Analys från DailyFX
An Historic Dollar Range That’s on "Borrowed Time"
The US dollar index has now been range bound for the longest period in the last 28 years, and when that range is ultimately broken, it could signal a major shift toward heavy volatility and plentiful trade opportunities.
I had a conversation yesterday with a former boss and now good friend of mine who recently attended a meeting with some hedge fund giants. Included in that meeting was my personal favorite, Paul Tudor Jones.
My former boss said that one very interesting takeaway from the meeting was that many of the hedge fund giants agreed about the notion that today’s markets are very difficult compared to prior years.
Volatility, for short-term traders, is our best friend, afterall, and that got me thinking: How could the markets—specifically the currency markets—exhibit such low volatility during a debt crisis, which would be widely expected to produce more volatility?
The main reason is because major central banks have dropped interest rates in unison to rock-bottom levels, effectively creating very small interest rate differentials. At the same time, however, the central banks have been creating massive amounts of credit to purchase fixed-income assets in hopes of pinning rates at those artificially low levels. So far, the central banks have succeeded, and as a result, volatility has been severely suppressed.
However, the chart below suggests that volatility may not stay low for much longer.
Guest Commentary: Multi-Year Dollar Range Is on “Borrowed Time”
The US Dollar Index chart above dates all the way back to 1985. And, in those 28 years, there have been two major consolidation, low-volatility periods.
The first one was from June 1989 until January 1997, which calculates out to be 91 monthly bars, 390 weeks, or 2700 trading days. The second major consolidation over the last 28 years is actually happening right now. It formed just prior to the housing collapse and credit crisis in November 2005. And, if history is any guide to future market behavior—and we all know it is—the ongoing consolidation is currently on borrowed time.
Considering 91 monthly bars, 390 weeks, or 2700 trading days projected out from November 2005, it gives us equality of the ranges in late-May 2013. The current consolidation is now three months longer than the biggest currency market consolidation in 28 years.
Now, I have no idea what the catalyst will be that ejects us out of the current range, but that catalyst is coming soon, and when it does, expect volatility, ranges, and trading conditions to be plentiful.
By Todd Gordon of TradingAnalysis.com
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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