Analys från DailyFX
Glitter of Hope of US Budget Deal Sends Dollar Up, ’Risky’ FX Higher
Talking Points:
– Day seven of the US government shutdown and few signs of resolution.
– US debt limit hit on October 17 (9 days).
– Signs of cracks in Democrat strategy has markets hoping a deal could emerge.
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INTRADAY PERFORMANCE UPDATE: 11:00 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.05% (-0.30%prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
The first kinks in the Democrats armor were exposed late-Monday when it appeared that a schism in negotiating tactics between the White House and Senate Democrats emerged. Comments made by advisors close to President Barack Obama suggest that the executive branch is open to a short-term extension of the debt limit, likely to around the Thanksgiving holiday; while Senate Democrats want to make no such compromise.
The mere whiff of the scent that a default could be avoided has investors surreptitiously putting capital back into higher yielding FX, specifically the “carry trade,” with the Australian and New Zealand Dollars boasting respectable gains against the safe havens, the Japanese Yen and the Swiss Franc. For all intents and purposes, the US Dollar is middling along only down -0.05% against a basket of the Australian Dollar, the British Pound, the Euro, and the Japanese Yen; hopeful, positive US fiscal developments are allowing the greenback to at least tread water here.
Whether or not these rumors pan out, only time will tell; I think we’re looking at fool’s gold here rather than bullion itself. Neither party has yet to put forward a sincere gesture – a bill, for example – that would set in motion plans to end the government shutdown and raise the debt ceiling. Moreover, it makes even less sense that the White House and Senate Democrats – who have gained in polling figures in recent days with Congressional Republicans bearing the brunt of blame for the shutdown – would cave this ‘far away’ from the US debt deadline; which will occur in 9 days on October 17.
Coming out of the US fiscal issues, I remain confident in my recent pivot in Euro outlook, that the Euro should remain elevated through such turmoil and eventually gain afterwards. Looking back to 2011, the EURUSD only lost -0.5% in the following day after the US lost its ‘AAA’ rating from Standard Poor’s; -0.2% within five days; and finished the month up by +0.9%.
The EURUSD was able to maintain price despite the Euro-Zone’s issues flaring up (Greece) and the US fiscal problems; with the Euro component in a healthier position, why would the result be any more negative? Moreover, in light of the US government shutdown and ensuing debt limit debate – factors that were listed at the September policy meeting – it is increasingly unlikely that the Federal Reserve tapers QE3 in October, leaving December as the last opportunity to taper in 2013
EURUSD 5-minute Chart: October 8, 2013 Intraday
Taking a look at European credit, mixed action across the continent has had a neutral impact on the Euro.The Italian 2-year note yield has increased to 1.653% (+3.8-bps) while the Spanish 2-year note yield has increased to 1.355% (+3.8-bps). Likewise, the Italian 10-year note yield has increased to 4.339% (+5.3-bps) while the Spanish 10-year note yield has increased to 4.251% (+5.0-bps); higher yields imply lower prices.
Read more: Japanese Yen Rallies, Aussie Suffers as US Fiscal Issues Remain Elevated
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
Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.
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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