Analys från DailyFX
The Critical EUR/USD Factor to Watch
Technical factors and a very reliable correlation with US and global bond yields suggest that the EURUSD can trade much lower once nearby support levels are broken.
The recent rally in the US dollar (USD) has taken the greenback to fresh highs against many major currencies. The euro (EUR) and British pound (GBP) are now trading within a cent of their year-to-date lows, while the Australian dollar (AUD) is hovering above 90 cents.
The Japanese yen (JPY) still has room to fall before reaching the next major resistance at the four-year high above 103, but given last week’s developments, particularly in Europe, we believe it should only be a matter of time before these resistance levels are broken.
Europe pledged to provide easy money for the foreseeable future, and the Bank of England (BoE) is being surprisingly aggressive. The recent volatility in short-term rates made central bankers in the region uneasy, while uneven growth justifies the need for continued stimulus.
With the European Central Bank (ECB) and BoE going out of their way to stress dovish monetary policy and the Bank of Japan (BoJ) considering increasing the frequency of asset purchases this week, the Federal Reserve is on a solitabry path to reduce stimulus. On this basis alone, we expect the dollar to continue to rise, especially given the newfound dovishness from the BoE and possibly the BoJ this week.
Traders should now be focused on yields, and as our colleague Boris Schlossberg pointed out this morning, the spread between ten-year US Treasuries and German bund yields hit a seven-year high last week.
The chart below compares the inverse of this spread (bund/Treasury) with the performance of the EURUSD and suggests that given the speed and magnitude of the decline in the spread, the EURUSD should be trading much lower.
While the spread between UK and US yields also dropped to its lowest level since 2006, the GBPUSD has kept track with the magnitude and speed of the selloff.
Guest Commentary: The Yield Relationship to Watch
Taking a look at shorter-term charts, the April low of 1.2746 is near term support for the EURUSD, but if we look at the monthly chart, a series of lower peaks can be seen with a base near 1.2050.
Of course, there’s a long way to go before that level is reached, and the currency pair will mostly pause at 1.25, but the technical structure points to further losses once the EURUSD drops below 1.2746.
Below 1.25, the next major support level will be the 50% Fibonacci retracement of the 2000-2008 rally, which took the pair from a low of 0.8230 to a high of 1.6038.
Guest Commentary: The Longer-Term EUR/USD Outlook
While USDJPY will be in play this week with the Bank of Japan rate decision on the economic calendar, the Federal Open Market Committee (FOMC) minutes on Wednesday and Eurozone data will keep the EURUSD in focus. If the minutes from the last FOMC meeting reveal significant consensus behind a move to taper in September, the EURUSD could break its current year-to-date lows and head towards 1.25.
By Kathy Lien of BK Asset Management
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
You can receive Paul’s analysis directly via email bysigning up here.
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
-
Analys från DailyFX8 år ago
EUR/USD Flirts with Monthly Close Under 30 Year Trendline
-
Marknadsnyheter1 år agoUpptäck de bästa verktygen för att analysera Bitcoin!
-
Marknadsnyheter4 år ago
BrainCool AB (publ): erhåller bidrag (grant) om 0,9 MSEK från Vinnova för bolagets projekt inom behandling av covid-19 patienter med hög feber
-
Analys från DailyFX11 år ago
Japanese Yen Breakout or Fakeout? ZAR/JPY May Provide the Answer
-
Analys från DailyFX11 år ago
Price & Time: Key Levels to Watch in the Aftermath of NFP
-
Analys från DailyFX7 år ago
Gold Prices Falter at Resistance: Is the Bullish Run Finished?
-
Nyheter5 år agoTeknisk analys med Martin Hallström och Nils Brobacke
-
Marknadsnyheter6 år ago
Tudorza reduces exacerbations and demonstrates cardiovascular safety in COPD patients