Analys från DailyFX
US Dollar To 13-Month Low, Oil Price Suffers on Rising OPEC Supply
Highlights:
- Fed may add to DXY losses on Wednesday announcement, HFs hold biggest net short in 4 Yrs
- AUD/USD removed from top spot after RBA’s Debelle says neutral rate not predictive
- EUR approaches 1.17 with the wind in its sails
- Oil weakness persists on reports that supply from OPEC is above production curb agreement
- Sentiment Highlight: EUR/GBP may be loading up for a move higher
2017 is a great year for risk as it seems equity traders see no need for a sell button, but the same can’t be said for the USD. Developed market FX has been having a field day with USD over the session and today’s drop brings the total loss for 2017 for the DXY to 10%. The key technical support many are now watching is the 2016 low near 92. Much of the weakness due to the 57.6% weighting of the EUR in the DXY is the impressive EUR strength. Whatever the reason, the pressure is likely to remain. Per the CFTC, institutional speculators (hedge funds) are holding their largest net short position in the Dollar Index since 2013 before the Taper Tantrum erupted and Bernanke put the pacifier back in the market’s mouth.
One way that many traders were playing USD weakness was via the AUD, which was trading at 2-year highs earlier in the week. On Friday morning, RBA’s Guy Debelle took some enthusiasm out of the trade by saying the revelation in the RBA minutes this week that the neutral rate has shifted higher is not predictive of a future rate increase. On that announcement, AU sovereign bonds went bid falling ~4%, and the AUD was sold across the board. However, looking at the macro picture, risk-on currencies like the commodity bloc and EMFX still appear a favorable way to play USD weakness.
Outlier strength in the FX market can be infectious, and that’s how it feels for EUR at the moment. As EUR/USD looks set to test 1.17, and approach the 2015 high of 1.1714, EUR bullishness is showing up across the map. The political picture in Europe is the least concerning of the G4 (US, JP, UK, EU) at the moment as inflation is picking up the pace, though still too low to remove accommodation for the ECB.
Looking across G4 pairs, EUR/GBP continues to look favorable to the upside when comparing positioning, options, and the uncertainty in the economy for the UK. Thursday showed two central banks in the ECB and BoJ that could not have been further apart in how they plan to conduct monetary policy over the coming year, which is bullish EUR/JPY. Finally, in a similar mess that GBP finds itself in, the political risk premium is also being applied to USD with its own slate of weak data, which opens up the possibility of a less-hawkish Fed moving forward that could keep EUR/USD pushing higher yet.
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On Friday morning, a discouraging report from Petro-Logistics showed OPEC output appears set to rise above the levels agreed upon in the agreement. The report showed OPEC output is likely to be above 33m barrels per day July, which is higher than the agreed upon group target of 32.5m barrels that was agreed upon when they agreed to extend the production cap in May. When looking at the chart below, you can see that another lower-high may be in store, which would be a favorable environment for a trend continuation lower.
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FX Closing Bell Top Chart: July 21, Oil loses ground at key resistance
Chart Created by Tyler Yell, CMT
Next Week’s Main Event:USD Federal Open Market Committee Rate Decision (Jul 26)
IG Client Sentiment Highlight:EUR/GBP may be loading up for a move higher
The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.
—
Written by Tyler Yell, CMT, Currency Analyst Trading Instructor for DailyFX.com
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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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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
- Crude oil comment: US inventories remain well below averages despite yesterday’s build
- China is turning the corner and oil sentiment will likely turn with it
- Crude oil comment: Europe’s largest oil field halted – driving prices higher
- Crude oil comment: Mixed U.S. data skews bearish – prices respond accordingly
- Crude oil comment: Fundamentals back in focus, with OPEC+ strategy crucial for price direction
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