Dollar’s Asymmetric Rally “Unlearn what we have Learned”

Please attribute the following commentary to Jeffrey Halley, senior market analyst at OANDA

Dollar’s Asymmetric Rally “Unlearn what we have Learned”

It has been another quiet day in Asia ahead of Fed Governor Yellen’s speech in Jackson Hole. The USD has moved asymmetrically in last 24 hours, rallying against some pairs and falling against other. Following is a take on some of the most “interesting” moves and a consideration of whether positioning, Jackson Hole or other “forces” are at play.

The degree of resurgence very much depends on what you compare it against. The USD has had a very strong run in the last few days against oil, precious metals and commodities in general.

From a technical perspective, the USD has made some significant inroads as it has had a reasonably strong rally against Emerging Market currencies, a negligible rally against most G10 and the USD continues to fall against GBP and NZD.

The question is, does this mark a period of renewed USD strength? Or is this just a “faux” rally ahead of Yellen’s speech driven by position squaring? The honest answer here is I doubt anyone truly knows. My instinct tells me this is positioning squaring.

Some of the divergent short term price action makes for compelling viewing.

GOLD

Not pretty reading for bulls such as myself. Gold has broken back into the daily Ichi Moko cloud at 1330, and this becomes resistance now. Support comes in at 1315.30, previous daily lows, and then 1314.65, the 100 day moving average (100 DMA). A daily close under here opens up a move to 1287 the bottom of the cloud.

SILVER

Broke the 100 DMA at 18.8400 and this becomes resistance. Treading water above support at 18.4850 the bottom of the daily cloud. A break here opens up a move to 17.5000 the 200 DMA and a series of daily highs. This level is important as it marked the start of the initial breakout upwards.

A hawkish Yellen speech, on the basis of this technical setup, opens a potentially ugly move down. There are still a lot of long Silver positions out there, mostly at levels near 19.5000/20.0000. To paraphrase that great Master, Yoda, “we may have to unlearn what we have learnt.”

PLATINUM

Platinum is marking time as well above the 100 DMA at 1073.65. Next support is at 1058.70 the top of the daily cloud.

Resistance is at 1103.00, a series of daily highs back to early July and the breakout point once again of the last rally.

COPPER

Supply overhangs continue to weigh here, and it’s not been a happy week for mining shares.

The chart points to a move to June lows at 2.0200 if 2.0760 breaks and closes under here.

Topside resistance is solid now between 2.1400and 2.1700. This contains both sides of the Ichi Moko cloud and the 100 and 200 DMA’s.

USD/ZAR

The Rand continues to get slammed as the fallout I spoke about yesterday continues, especially now that the Finance Minister is simply refusing to attend the police interview on Thursday!

We are approaching important daily resistance at 14.2000 area, and a break sets us up for a test of the 100 DMA at 14.4000. I said yesterday USD/ZAR will be driven by politics going forward but a hawkish Yellen will no doubt add fuel to the fire.

NZD/USD

Fonterra, New Zealand’s largest exporter, upgraded their Milk Payout forecast to farmers this morning. This matters as dairy makes up some 20% of New Zealand’s exports. When Fonterra sneezes, New Zealand catches a cold and vice versa.

This gave an extra fillip to the NZD which continued its march higher against the USD and bucking the overall trend. We have broken resistance at 7305 now, and this sets the NZD up for a move to 7450/7500 area. Expect more rhetoric from the RBNZ now vis a vis the level of the NZD.

No doubt there is much gnashing of the teeth in frustration at RBNZ HQ, as their efforts to talk the currency down fail dismally. As I have said previously, New Zealand’s status as one of two remaining creditworthy G20’s with an actual positive yield, mean any sustained selloff of the NZD is will difficult to maintain. With the surprise Fonterra upgrades in the milkshake, this just got a lot harder.

GBPUSD

The British have always marched to their own plucky beat, and the currency is certainly doing the same. Much like the NZD/USD above. In the big picture, GBPUSD has traded 1.2850/1.3350 since Britain chose to fight Europe on the beaches, etc in July.

With a huge amount of short positioning out there GBP has not managed to make a new low since Brexit Day. The absolute low around 1.2800 remains comfortably unchallenged. Resistance at 1.3350 is not too far away and a daily close above set up the potential for a nasty short squeeze.

The price action will tell the story, but the outcome will not be dictated to by whether Ms Yellen is yellin’ or bellin’.

Summary The USD rally is asymmetric. Showing itself more strongly against some, neither here nor there against others and being totally ignored against other pairs still! One suspects that the amount of short-term positioning out there is the underlying driver of the magnitude of these moves. The need to reduce risk and positioning ahead of the Jackson Hole speech causing much “unlearning of what we have learnt.”

Whether some of these moves continue will depend on the content of the speech and as such, patience is a virtue here.

For direct comment, please contactJeffrey Halley

e: jhalley@OANDA.com

t: +65 9457 1849