The technical stars are starting to align for the dollar and it's certainly going to make for an interesting week of trading. Things have been quiet as of late in the European session as summer time markets are prevailing but the days ahead could be a little different. The dollar now has a recipe to pump higher and it's all coming down to the technicals.
The first and arguably one of the key ingredients is for USD/JPY to make a push back above 145.00. The pair saw gains stall at that level at the end of June amid some verbal jawboning by Japanese officials and murmurs of a more meaningful policy tweak by the BOJ incoming in July.
There isn't much verbal opposition as of late by Japanese officials and that might yet allow USD/JPY buyers to break through the barrier and start to look towards 150.00 again - when we last saw Japan intervene in the FX market last year.
The next ingredient for a further push higher in the dollar is the EUR/USD daily chart. The pair has been consolidating just under 1.1000 as of late but so far, any downside push is being defended by the 100-day moving average (red line). That level sits at 1.0929 currently and if that gives way, it likely would pave the way for a drop towards 1.0800 next.
The 200-day moving average (blue line) would also be a plausible target for sellers, seen at 1.0775 currently.
With the ECB also likely moving to the sidelines in September, the euro has lost a lot of that bullish conviction - especially with a stuttering economy that is paling in comparison to the US.
Then, we have AUD/USD which saw a daily close below 0.6500 last Friday and is now threatening the lows for the year. The break below the figure level is key and that could really set off a move back towards 0.6200 for the pair next as warned last week here.
The May low of 0.6458 is one to watch and a close below that will provide sellers with a good platform to build on a further downside leg in the sessions ahead. This comes amid the softer risk mood in markets and added China woes, which is a double bane for AUD/USD as not only does it hurt the aussie but it also provides the dollar with an indirect tailwind.
Adding to the woes for antipodean currencies is the drop in NZD/USD to its lowest levels since November last year in trading today. The pair is breaking firmly below the 0.6000 mark now - where the drop before this was halted at the end of May.
It's a slippery slope for the kiwi with little support in sight until we get to around 0.5600 at least. And in instances like these, the rot will stop when it stops. It's an early leak to the downside and if validated by other dollar pairs above, definitely has much more room to run in the sessions to come.
What does all this mean for the dollar?
As you can see, there's multiple avenues for a break higher in the dollar across multiple charts at the moment. That's a sign of sentiment building and if the technicals agree, we're staring at yet another upside leg in the dollar coming right after markets have thought that the greenback would have crumbled amid the Fed pivot.
Well, for dollar bears, there's always next time right?
