Analys från DailyFX
US Budget Impasse Sinks USD, Lifts JPY with Default Deadline on Thursday
Talking Points:
– Day fourteen of the US government shutdown and a short-term deal (approximately six-weeks) is said to be in the works.
– US debt limit hit on October 17 (3 days).
– Breakdown in talks between Democrats and Republicans over the weekend knocks back risk appetite significantly.
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INTRADAY PERFORMANCE UPDATE: 09:40 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): –0.09% (+0.42%prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
US budget talks stalled over the weekend and risk assets around the world took a hit at the weekly open as the seemingly once-dismissed threat of a US default is very much alive – and seen fast approaching this Thursday. With the key Democrat in the White House and House Republicans failing to find common ground – the fertile rumor soil that gave “risk” a boost on Thursday and Friday – high yielding currencies and risk-correlated assets have fallen sharply in Asia and thus far in Europe on Monday.
With the impetus for compromise resting with Senate Democrats and Republicans for the time being, reintroduced tension has the Japanese Yen reviving its role as safe haven du jour. The commodity currencies on the whole have struggled at the start of the week – no doubt due to their high correlation with US equity markets at the moment.
In fact, looking at the “carry trade,” the relationship between risky FX and other asset classes is obvious. The rolling 20-day correlation between the AUDJPY and the SP 500 is currently +0.63, and has oscillated between +0.53 and +0.72 in October.
During periods of lows in sentiment over the past several years, especially since 2008, we’ve noted that risky assets’ short-term correlations (like the rolling 20-day) tend to strengthen as market participants simply revert to a simple, more fear-based binary system of buying or selling everything in their portfolio en masse. It is likely that this would only be the beginning of trouble for the commodity currencies – the Australian, Canadian, and New Zealand Dollars – if the US fiscal impasse isn’t resolved quickly before Thursday.
AUDUSD Daily Chart: June 24 to October 14, 2013
Taking a look at European credit, lower peripheral yields are helping keep the Euro elevated; though we admit that sentiment is largely being dictated by US fiscal headlines at this point.The Italian 2-year note yield has decreased to 1.542% (-3.6-bps) while the Spanish 2-year note yield has decreased to 1.364% (-1.3-bps). Likewise, the Italian 10-year note yield has decreased to 4.249% (-2.4-bps) while the Spanish 10-year note yield has decreased to 4.261% (-2.2-bps); lower yields imply higher prices.
Read more: Euro Needs Signs of Continued Economic Recovery Before Next Rally
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
There are no events on the North American calendar for Monday, October 14, 2013. See the DailyFX Economic Calendar for the week of October 13 to 18, 2013.
See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators. Want the forecasts to appear right on your charts? Download the DailyFX News App.
— 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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