Analys från DailyFX
Dollar Lifted on FOMC, Fiscal Hope; What to Watch for BoE and Pound
Talking Points:
– Day ten of the US government shutdown and long-term solutions appear distant; short-term deal (approximately six-weeks) is said to be in the works.
– US debt limit hit on October 17 (7 days).
– Bank of England Rate Decision will be a non-event but for the fact it would suggest building faith in the UK economy.
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INTRADAY PERFORMANCE UPDATE: 09:45 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.14% (+0.57%prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
The US Dollar is limping higher on Thursday; building on yesterday’s modest gains but the world’s reserve currency now has accumulated over half a percent in gains the past five trading days, a sign that investors are feeling less uncertain over US fiscal and monetary issues.
Sure enough, relief on both of these fronts appeared late-Wednesday: the September FOMC Minutes suggested that a QE3 taper is still on track for 2013, even as evidence builds for an October hold then a modest December taper; and political reports coming from inside the belt suggest that Democratic and Republican leaders are working on a short-term debt limit extension and resolution to reopen the government in the interim, thereby ending the government shutdown and pushing back the threat of default.
As this political drama unfolds, it’s clear investors overall are biased bullish than bearish; selling has been shallow and met with instantaneous buying – a clear sign that investors are more worried about missing the next leg up than being caught in the break down. If CDS markets and short-term US Treasury yields are correct, however, an acceptable, long-term resolution remains distant at best.
Away from the US Dollar, the British Pound is the most interesting currency to watch this morning as the Bank of England meets for its monthly policy meeting. Many market observers have chalked this up to being a non-event. I agree to a certain extent; there won’t be a change in the asset purchase target at £375B, and the main interest rate will remain on hold at 0.50%, as it has since March 2009.
Recently higher interest rates and a strong British Pound might have been a concern, but both have eased from multi-month and multi-year highs over the past several weeks amid steadying data. Absent a policy statement – which is a possibility if Governor Carney wants to make it a quarterly tradition, having last released one three months ago in July – the continued policy stance of the BoE to withhold additional stimulus mind as well be a vote of confidence in the UK economy. Accordingly, continued inaction by the BoE could initially provoke a bullish bias for the GBPUSD. Join me at 06:45 EDT/10:45 GMT in DailyFX Plus to discuss trade setups for the Bank of England Rate Decision.
GBPUSD 1-hour Chart: October3 to 10, 2013 Intraday
Taking a look at European credit, mixed yields across the continent are offering little guidance to the Euro.The Italian 2-year note yield has decreased to 1.648% (-2.4-bps) while the Spanish 2-year note yield has increased to 1.400% (+0.1-bps). Similarly, the Italian 10-year note yield has decreased to 4.332% (-4.0-bps) while the Spanish 10-year note yield has decreased to 4.308% (-1.9-bps); lower yields imply higher prices.
Read more: Demand for Safety Falls as Yellen Nomination Overshadows Budget Impasse
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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— 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
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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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