Dollar Technical Outlook: Week of 11/18

by on November 16, 2013 11:58 am GMT

The dollar continued to decline last week as the Federal Reserve chairwomen nominee Janet Yellen calmly soothed the Senate Banking Committee’s worries of bubbles across all assets. Regardless of this absurdity, it increased risk appetite and both the dollar and yen sold off.

The chairwomen could be the last nail in the dollar’s coffin as Operation Endless Balance Sheet marches forward with haste. Technically, the dollar is in a vulnerable position. From the yearly high-to-low, the 61.8 percent Fibonacci level has rejected the dollar’s preceding upward trend five consecutive sessions with the last two sessions closing just below it (so, lets make that seven total). Also, the 200 EMA is adding to the resistance as it floats just above this level.

The 20 and 50 EMA is flatlining. They provide dynamic support to the downside near 80.50-60.

Volume has also declined over the course of the week, potentially waiting for a larger catalyst for traders to pile in and choose a direction.

Next week will prove crucial for the dollar. On Wednesday, core CPI and retail sales will be released with the FOMC minutes being released a few hours later. There is an expectation of inflation data to remain relatively inline with previous releases, at a low .1 percent. Yellen has pretty much signaled no taper anytime soon, and the FOMC should continue to be a repeat of previous statements.

The dollar should trade lower on sentiment alone prior to the FOMC statement. If inflation comes in lower than expected and retail sales disappoint, then the dollar could trade much lower. The FOMC always creates volatility. I would push aside the event risk and initial move as noise and focus on where the daily candle closes and whether there is buying at the bottom of the range or selling at the top.

A close above 80.3, and the dollar is in trouble and could trade to the next significant level at 79.80. If the new is good enough to boost the dollar, a break and close above the 61.8 Fib. could move the dollar to 82.

1D Chart of DX

1D Chart of DX