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Euro Steadies as Italian Politics Steady; USD/JPY Approaches ¥100.00

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ASIA/EUROPE FOREX NEWS WRAP

The majors are consolidating around the US Dollar today (as evidenced by the unchanged reading in the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) at the time of writing) despite some significant events out of Asia and Europe this past weekend that will shape investor sentiment for the coming weeks and months.

My attention is first drawn to Italy, where Giorgio Napolitano has become the first two-term Italian president ever, in what to me is a sign of the fractious political climate that has enveloped Europe’s third largest economy the past several years. Quite frankly, I don’t think removing this uncertainty from the equation will necessarily translate into a Euro positive (although bond markets are responding favorably, with the Italian 2-year note yield hitting an all-time low), as it means that there’s yet to be resolution to the hung parliament. If anything, the Italian government has a difficult road ahead, considering there’s essentially a perpetual lame duck government in place.

Out of Asia, People’s Bank of China Governor Zhou Xiaochuan made two big statements this weekend that have sweeping implications. First, there was no official protest from China regarding Japan’s new ‘Abenomics’ policies, and when considered in context of the world’s major developed economies rolling over as well, there are few geopolitical barriers preventing the Yen from weakening further. Given the lack of protest, the USDJPY has advanced towards the elusive ¥100.00 figure. Secondly, China may be seeing a period of lower growth on the horizon, as it appears that policy officials are readying for a period of structural evolution and rebalancing. Annualized China growth should be between 7.5 to 7.7% in the 2Q’13.

Taking a look at European credit, bonds are in a world of their own with all major sovereign debt rallying, but for UK Gilts. Regardless, the positive price action in bond markets has had little impact on the European currencies. The Italian 2-year note yield has decreased to 1.223% (-8.9-bps) while the Spanish 2-year note yield has decreased to 1.921% (-5.4-bps). Likewise, the Italian 10-year note yield has decreased to 4.069% (-14.3-bps) while the Spanish 10-year note yield has decreased to 4.509% (-9.2-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 10:55 GMT

CAD: +0.11%

NZD: +0.10%

GBP: +0.04%

AUD:+0.01%

EUR:-0.08%

CHF:-0.12%

JPY:-0.22%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): 0.00% (+0.77% past 5-days)

ECONOMIC CALENDAR

Euro_Steadies_as_Italian_Politics_Steady_USDJPY_Approaches_100.00_body_Picture_7.png, Euro Steadies as Italian Politics Steady; USD/JPY Approaches 100.00

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TECHNICAL ANALYSIS OUTLOOK

Euro_Steadies_as_Italian_Politics_Steady_USDJPY_Approaches_100.00_body_Picture_6.png, Euro Steadies as Italian Politics Steady; USD/JPY Approaches 100.00

EURUSD: No change: “After stalling for several days at the 38.2% Fibonacci retracement from the Jul’12 low to the Feb’13 high at 1.3075, the EURUSD had surged to its highest level since February 25, when the inconclusive Italian election results were announced. But the bullish momentum was short-lived, with the pair falling right back below 1.3075 within a day. The daily RSI uptrend is starting to falter, suggesting that a big move higher will be necessary to sustain a near-term bullish outlook. For now, further upside should be capped by 1.3200/05, at which point 1.3245/325 should be a major zone of resistance above. Declines should be supported by the 8-EMA/21-EMA confluence zone at 1.3020/65, and given retail sentiment, we expect the EURUSD rally to continue.

Euro_Steadies_as_Italian_Politics_Steady_USDJPY_Approaches_100.00_body_Picture_5.png, Euro Steadies as Italian Politics Steady; USD/JPY Approaches 100.00

USDJPY: Former highs (now turned support) at 96.60 held last week, and amid the lack of progress out of the G20 this weekend, the Yen has found itself declining across the board. The USDJPY’s advance towards the elusive ¥100.00 figure comes after weeks of poor US data had held the US Dollar back, but now that it’s clear no one will stand in Japan’s way to debase its currency, selling pressure has intensified once more. Resistance comes at 100.00 then 100.25/50. Support comes in at 98.55 (8-EMA).

Euro_Steadies_as_Italian_Politics_Steady_USDJPY_Approaches_100.00_body_Picture_4.png, Euro Steadies as Italian Politics Steady; USD/JPY Approaches 100.00

GBPUSD: The ascending daily RSI trend dating back to the early-March low broke during the middle of last week, opening up the floor for a downside move towards 1.5245/50 and eventually 1.5135/50. 1.5245/50 was touched earlier today, and suggests that downside momentum into 1.5135/50 should continue. A modest 1Q’13 GDP print later this week could help the British Pound recover off of the bottom rail in its ascending channel off of the March 12 and April 4 lows.

Euro_Steadies_as_Italian_Politics_Steady_USDJPY_Approaches_100.00_body_Picture_3.png, Euro Steadies as Italian Politics Steady; USD/JPY Approaches 100.00

AUDUSD: Channel support off of the March 4 and April 8 lows at 1.0390/400 broke after another rejection at 66 in the daily RSI suggests that another period of weakness could be beginning. Now the 8-/21-EMA structure has flipped bearish amid the breakdown in the RSI uptrend. Although shorter-term time frames (1H, 4H) have shown the proclivity to force consolidation when they become this oversold, I favor selling bounces in the AUDUSD amid declining base metals’ prices and poor data out of China.

Euro_Steadies_as_Italian_Politics_Steady_USDJPY_Approaches_100.00_body_Picture_2.png, Euro Steadies as Italian Politics Steady; USD/JPY Approaches 100.00

SP 500: No change: “Is the top in? A dramatic sell-off yesterday dropped the SP 500 below the crucial 1570/75 area, former swing highs as well as the ascending trendline support off of the late-December and late-February swings lows – coincidentally the pre-fiscal cliff deal low and the post-Italian election low. We’re in a bit of “no man’s land” here, with either a close back above 1570/75 necessary for a retest of the highs, or a close below 1530/35 to signal weakness towards and below 1500.”

Euro_Steadies_as_Italian_Politics_Steady_USDJPY_Approaches_100.00_body_Picture_1.png, Euro Steadies as Italian Politics Steady; USD/JPY Approaches 100.00

GOLD: No change: “The major support zone from the past 18-months from 1520 to 1575 gave way with fervor last week, as the combination of weak fundamentals (financial institutions scrambling for cash in Europe after Cyprus) and broken technicals produced the ideal selling climate. Precious metals in general have gotten hammered, and Gold has fallen back to the mid-March swing lows near 1380/85. A weekly close below 1430 this week leaves the possibility of a bigger dip towards 1305.”

— 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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