Analys från DailyFX
Demand for Safety Falls as Yellen Nomination Overshadows Budget Impasse
Talking Points:
– Day eight of the US government shutdown and long-term solutions appear distant.
– US debt limit hit on October 17 (8 days).
– Announcement of Janet Yellen being nominated for Fed chair has “risk on.”
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INTRADAY PERFORMANCE UPDATE: 09:30 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.30% (+0.39%prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
After speeches late in the day by Democratic and Republican leaders it appeared that the US would remain in its state of fiscal gridlock with little signs of progress towards a broader, more enduring compromise. As the press conferences made clear, while both sides are willing to negotiate, the terms for negotiation coming from both sides of the aisle don’t appear likely to appease each side enough to suggest a deal is coming.
Now that the US government shutdown has merged into a debate on raising the debt ceiling, investors are ditching their recent complacency and showing signs of heightened sensitivity to the idea of the US defaulting on its debt. As noted last week, short-term US Treasuries were showing signs of fiscal stress; just yesterday, those fears seemingly exploded as the 1-month T-Bill yield surged to as high as 0.3397%, the highest rate since October 2008 amid the demise of Lehman Brothers.
Call it dumb luck or coincidence (I wouldn’t call it either), but the announcement that President Obama would nominate current Federal Reserve Vice Chairwoman Janet Yellen to become the next Fed Chairman has pushed the threat of US fiscal issues to the background. Indeed, Ms. Yellen has been viewed as the front-runner for several weeks now; and her ultra-dovish view has soothed fears that the Federal Reserve might withdraw stimulus in the near-term.
Risky assets are up overnight led by the higher yielding Australian and New Zealand Dollars. The nomination is overshadowing the larger and more important budgetary issues, but with the door at least cracked open slightly for a potential short-term resolution on the US debt issues, it is of little surprise that risk-correlated assets are responding as they are today. The permanence of the near-term swing in sentiment is unlikely to be sustained, however, with signs of progress on the US fiscal front, which is hardly a sure bet.
AUDUSD 5-minute Chart: October 9, 2013 Intraday
Taking a look at European credit, weakness on the Iberian Peninsula may be weighing on the Euro on Wednesday, with both Portuguese and Spanish debt weaker on the session.The Portuguese 2-year note yield has increased to 4.429% (+6.1-bps) while the Spanish 2-year note yield has increased to 1.385% (+2.7-bps). Likewise, the Portuguese 10-year note yield has increased to 6.250% (+2.0-bps) while the Spanish 10-year note yield has increased to 4.310% (+2.2-bps); higher yields imply lower prices.
Read more: Japanese Yen Rallies, Aussie Suffers as US Fiscal Issues Remain Elevated
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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— 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
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You can follow Paul on Twitter at@PaulRobinonFX.
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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
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