The overextended technical condition of the dollar we highlighted previously was expressed in a mixed performance last week. Against the top ten currencies, that dollar fell against five. The drop in oil prices and other commodity prices encouraged rate cut expectations in Australia and Canada, sending those currencies to new multi-year lows.  

The New Zealand dollar reacted positively to the RBNZ rate cut in part because the accompanying statement dropped its past calls for currency depreciation. However, with another rate cut likely in September, traders sold into the Kiwi's rise. It still managed to close with 0.8% gain on the week. Disappointing UK retail sales provided a palliative for the rate hike fever, and sterling lost a little more than 0.5%. The euro rose 1.25%, and the yen gained about 0.3%.  

It is not clear that the euro's downside correction is over. The euro has not closed above its 20-day moving average since June 22. It and the last week's high are just below $1.1020. More important technical resistance comes in near $1.1060. This also corresponds with the down trendline drawn off the mid-June high over $1.1400 and the July 10 high near $1.1210. It is a four-point trend line.  

With significant event risk posed by the FOMC meeting, the euro's upside is capped. However, if the Fed is non-committal, the euro could advance. This may be enough to turn the five-day moving average above the 20-day. This moving average cross-over may be a loose proxy of the signal for trend followers and some model-driven participants.  

The recent price action underscores the technical significance of the $1.08 area. Initial support is seen near $1.0920. Despite weekly initial jobless claims setting new cyclical lows, market expectations have not changed. The September Fed funds futures contract was unchanged on the week and the December contract changed by half a basis point. The September contract is pricing in about a 50% chance.