Last week was the first week of correction on the Dollar index (DXY) after 6 weeks of strong and vertical rise from low of 87.00 to a high of 95.48 (almost 9% performance). This really slight and contained pullback which appears to me more like a simple technical pullback in the current rally due to profits taking than risk aversion due to a change in monetary policy tone from the Fed and the series of so called poor economic data we have seen last week as most of the analysts tend to explain.

USD

Last week was the first week of correction on the Dollar index (DXY) after 6 weeks of strong and vertical rise from low of 87.00 to a high of 95.48 (almost 9% performance). This really slight and contained pullback which appears to me more like a simple technical pullback in the current rally due to profits taking than risk aversion due to a change in monetary policy tone from the Fed and the series of so called poor economic data we have seen last week as most of the analysts tend to explain. The drivers in force on the USD are still the same as the one already mentioned in our previous weekly articles and are not about to change. Even if the prospective of a rate hike seems to have been postponed compared to the initial calendar, the Fed will hike rates one way or another before it loses control of the greenback. Trading is about being consistent and when you look at the big picture the dollar is a buy on dip nothing more than that given the current background.

The dollar is struggling against more than before against a strengthening JPY however the play of the week will come from the Aussie most probably. From a technical stance, the AUD/USD is on the verge to break below 0.7750, the RBA is expected to give the last push in the night of Monday to Tuesday whether from a rate cut or from adopting a more dovish tone in line with its neighbor central bank RBNZ (as they did last week).

EUR

Euro traders are now in check after the series of risk events the single currency has been through all along January. All eyes are now on the renegotiation of the Greek debt, the political risk is high and odds for a Grexit are increasing, the ECB is staying on its position not willing to accept the measures proposed by the new Greek government Syriza and put an ultimatum to the end of this month. According to complacent bank analysts and European officials trying not to lose their face to the regard of the current developments, the Eurozone should not suffer as much as before in case of a Greek default and an exit from the union. Sounds more like a prayer for soft landing than a confession of failure in helping a Eurozone member to recover from the abyss.

According to the comment above, the euro IS a sell on rally, every attempt to attack the 1.14 – 1.15 against the greenback will be a new opportunity to re-enter the trade on the short side and target the parity with the dollar if not below. There’s no soft landing in the market and the SNB proved it with its decision to abandon the peg with the euro.