USD / CHF, USD / SEK lose 2021 bullish trends; USD / NOK keep bear flag escape posture
US Dollar Outlook:
Non-major USD crosses still look bearish
The April US non-farm payroll report was the worst-case scenario for the US dollar: the result was a mix of lower nominal bond yields and higher inflation expectations, creating an environment decline in real returns. Although discussions about the Federal Reserve unveiling a reduction schedule in the coming months intensified, the rhetoric around the US dollar changed dramatically in early May.
The weak US dollar environment is hampered by a still attractive macroeconomic mix of stable global bond yields, otherwise generally improving global economic data and soaring commodity prices. The greenback is viewed squarely as a low-yielding funding currency at the moment, allowing other currencies with more attractive short-term prospects – or substitutes for those with more attractive short-term prospects, perhaps. commodity-related – to gain traction.
As a result, as the timeline draws closer to mid-May, each of the USD / CHF, USD / NOK and USD / SEK rates retain their downside potential. Both USD / CHF and USD / SEK traded below their intra-early uptrend, while the breakout of the USD / NOK bearish flag remains on track.
TECHNICAL ANALYSIS OF THE USD / NOK RATE: WEEKLY CHART (May 2014 to May 2021) (CHART 1)
Looking at the weekly period, the USD / NOK rates made a decisive break below the bearish flag support, and against the backdrop of the previous move, which was a steady decline from the March 2020 high, suggests deeper losses are to come. Incidentally, the breakout of the bearish flag occurred a few months after the USD / NOK fell below the ascending trendline of the May 2014 and March 2018 lows (which briefly served as support in August 2020 before to sell in November 2020).
It was previously noted that “the biggest sign of confidence that the USD / NOK rates could offer that a bearish breakout is accelerating would be if the pair hits a weekly close of 8.2453, the 61.8% retracement of Fibonacci from May 2014 low / March 2020 high range. It did happen; more losses seem likely to accelerate until the end of 2Q’21.
TECHNICAL ANALYSIS OF THE USD / SEK RATE: WEEKLY CHART (August 2016 to May 2021) (CHART 2)
In the previous update, it was noted that âUSD / SEK rates have fallen sharply over the past two weeks, failing to return to the ascending parallel channel drawn from the December 2016 and March 2020 highs again the lows of February 2018 and ‘August 2020. By failing to regain the channel in recent weeks, the USD / SEK pair has also lost its uptrend from the oscillating lows of February and March 2021â¦ USD / SEK rates may soon return to the Fibonacci retracement at 50% of March 2014 low / March 2020 high at 8.3951. “
USD / SEK rates established a bearish weekly bar outside the engulfing bar last week, while falling below the aforementioned 50% Fibonacci retracement and uptrend of the January and February swing lows. Passing under this confluence of technical support, USD / SEK rates may have offered a clear signal that a top has been set; The price action at the start of the year was the further test of the bearish breakout of the multi-year bullish channel.
The momentum is increasingly bearish over the weekly period. USD / SEK rates are below their weekly EMA envelope, which is almost aligned in a bearish sequential order. The Weekly MACD is approaching a bearish cross below its signal line, while the Weekly Slow Stochastics decline to oversold territory. A deeper setback may be to come.
TECHNICAL ANALYSIS OF THE USD / CHF RATE: DAILY TABLE (March 2020 to May 2021) (CHART 3)
USD / CHF has taken a significant bearish turn in recent days, having first lost the uptrend of the January and February lows last Thursday, then a decisive follow-up to the April US Labor Market report on Friday. Notably, USD / CHF rates fell below three significant Fibonacci retracements: 23.6% of the 2019/2021 high range at 0.9107; 61.8% of the 2021 low / high range at 0.9031; and the 23.6% of the high 2020 / low 2021 range at 0.9027.
USD / CHF rates are below their daily EMA envelope, which is in a bearish sequential order. The daily drop in MACD accelerates below its signal line, while the daily slow stochastics dig deeper into oversold territory. The path of least resistance is weaker in the short term.
IG client sentiment index: USD / CHF rate forecast (May 10, 2021) (Chart 4)
USD / CHF: Data from retail traders shows that 79.91% of traders are net long with the ratio of long to short traders at 3.98 to 1. The number of net long traders is 5.46% higher than ‘yesterday and 6.12% higher than last week, while the number of net-short traders is 9.68% higher than yesterday and 25.11% lower than last week.
We generally take a vexing view of crowd sentiment, and the fact that traders are net long suggests that USD / CHF prices may continue to fall.
The positioning is shorter than yesterday but longer than last week. The combination of current sentiment and recent changes gives us another USD / CHF blended trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist