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Dollar Down as Government Closes; Abe Tax Drops USD/JPY Under ¥98

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Talking Points:

– US government to shutdown as Congress fails…again.

– Italian government under pressure – vote of confidence on Wednesday.

Complacency in markets – bonds, commodities, equities, and FX – likely finished.

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INTRADAY PERFORMANCE UPDATE: 09:30 GMT

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.51% (-0.81%prior 5-days)

ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index has taken a significant step downwards towards today, falling within points of its September and post-FOMC meeting lows as political turmoil in the United States reached a new low as the federal government shutdown. Bogged down by political ideologues on both sides of the isle, partisanship is now a veritable drag on US economic growth, which will be a major factor for the Federal Reserve not to taper QE3 at its October policy meeting.

Political tensions have risen on both sides of the Atlantic in recent days, although the Italian situation may be defusing as reports have emerged that up to 20 ex-Berlusconi supporters could fall in line with current Prime Minister Enrico Letta in order to prevent a collapse of the government. Such events would no longer necessitate elections, removing a fair deal of uncertainty from the near-future. Accordingly, the Euro has benefited from declining credit risks (noted below).

As the US government debacle festers, the Japanese Yen has benefited amid a shift in safe haven preferences, as well as a generally broader decline in risk-appetite. Aiding the leg up for the Yen today was news that Japanese Prime Minister Shinzo Abe would move forward with a sales tax hike, raising the rate from 5% to 8%. Concurrently, the government will cut corporate taxes to offset the fiscal drag.

Why is this JPY-positive? Investors are finding that the Japanese economy is strong enough to withstand a minor downturn in economic growth; and that momentum is strong enough to prevent inflation from becoming deflation. As long as economic data remains strong out of Japan, the scope for more monetary easing from the Bank of Japan is limited in the short-term.

USDJPY 5-minute Chart: October 1, 2013 Intraday

Dollar_Down_as_Government_Closes_Abe_Tax_Drops_USDJPY_Under_98_body_x0000_i1027.png, Dollar Down as Government Closes; Abe Tax Drops USD/JPY Under 98

Taking a look at European credit, rumors of a potential solution in Italy have eased concerns significantly on Tuesday. The Italian 2-year note yield has decreased to 1.803% (-7.1-bps) while the Spanish 2-year note yield has decreased to 1.386% (-9.0-bps). Similarly, the Italian 10-year note yield has decreased to 4.527% (-3.6-bps) while the Spanish 10-year note yield has decreased to 4.213% (-7.5-bps); lower yields imply higher prices.

Read more: Euro Drops on Weaker German Labor Market, European PMIs

ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION

Dollar_Down_as_Government_Closes_Abe_Tax_Drops_USDJPY_Under_98_body_Picture_1.png, Dollar Down as Government Closes; Abe Tax Drops USD/JPY Under 98

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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Analys från DailyFX

EURUSD Weekly Technical Analysis: New Month, More Weakness

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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

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at@PaulRobinonFX.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

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

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

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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