The Dollar Index Extends Losses Below 200-DMA Despite Yields Rebound: Weekly Market Analysis
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The dollar index extends losses below 200-DMA
Friday's rebound in the US yields couldn't give a bullish shift to the US dollar. The dollar index slipped below its 200-DMA, closed the week below this level and is under renewed selling pressure this morning despite positive pressure on the yields. The broad-based dollar weakness helps the EURUSD extend gains to 1.0950, with solid resistance seen into the 1.10 level given weaker growth perspectives for the European economies compared to the US in the coming months. Cable trades past the 1.26 level, while the USDJPY remains offered near the 50-DMA, near the 149 level. The yen is benefiting from rumours that a growing number of institutional players are turning long yen on expectation that the Bank of Japan (BoJ) will one day normalize its rate policy. Every day that goes by brings the BoJ closer to normalization and there is a great upside potential for the yen at the current levels – hence a great downside potential for the USDJPY. Yet the right time for getting long yen is anybody's guess. What we know however is that the upside potential in the USDJPY is certainly limited above the 150 level.
In commodities, gold pulled out offers at the $2000 per ounce and is trading above this level this morning. The softer dollar gives support to the yellow metal, yet the rebound in the US long-term yields, news of a potential extension of cease fire in Gaza beyond today and the fact that the precious metal is worth just shy of its ATH levels hint at a limited upside potential at the current levels.
In energy, appetite in oil is nowhere to be found this morning. The barrel of US crude trades below the $75pb level despite news that OPEC+ is nearing a resolution of the disagreement on output quotas, which led to the group delaying a crucial meeting last weekend. Officials said that discussions with the African nations over the production quotas continue and agreement is within reach – in which case Saudi will likely announce at least 1mbpd extra supply cut to prevent oil bulls from leaving the battlefield. But oil traders need more effort to reverse the selloff in oil prices. The barrel of US crude sees strong resistance around the 200-DMA, near the $78pb level, and the price should rally past the $81pb level for the current bearish trend to reverse.
