Dollar Edges Higher as Traders Look to Charts for Guidance

  • Pound rises and volatility finds a bid as Brexit talks start
  • Aussie leads losses as Moody’s cuts Australian bank ratings

The Bloomberg Dollar Spot Index held its ground on Monday with many investors turning to technical charts to assess their next steps.

Flows were thin with interest by real money and macro names subdued and fast-money accounts dominating price action alongside some corporate demand, traders across Europe said. With short-term drivers limited, investors turned to technical analysis signals such as moving averages to determine potential entry and exit position levels.

The dollar’s technical outlook provided conflicting signals as price action suggested bears were still in control, albeit to a lower degree. Momentum studies, including slow stochastics and moving average convergence divergence or MACD, have turned bullish and pointed to a potential break of trendline resistance. Dollar bulls are looking to add on a downside break of $1.1100 in the euro and $1.2630 versus the pound, said the traders, who asked not to be identified as they weren’t authorized to speak publicly.

Sterling was higher as early London demand for cable prompted stops in the euro-pound cross to be triggered. Almost a year after the Brexit referendum took place, negotiations between U.K. Brexit Secretary David Davis and EU chief negotiator Michel Barnier are set to kick-off in Brussels.

  • Cable falls short for a sixth day of convincingly rising above its 55-DMA resistance, currently at 1.2807; 21-DMA lurks higher at 1.2858 and defines upper range of fading interest for interbank accounts: traders
    • Political uncertainty in the U.K. gives volatility a boost, with pound vols overperforming across the majors
  • The euro orbited 1.1200 handle, capped by 21-DMA that now acts as resistance
    • Volatility skew for the common currency remains unchanged, slightly favors upside momentum in the front-end as soft U.S. data weighs on greenback OTM demand
    • Sizable expiries rollover Monday within 1.1150-1.1250 and may define the pair’s intraday range
  • Large expiries also seen in the Australian dollar at 0.7590 (A$2.2b) that helped contain losses for the currency after Moody’s announcement that it cut ratings of the nation’s big 4 banks
    • Aussie led losses among G-10 peers alongside the loonie as oil remained under pressure
    • Stops filled and outright selling in AUD/NZD sent the kiwi to the top of the overperformer list
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