Oil prices are surging again today with WTI crude now bordering on 5% gains near $74.65 on the day. The resurgence of the petrodollar trade is one argument as to why the dollar is managing to come out on top this week, after having been shunned as a safe haven asset in previous occasions since last year.
Adding to that, higher oil prices is also a weighing negatively on the Japanese yen while the SNB has made it clear that they’re willing to step in to rein in the Swiss franc strength amid the situation in the Middle East. That puts the dollar in a good spot to benefit and traders are definitely running with it, after also having been short dollars before all of this transpired.
And amid the gains today, we’re starting to see the technical narrative also shift in favour of the dollar. And perhaps this will be one that is more compelling to keep the momentum going for the greenback in the weeks to come.
EUR/USD has been one to fancy itself for a move higher at the start of the year, with price even briefly nudging above the 1.2000 level. But after some ECB warnings, we’ve seen the currency pair hold off on that push.
And now with the latest short covering in the dollar, could we be teeing up for a more significant squeeze lower? The drop this week now threatens to take out both the 100-day (red line) and 200-day moving averages (blue line) at one go. That’s quite a major technical development if held of course.
The last time the pair traded below both key daily moving averages was all the way back in March last year. So, that speaks to the significance of a downside break on the key technical region above. That will shift the conversation back towards 1.1500 next with potential for an even stronger correction lower in the short-term.
Elsewhere, we’re also seeing a similar technical break in GBP/USD on the week. The pair is down to its lowest in almost three months on a strong break under 1.3400 today.
Besides that, USD/CHF is also up another 0.7% to 0.7843; no doubt helped by the SNB. And we have AUD/USD down another 0.4% to 0.7063 after a brief recovery overnight. A firmer break of near-term support around 0.7025-30 will then put the spotlight back on the 0.7000 mark before a potential trip back lower for the currency pair.
This article was written by Justin Low at investinglive.com.
