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Stock markets hit highs for the second day in a row

Stock indices are hitting highs for the second day in a row. This time there is more reason to trust this growth because the weakening of the dollar is in the background. The nature of the reversal of the American currency against its main competitors on Friday has all the chances to develop in the coming weeks. The pressure on the USD on Friday began with the beginning of trading in Europe and was especially stable after the release of weak data on the labor market. On Monday, during the New York trading session, the dominance of dollar bears was also evident. Daily charts clearly show that the DXY reversal to decline occurred at 61.8% of the September-November momentum. The major players used this recovery to “dry the powder” and prepare for a new assault. The next stage of the downtrend confirmation looks like a dip below the 50-day moving average for the DXY, which is now passing through 90.50. However, the dynamics of the euro and yen against the dollar make one believe that the dollar’s decline has already resumed. Unlike the DXY, EURUSD has lost more than half of its gain in September-January. However, on Friday we saw a bullish engulfing pattern on the chart – a reversal signal in technical analysis, when a new candlestick completely covers the range of the previous one, after which there is an increase in purchases. Bulls in the single currency were attracted by an uncertain dip below 1.2000, which confirmed that this level had moved from resistance to support. Japanese yen, the third most liquid currency, received impressive demand after touching the 200-day moving average – the most important signal trend line. A sharp reversal in USDJPY from the 105.50 area confirmed the end of the corrective bounce, after which the pair slipped to 104.80. Potentially, the rate could fall as quickly to the 50-day line at 103.95 as it grew quickly after breaking this mark in January. Now we see only the first steps of the dollar towards the resumption of the downward trend. The first local test of the hypothesis will be the area of ​​local extrema against the dollar. For EURUSD it is 1.2200, for USDJPY –103.50. The dollar index will have to go below 90 to signal a new round of decline. ________________ Alexander Kuptsikevich, Lead Analyst, FxPro

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