Dollar Decline to Accelerate

Dr. Risk’s Prescription

The DXY remains stalled above 80, although the decline since Wednesday is encouraging and should be able to hit 78 next week. We expect it to bottom out just below 78 around mid-week amid the heat of the newsflow from the EU-Greece and the FOMC meetings. The chances of a swift turnaround from the bottom are high and readers should position themselves for a strong dollar move, especially against Emerging Market currencies.

The euro (1.3770) is likely to peak in the 1.43-1.4475 range, the pound (1.5150) in the 1.57-1.59 range, and the Swiss franc in the 1.0350-1.0500 range. The yen remains an enigma and I’m veering around to the ‘carry trade’ view of the yen – expecting a rally to 92-93 next week along with a rise in equities followed by a sell-off in Q2. There is, of course, the possibility that the whole process might play out much more slowly as has been the case in the past but we would consider it a low probability scenario.

USDINR could extend its decline to around 45 to complete what appears to be a terminal diagonal from the September top at 49.20. There is also major trend line support at the 45 level. With the 200-DMA at 47.09 and the last peak at 46.87, the first round of weakness should end around 47.