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Analysts at Brown Brothers Harriman explained the dollar’s inability to rally ahead of the weekend on the back of a constructive jobs report and a re-pricing of the trajectory of Fed policy may signal that a corrective phase lies ahead.  

Key Quotes:

“The market had grown a bit skeptical of another hike after this month’s anticipated Fed move during the turmoil that arose from political developments in Europe.”

“By the end of the week, the pricing of the Fed funds futures strip was again consistent with the Fed’s median forecast of two more hikes this year.”  

“The Dollar Index peaked on May 29 just above 95.00.  It fell to 93.70 within 48 hours of the high.”

“Our reading of the technicals suggests that the low will likely be taken out before the high.”

“Initial resistance may be seen in the 94.40-94.50 area and we look for a move toward 92.80.”

“There is a bearish divergence in the Slow Stochastics, which did not confirm the late May high.”  

“The MACDs are rolling over.”  

“It has been on a dramatic run.”

“The Dollar Index has fallen in only one week a month in February, March, April, and May. It has not had a back-to-back weekly decline since the end of January.”

“The euro fell to almost $1.15 as the turmoil in Italy (and Spain) reached a fevered pace.”

“We suspect the 50% of the euro’s rally that began at the start of last year near $1.1450, is safe for the time being and the euro will work its way toward $1.1750-$1.1800.”  

“The 20-day moving average is found in the middle of that range, and the euro has not traded above it since April 20.  The Slow Stochastics did not make a new low to confirm the low in prices, leaving a bullish divergence in its wake. The MACDs are also turning up. The euro snapped a six-week slide with the week’s 0.2% gain.”