The dollar started trading on Monday with gap-higher and hit 2 ½ week high against the basket of major currencies, signaling and extension of bounce from new 2021 low (the lowest since Apr 2018), posted last Wednesday.
The greenback rose almost 1.4% in past three days, lifted by fresh risk aversion in the market on sharp gains of US yields that paused steep and steady decline since March 2020.
The sentiment has changed after Democrats took control of both houses of Congress, boosting expectations for substantially more fiscal support for the US economy.
Strong fall in US nonfarm payrolls in December (the first drop since March) did not make strong negative impact on markets, as drop was mainly registered in leisure and hospitality employment, while employment in other sectors rose, suggesting that strong job losses were caused by lockdowns and seen temporary that doesn’t significantly impact expectations for recovery in US labor sector.
Traders are not yet sure whether the current jump marks the change in weaker dollar narrative, as dollar net shorts remain high and larger downtrend firmly in play, suggesting that bounce is just a correction which is expected to provide better opportunities to join bearish market.
The notion is supported by the facts that new stimulus package is by no means certain and other factors that weigh on dollar remain in place.
Fresh recovery attempts to establish above psychological 90 level (reinforced by falling 20DMA), following Friday’s marginal close above here that would boost initial bullish signal on formation of morning star reversal pattern on daily chart.
Bulls have so far cracked pivotal barriers at 90.37/39 (Fibo 23.6% of 94.30/89.15 bear-leg / falling 30DMA) but need close above these levels to add to positive signals and expose key barrier at 91.12 (Fibo 38.2% of 94.30/89.15).
Extended recovery is expected to stall here and keep larger bears intact, while sustained break above 91.12 would signal reversal and put bears hold for stronger recovery.
Res: 90.41; 90.60; 90.93; 91.12
Sup: 90.23; 90.00; 89.83; 89.60