Analys från DailyFX
Aussie and Euro Turn vs US Dollar Pre-FOMC
Talking Points:
– Commodity currencies – which benefited most after September FOMC – lead.
– European currencies turning higher in the morning.
– Data trends unchanged since September, but US government shutdown reason enough for no taper.
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INTRADAY PERFORMANCE UPDATE: 09:30 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.10% (+0.63% prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
The US Dollar remains near multi-month lows despite the rebound the past few days, as investors have almost fully shifted expectations to the Federal Reserve keeping QE3 on hold at its policy meeting today, as incoming US economic data has been disappointing the past several weeks.
Specifically, there are additional signs that the labor market is stumbling, while recent spending consumption data – both September Durable Goods and Advance Retail Sales – has suggested the US economy might be slowing. Furthermore, as a result of the US government shutdown, US Consumer Confidence plunged by the most in over two-years in October. Needless to say, the 4Q’13 outlook doesn’t look well.
At its September press conference, the Fed via Chairman Ben Bernanke outlined its concern that the US fiscal gridlock would result in a GDP-negative government shutdown; and the realization of this fear adds on to the pile of evidence that suggests the Fed will keep QE3 on hold at $85B/month.
The Fed should stick to the script that its basing decisions on incoming data, not some preset timeline to wind down stimulus as markets had expected. Some points made last month on the data the Fed used to not taper QE3:
– Consumer Price Index 12-month average, May versus August (the most readily available data at the June and October meetings, respectively): +1.7% versus +1.7%.
– Conclusion: CPI remains below the Fed’s +2% yearly target, and it lacks upside momentum.
– Change in Nonfarm Payrolls 3-month average, May versus September: +175K versus +184K; 12-month average: +181K versus +185K.
– Conclusion: the labor market is steady, but not strong.
Accordingly, bond and FX markets are starting to align for another non-taper, with the US Dollar falling against all but one of its counterparts today, and higher yielding currencies (AUD, NZD) outpacing lower yielding ones (CHF, JPY). This morning I outlined the conditions of several European currencies setups going into the FOMC meeting.
EURUSD5-minute Chart: October 30, 2013 Intraday
Considering that markets appear to have priced in a non-taper, the impetus falls on the policy statement’s tone to determine the magnitude of price action in the wake of 14:00 EDT/18:00 GMT today. It is worth noting that there won’t be either a press conference or an update to the central bank’s economic forecasts, meaning that the policy statement should carry extra weight.
Today’s Fed meeting will shift the tectonic plates of financial markets, no doubt. Chief Currency Strategist John Kicklighter will be expanding on this analysis and reviewing the possible outcomes in a special webinar for the Fed rate decision in DailyFX Plus, starting at 13:45 EDT/17:45 GMT.
Read more: Europe’s Relative Calm Boosting Interest in the Euro
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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
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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