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Euro’s Losses Subside as Credit Improves; USD/JPY Above ¥98.00

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ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is on pace for its eighth close higher out of the past nine sessions, but price action the past few days can be characterized as nothing more than a consolidation aptly mirroring investor sentiment. Since last Wednesday when the Federal Reserve announced its intention to have fully tapered QE3 by mid-2014 (likely June), asset classes around the globe have been roiled by indecision given the sweeping implications of any Fed wind down and its impact on interest rates.

In fact, those asset classes that have suffered the greatest losses since May 22, when Fed Chairman Bernanke first offered his taper talk, can be presumed to be high risk investments without the support of QE. In particular, European peripheral debt was hit quite hard in the run up to and after the Fed’s meeting, as investors positioned themselves for a world with less liquidity.

Building on yesterday’s comments from European Central Bank President Mario Draghi, who said that that ECB policy would “stay accommodative for the foreseeable futureand that the ECB has “an open mind about all other possible instruments that we may consider proper to adopt,” several other ECB officials have been on the wires (Asmussen, Noyer, Knot stick out) reassuring markets that the ECB’s liquidity efforts are here to stay – beyond the foreseeable future. Usually, dovish rhetoric from policymakers tends to weaken the currency; however in the case of the Euro, because the commentary has been used to drive down peripheral bond yields, the Euro has benefited.

Taking a look at European credit, continued dovish jawboning from ECB officials has soothed recent liquidity fears, allowing the Euro to gain ground against the safe havens in particular amid improving peripheral debt. The Italian 2-year note yield has decreased to 1.932% (-16.7-bps) while the Spanish 2-year note yield has decreased to 2.195% (-7.7-bps). Likewise, the Italian 10-year note yield has decreased to 4.565% (-13.1-bps) while the Spanish 10-year note yield has decreased to 4.739% (-8.8-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 10:45 GMT

NZD: +0.22%

AUD: +0.15%

CAD: +0.14%

EUR:+0.07%

GBP:-0.24%

CHF:-0.29%

JPY:-0.42%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.11% (+0.71%prior 5-days)

ECONOMIC CALENDAR

Euros_Losses_Subside_as_Credit_Improves_USDJPY_Above_98.00_body_Picture_1.png, Euro's Losses Subside as Credit Improves; USD/JPY Above 98.00

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TECHNICAL ANALYSIS OUTLOOK

Euros_Losses_Subside_as_Credit_Improves_USDJPY_Above_98.00_body_Picture_2.png, Euro's Losses Subside as Credit Improves; USD/JPY Above 98.00

EURUSD: The Right Shoulder of the Head Shoulders pattern dating back to September 2012 continues to develop (formed last week around $1.34000), and upside momentum from the mid-May lows has been snapped (as determined by daily RSI). However, weakness may be overcooked in the near-term, as short-term (H1, H4) Slow Stochastics (5,3,3) have turned bullish as the pair has found support just below 1.3100. Support comes in at 1.3000/20 and 1.2940. Resistance comes in at 1.3070/80 (38.2% Fib July 2012 low to February 2013 high, 50% Fib April low to June high).

Euros_Losses_Subside_as_Credit_Improves_USDJPY_Above_98.00_body_Picture_4.png, Euro's Losses Subside as Credit Improves; USD/JPY Above 98.00

USDJPY: The beginning of June yielded the start of a Bearish Broadening Wedge (off of the February 25 and April 4 lows), but near-term bullish momentum has signaled a false breakout now that the USDJPY rests above the wedge’s support, at ¥96.65/80 today. Although the USDJPY broke the RSI downtrend last week, near-term divergence has formed as the rally has seen RSI take out prior swing highs without the same occurring in price, as the pair has failed to achieve the 50% Fib retracement from the May high to the June low – the same occurred after the first major June low was set on June 7 (price rallied to 99.28, 50% at 99.35; now price has rallied to 98.70, 50% at 98.76). The 98.70 high this week also comes in below 98.80 (38.2% Fib February low to May high).I’m short against 98.75.

Euros_Losses_Subside_as_Credit_Improves_USDJPY_Above_98.00_body_Picture_5.png, Euro's Losses Subside as Credit Improves; USD/JPY Above 98.00

GBPUSD: No change: “The GBPUSD has traded in a slight ascending channel off of the March 14 and May 29 lows (parallel to May 1 high), and the conflux of the 200-SMA and said channel resistance just under $1.5750 provoked a pushback midweek. Now, price finds itself at the 38.2% Fibonacci retracement of the January high to March low as well as the March low to May high. With US yields rallying, the USD component of this pair looks well-supported, and any rallies seen in the coming days are viewed as selling opportunities. 1.5230 is the first big support lower. Further US Dollar strength is contingent upon sentiment remaining that the Fed will taper QE3, and the more evidence that builds on the fundamental side, the greater the probability that the ascending channel that has guided price the past three months is only a Bear Flag. Big picture: the GBPUSD broke the uptrend off of the 2009, 2010, and 2012 lows, signaling the beginning of a greater selloff towards 1.4200. Any rallies in the pair look to be sold; price could climb to 1.5530/35 (23.6% Fib March low to May high) before the next leg lower begins.

Euros_Losses_Subside_as_Credit_Improves_USDJPY_Above_98.00_body_Picture_6.png, Euro's Losses Subside as Credit Improves; USD/JPY Above 98.00

AUDUSD: Bullish RSI divergence on the daily chart (price sets new lows but momentum fails to keep pace) suggests that the selloff may be exhausted in the near-term. However, given the scope of recent declines – over 1200-pips in ten weeks – it’s evident that a new paradigm is guiding the AUDUSD. As such, we prefer selling rallies in the pair but note that a major support zone at $0.9140/220 (38.2% Fib October 2008 low to July 2011 high, 61.8% Fib March 2010 low to July 2011 high) will require new catalysts for a break.On bounces during the downtrend since April 11, the AUDUSD has often traded back towards the 23.6% from the April high to the low at the time before turning. In this case, that would suggest breaking former June lows at 0.9320 before 0.9485/90 (23.6% Fib April high to June low).

Euros_Losses_Subside_as_Credit_Improves_USDJPY_Above_98.00_body_Picture_7.png, Euro's Losses Subside as Credit Improves; USD/JPY Above 98.00

SP 500: No change: “The 2013 uptrend off of the December 28, 2012 and April 18, 2013 lows gave way on Thursday, and with a sustained break by the end of the week, the technical bias is for a deeper pullback in the near-term. The 61.8% Fibonacci retracement of the Feb low/May high serves as near-term support at 1561, followed by mid-April swing lows near 1535. A bearish bias is appropriate unless 1605/08 is broken.”

Euros_Losses_Subside_as_Credit_Improves_USDJPY_Above_98.00_body_Picture_8.png, Euro's Losses Subside as Credit Improves; USD/JPY Above 98.00

GOLD: No change: “If the US Dollar turns around, however (as many of the techs are starting to point to), then Gold will have a difficult gaining momentum higher. Indeed this has been the case, with Gold failing to reclaim the 61.8% Fibonacci retracement of the April meltdown at $1487.65, only peaking above it by 35 cents for a moment a few weeks ago.” This has played out, with fresh yearly lows at 1228.42 today, and pressure remains biased for a move lower so long as US yields remain elevated.

— Written by Christopher Vecchio, Currency Analyst

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

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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