Analys från DailyFX
Dollar Dives as Focus Moves from Debt Deal to Incoming Fed Rhetoric
Talking Points:
– Debt deal sees continuing resolution fund the government through January 15, raise the debt limit to February 7.
– US Treasury T-bills due around the new deadline have seen yields start to rise – a clear sign of “kicking the can,” or that the measures are just a stop-gap to the next mini-crisis.
– Continued strength in US Treasuries despite the debt deal suggests that investors are looking to another non-taper by the Federal Reserve.
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INTRADAY PERFORMANCE UPDATE: 09:50 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.66% (-0.67% prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
What would have been a truly horrible day has been avoided thanks to an eleventh-hour deal between Congressional leaders, although the US fiscal circus has merely been rescheduled to the 1Q’14 at this point in time. While 1-month T-bill yields continue to pullback, it is worth noting that yields for debt maturing around the next debt limit – February 7 – has already started to spike, suggesting more political fracas is ahead.
As noted yesterday, the rise in USD 1-week implied volatility against the Japanese Yen and the Swiss Franc was a poor sign of things to come; and today, with US fiscal risks merely pushed back into the 1Q’14, both safe havens have rebounded and are the top two performers on the day. The shift is further reinforced by the growing belief that the Federal Reserve will have to keep QE3 on hold in October, its second to last policy meeting of the year.
USDJPY5-minute Chart: October 17, 2013 Intraday
With a backlog of very important US data due in the coming days – the September NFP report included – and incoming near-term information suggesting that US growth could be knocked down by as much as -4.5% thanks to the government shutdown (per Standard Poor’s) – it is highly likely that the Fed will maintain its $85B/month QE3 into December.
The US Dollar is the worst performing currency as attention shifts from the US debt debacle to incoming Fed rhetoric, and bond markets may be leading the way. Taking a look at US Treasuries, the 2-year note yield has decreased to 0.310% (-2.0-bps), the 5-year note yield has decreased to 1.345% (-4.3%), and the 10-year note yield has decreased to 2.623% (4.0%).
The US Treasury yield curve continues to flatten, which typically occurs when either slower economic growth is expected and/or additional monetary easing is forecasted. More importantly, the “belly” of the yield curve – 3- to 7-year notes – is seeing yields fall/prices rally faster than the short- or the long-end; the belly was hurt the most during the summer months as QE3 taper expectations built up.
Read more: Absent Fiscal Deal Sparks Rise in FX Volatility, Uncertainty for US Dollar
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators. Want the forecasts to appear right on your charts? Download the DailyFX News App.
— Written by Christopher Vecchio, Currency Analyst
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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