http://www.forexnews.com/NA/default.aspDollar Adds to Losses, Oil Nears All Time High by Jes Black
The dollar extended its loses on Wednesday following a sharp decline overnight through key technical support levels. The euro broke above downtrend resistance from its all time high of 1.2925 to last week’s 4-month low of 1.1760, rallying 4 cents to a session peak of 1.2179 as it nears its first key resistance mark at 1.22. Last week we warned of an impending top in the dollar and the steep across the board selloff took its toll on dollar/yen this morning after a three day topping process above 110 finally gave way. This happend despite a steep 2% drop in the Nikkei to back below the 12,000 mark, which has proved to be strong resistance. The only currency to not make any headway is the Canadian dollar, as the US dollar only recently broke above a six month long resistance barrier at 1.3450 and continues to trade near last week’s 8-month high of 1.3792.
But the dollar’s recent losses may abate in the coming days as traders take to the sidelines ahead of the much-anticipated US payrolls data for April. Expectations are for 170,000 jobs after 308,000 in March.
Again, the whisper number is much higher with some estimates topping 250,000. snip>
Oil Hits New Highs, Nears Critical $40 Level
WTI Oil rose above $39 per barrel on Tuesday, less than one dollar from its pre-Iraq war high of $39.99 and two dollars away from Gulf War I high of $41.15. Momentum remains bullish and OPEC’s decision to keep supply tight to push prices higher to account for a weaker dollar has added to fears of a growing insurgency in Iraq and the possibility of shortages this summer. This could push prices to a new all time high in the WTI grade. However, the steep selloff in silver last month is often a harbinger of danger for commodity prices in general and could signal a potential intermediate top in oil in the near future.
Fed Statement Whipsaws Bonds, But Not the Dollar
The media was quick to attribute the dollar’s decline to the Fed, as its policy statement gave no indication of an immediate increase in rates. But the market had already priced in higher rates, with the 10-year yield rising from 3.67% to an 8-month high of 4.63% in just over one month.
The dollar added to its gains from February and March as rising yields forced some of the most favorite carry trades to come unwound. But the dollar’s recent move appears more technical in nature as the corrective rally stopped right at its two-year old downtrend resistance at 91.50 in the dollar index and 1.1760 against the euro nearly two weeks ago. A selloff in the dollar from here was nearly certain, which is why we argued on April 22 that the euro’s “trio of support” trendlines would likely hold, and that a break above downtrend resistance would see strong follow through buying targeting 1.22 ahead of 1.2350 (Apr 22, Euro Finds Trio of Support).
Bonds were less sanguine about the Fed’s decision, showing a sharp whipsaw move on the wording of the announcement. The Fed dropped ``patient'' and said rates can be raised at a ``measured'' pace because of ``low'' inflation and ``slack'' resource use. 10 year yields first fell then rallied to regain rising trendline support from its March lows. But key resistance at last year’s peak of 4.7% in the 10-year yield has so far capped its gains. The 30 year yield reached a new 8-month high of 5.35%. Therefore it will be interesting to see in the coming sessions if the 10-year yield can confirm the 30-year yields new high.
Failure may mark the first sign of an impending short term correction in yields which would be a bearish development for the dollar.