There are several dominant patterns in bilateral US dollar exchange rates. It might be helpful to focus on these as the macro investment climate has become unhinged with the US threatening to escalate the already elevated trade tensions. Indeed, the trade tensions, which have contributed to the rise of equity market volatility, have left the currency market largely nonplussed.
Three-month volatility in the euro (~6.6%), yen (~7.7%) and sterling (~7.7%) are all below the 20-day moving averages (6.9%, 8.2%, and 8.1% respectively). The same pattern holds true for the Canadian (7.4% vs. 7.6%) and Australian (8.0% and 8.4%) dollars.
There are two dominant technical considerations. The first is that the euro has been in a fairly well-defined range since mid-January of $1.2200 to $1.2450. There have been a few exceptions, but the euro has not closed outside of that range in over a month, and then, in early March, it was on the downside.
The second dominant technical consideration is an uptrend beginning a year ago when it became clear that populism-nationalism was not going to sweep across Europe. That trendline drawn off last April’s lows and connecting to last November and December lows now is found a little above $1.2250. The daily technical indicators are less constructive than the weeklies. With the lower end of the range and trendline holding, a bounce toward $1.2375-$1.2400 should not surprise.
The dollar appears to be trying to bottom against the yen.It posted a key reversal on March 28. There are some dollar bullish divergences among the technical indicators we look at, and the dollar appears to have traced out a head and shoulders bottom pattern. The neckline is found around JPY107 and has a measuring objective near JPY110. The dollar found support near JPY107 ahead of the weekend despite the pullback in US yields and drop US stocks. A move below JPY105.70 would negate the pattern, but a break of a trendline drawn off the March 28 low, which comes in near JPY106.35 on Monday and rises to JPY107.10 on April 13, would be an early warning sign.