Analys från DailyFX
Yen Extends Gains as US Government Stays Shut; Euro Weak Ahead of ECB
Talking Points:
– US government remains closed as Congress remains gridlocked.
– Italian government issues dissipate; Euro vulnerable with ECB later today.
– Commodity bloc breaks down – a sign of risk-aversion looming.
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INTRADAY PERFORMANCE UPDATE: 09:30 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.04% (-0.41%prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
Frustrated by Prime Minister Shinzo Abe’s fiscal stimulus plans, investors have ditched risk assets and turned back to the Japanese Yen as the favored safe haven amid gathering storm clouds in Europe and North America. While the Italian political debacle evolves – it appears that Prime Minister Enrico Letta will retain the coalition, but will lose overall support in the Senate – the US fiscal debate looms large, aiding the shift into ‘safer’ assets.
The United States’ own political turmoil is just starting to permeate markets, with Markit Economics, the firm behind the global PMI surveys, noting that the CDS curve for US government debt has inverted (1Y CDS 5Y CDS) for the first time since July 2011 – an ominous sign indeed. With fears that the funding showdown could spill over into a cantankerous debt ceiling fight, the Yen has been duly aided by slipping US equity markets and strengthening US Treasuries.
The Yen’s next big move could come against the Euro today as the European Central Bank meets. While the policy decision itself is expected to be bland – no change in any rates, no changes to any non-standard measures – all eyes are on ECB President Mario Draghi’s press conference at 08:30 EDT/12:30 GMT.
Whereas Euro-Zone data ticked higher midyear, recent economic reports suggest that the rebound may be cooling off. Most notably, Euro-Zone inflation has fallen back to its lowest level since February 2011, a post-GFC low; and Euro-Zone banks’ capital levels (via excess reserves) have receded back to December 2011 levels. This adds up to weak credit growth, which ECB President Draghi has and will continue to harp on (which was EUR-negative in August).
Accordingly, we don’t expect another LTRO – the measure used to help banks restart lending vis-à-vis capital injections – but the ECB should outline all of the data that suggest another one might be useful over the coming months. As such, we believe the Euro will be highly-sensitive to any dovish rhetoric with risks skewed to the downside amid any indication that the ECB is considering a third LTRO.
EURJPY 5-minute Chart: October 2, 2013 Intraday
Taking a look at European credit, reports that Italian PM Letta will retain control have helped lift the Euro as near-term political risks have seemingly abated. The Italian 2-year note yield has decreased to 1.679% (-6.3-bps) while the Spanish 2-year note yield has increased to 1.355% (+2.3-bps). Likewise, the Italian 10-year note yield has decreased to 4.345% (-6.4-bps) while the Spanish 10-year note yield has increased to 4.195% (+4.0-bps); lower yields imply higher prices.
Read more: Dollar Down as Government Closes; Abe Tax Drops USD/JPY Under ¥98
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
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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.
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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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