a likely target.