Analys från DailyFX
A Runaway USD/JPY Move Few Would Expect
Lost in the excitement over Aussie volatility is the ongoing selloff in USDJPY, which continues to run without much resistance, effectively calling into question one of this year’s “can’t-miss” forex trades.
The bulk of the action in the forex market today is once again concentrated in the Australian dollar (AUD), which dropped overnight on the back of weaker employment numbers only to recover on Chinese trade balance data that showed imports rising 10.9%.
See also: AUD/USD Dodges Dour Data
Australia feeds China’s thirst for iron ore and relies on its demand for growth. As such, the volume of iron ore imported by China in July was the largest this year, which is a very good sign for Australia’s economic outlook.
Traders should expect the volatility in the AUDUSD and other Aussie-related pairs to continue for the next 24 hours, with Chinese inflation and industrial production numbers scheduled for release along with the Reserve Bank of Australia (RBA) statement on monetary policy.
USD/JPY News That’s Lost in the Shuffle
However, lost in the excitement of the big moves in AUD is the continued selloff in USDJPY. The currency pair has now fallen for the fifth consecutive trading day to reach its lowest level since June 16. Although US weekly jobless claims ticked up slightly from 328K to 333K, the absolute amount of claims is still low and consistent with an overall recovery in the labor market.
While continuing claims also rose to 3.018 million from 2.951 million, the four-week moving average dropped to its lowest level since November 2007. The data provided no help to USDJPY, though, and the pair quickly shrugged off a knee-jerk rally.
See related: The Home Run Trade That’s Striking Out Now
Last night, the Bank of Japan (BoJ) left interest rates unchanged. The Bank also nudged up its expectations for inflation, saying that, ”it appears to be rising as a whole,” but did not officially alter the economic assessment.
Comments from BoJ Governor Haruhiko Kuroda were more upbeat, as he indicated that the downside risks as a whole have moderated to some extent in Europe and China. Kuroda also noted that income and spending conditions have improved.
Japanese purchases of foreign bonds have reached the highest level since August 2010, which should have helped push the pair higher. Unfortunately, the continued slide in the Nikkei and lack of upward momentum in US yields has prevented USDJPY from rallying.
From a technical perspective, there is no major support for USDJPY until the 95 level, and even then, beyond the psychological significance of this level, there is not much standing in the way of a continued decline to the June lows at 94.
Aside from being a swing low, the 94-94.20 level coincides with the 38.2% Fibonacci retracement of the 2007-to-2011 selloff that took the pair from a high of 124.15 to a low of 75.57.
Guest Commentary: How Far Will USD/JPY Fall?
From a fundamental perspective, the reasons for buying USDJPY, including Fed tapering and BoJ easing, remain intact, but at this stage, we would prefer to wait for the currency pair to stabilize and start to turn higher before buying.
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
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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
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
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