Ahead of last week’s big events, I suggested that the market was setting up for a surprise reaction. So far, the biggest surprise has been the timing of the market’s big rally reaction after the election and the Federal Reserve’s announcement of quantitative easing and before the unemployment report. But that is not the surprise I was anticipating.
I was anticipating a relief rally in the dollar off the current support line. So far, the prospects for such a rally are looking quite tenuous. Thursday’s big rally day also featured a fresh plunge in the dollar that took it below support. On Friday, the dollar popped right back above that line, but overhead resistance is looming large. See the charts below:
(Click charts for larger views)
*Charts created using TeleChart: 
The dollar is only clinging to life support because the euro plunged back toward the line in the sand at 1.40. The euro and U.S. dollar have been battling around this line for a month now.
Source: dailyfx.com charts
In the meantime, the Australian and Canadian dollars have hit parity against the dollar, the Aussie for the first time ever. No surprises there from a long-term perspective. Most interesting amongst the major currencies is that the British pound is back in rally mode against the U.S. dollar. Three weeks ago, I panned the pound’s breakout above 1.60 against the dollar as “underwhelming.” Sure enough, the pound quickly faded from that breakout. However, it has rebounded over the past two weeks to make yet another fresh high (highest level since January of this year). Suddenly, the pound is in a clear 6-month rally.
Source: dailyfx.com charts.
The pound has awakened due to some strong economic data. The United Kingdom’s inflation rate has also remained stubbornly above 3%. Combined, these developments have quelled expectations for the Bank of England to launch its own phase two of quantitative easing.
TBT, the ProShares UltraShort 20+ Year Treasury, was the other surprise I was anticipating. The 30-year Treasury is now back up to 4.12%, a 5-month high. This action is supporting the bottoming pattern in TBT that I last pointed out last week.
Be careful out there!
Full disclosure: short EUR/USD, long FXA, long AUD/USD, long GBP/USD, long TBT