Analys från DailyFX
British Pound, Japanese Yen Rally Before FOMC
Talking Points:
– Bank of England Minutes spur next leg higher for British Pound.
– US Dollar most unchanged but losing ground ahead of FOMC.
– Fed’s meeting today accompanied by updated economic forecasts and press conference.
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INTRADAY PERFORMANCE UPDATE: 09:30 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.15% (-0.58%prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
The Dow Jones FXCM Dollar Index remains near its monthly lows as investors have scaled back expectations of a full-fledged QE3 taper by the Federal Reserve at its policy meeting today, as incoming US economic data has been disappointing the past several weeks.
Specifically, there are signs that the labor market is stumbling, while recent softer inflation data has stoked concerns about broader economic weakness. Accordingly, the most recent forecasts from Bloomberg News suggest that only a mere $5B will be tapered today, with MBS purchases on hold at $40B/month and US Treasuries purchases scaled down to $40B/month (from $45B/month).
While this forecast is influenced by the distribution of economists’ estimates – most see no change in QE3 or a $10B cut in US Treasuries purchases – it’s evident that market participants see only a small taper happening; “taper-lite” as it’s been dubbed.
Considering that US yields continue to hover near their highest levels in two years (pre-US ‘AAA’ downgrade), a significant pullback in yields amid a “taper-lite” scenario exposes the US Dollar to further weakness, particularly against the day’s top performers, the British Pound and the Japanese Yen.
A dovish Fed/most negative US Dollar outcome would have the following characteristics:
– a small reduction of QE3, no more than $15B, all from US Treasuries, leaving MBS purchases unchanged;
– a promise not to begin a linear, successive pace of tapering – ‘dependent on incoming data’ – to avoid 1994-esque bond market sentiment from setting in;
– a downgrade of the Fed’s 2013 and 2014 growth, inflation, and labor forecasts in light of recent data;
– and a shift in the Fed’s forward guidance thresholds (previously set as: greater than +2.5% yearly inflation; or Unemployment Rate sub-6.5%).
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.
GBPUSD 5-minute Chart: September 18, 2013 Intraday
Taking a look at European credit, “risk on” conditions reminiscent of the peak of the Euro-Zone crisis in 2011 have emerged. At that time, the Euro strengthened when peripheral yields fell (Italy, Spain) and core yields rallied (Germany, Holland). Such is the case today; although with the FOMC rate decision later today, price action has been understandably subdued. Accordingly, should a dovish FOMC emerge, intraday European credit suggests that the Euro is positioned to rally against the US Dollar.
The Italian 2-year note yield has decreased to 1.871% (-3.1-bps) while the Spanish 2-year note yield has decreased to 1.630% (-2.2-bps). Similarly, the Italian 10-year note yield has decreased to 4.360% (-3.7-bps) while the Spanish 10-year note yield has decreased to 4.375% (-1.7-bps); lower yields imply higher prices.
Read more: GBP/USD Rallies to Fresh Highs as BoE Votes 9-0 against More QE
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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