Dollar rebounded broadly last week and reversed all the post NFP losses. Markets received a chorus of Fed speaks who played down the significance of the disappointing December job data. And they all expressed their expectation of measured tapering ahead this year. And USD 10b dial back in asset purchase at every FOMC meeting is now still the general consensus. Dollar index extended recent rally from 79.68 and had a strong close at 81.18. However, it should be noted that other markets didn't quite follow. DOW did rebound after initial dive but the close of 16548.56 was well below recent historical high of 16588.25. 10 year yield also failed to sustain initial gains and closed the week down at 2.827%.
In the currency markets, Aussie was the biggest loser after shockingly poor employment data which raised the chance of another RBA rate cut later this year. Euro, on the other hand, was the second weakest one for no apparent reason. Sterling was boosted by strong retail sales as hope for solid growth this year and was the strongest European majors. The Japanese yen's pull back was relatively shallow last week and most yen crosses maintained near term bearishness.
Technically, there are a few important points to note. Firstly, euro was clearly weak against dollar, yen and sterling. EUR/USD took out 1.3547 support on Friday while EUR/JPY and EUR/GBP are set to take on corresponding level in the early part of this week. Break of 140.49 in EUR/JPY and 0.8230 in EUR/GBP should reinforce near term bearish bias in the common currency.
Secondly while sterling was impressive against Euro, the pound's own strength is a bit suspectable. GBP/USD was just held in recent range below 1.6603. GBP/JPY's recovery was also limited well below 173.12 resistance.
Thirdly, more downside is favored in yen crosses in general. However, the picture is relatively much less clear in USD/JPY. We do believe that the pair has at least topped in short term at 105.41. But we'd then not seeing enough selling momentum to affirm our view yet.
Fourthly, Aussie's weakness was clearly seen as AUD/USD's break of 0.8821 last week confirmed near term down trend resumption. It failed to form a double bottom at around 0.88 level, with two lows at 0.8847 and 0.8821. The near term term down trend should head to next key support below 0.86.
Fifthly, Canadian dollar's decline continued last week but it has clearly lost much downside momentum. USD/CAD is now close to a long term falling trend line resistance and thus, we'd be cautious on reversal in the pair.