Analys från DailyFX
Dollar Consolidates Post-Bernanke; Yen Mostly Weaker Ahead of Elections
ASIA/EUROPE FOREX NEWS WRAP
The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is tracking slightly lower this morning as a quiet end to the week – there are no ‘medium’ or ‘high’ rated USD events today – has quelled market volatility, allowing high beta currencies and risk-correlated assets to post modest gains. Overall, while it is clear that the Bernanke testimony didn’t prove to be the dovish knockout punch many were expecting, it wasn’t a major victory for hawks, either.
Notably, Fed Chairman Bernanke stuck to the dovish script for his prepared remarks, despite the fact that the Fed’s overall assessment has improved. But given the fastest rise in long-term interest rates since 1994 – and the 10% increase in mortgage rates from late-May through the end of June – policymakers have been forced to push back against the market. As US economy data continues to improve, policymakers seem positioned to utilize communicative policy to help stress the difference between tapering QE3 versus tightening monetary policy – that is, reducing the pace of easing versus hiking interest rates (the former is less bullish for the US Dollar than the latter).
In context of the Fed commentary this week, the USDJPY is an interesting look here considering that the Japanese diet elections are this weekend. Japanese Prime Minister Shinzo Abe’s LDP party should now have a majority in the legislature overall, making it easier for fiscal and monetary policymakers alike to push through further controversial ‘Abenomics’ measures. I think that an Abe victory has been mostly priced into the USDJPY at this point – it retained ¥100.00 this week – and while that might mean any further upside in the pair is limited, the quicker round two of Abenomics arrives, the greater chance of a weaker Yen.
Read more: G20 Meeting, Japanese Election Outcome in the Spotlight
Taking a look at European credit, further modest strength in peripheral debt amid relief in the Portuguese political gridlock has proved to be only be of minor support for the Euro on Friday. The Italian 2-year note yield has decreased to 1.601% (-3.3-bps) while the Spanish 2-year note yield has decreased to 1.925% (-0.1-bps). Similarly, the Italian 10-year note yield has decreased to 4.379% (-2.8-bps) while the Spanish 10-year note yield has decreased to 4.627% (-1.1-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 10:40 GMT
NZD: +0.57%
CHF: +0.21%
GBP: +0.21%
JPY:+0.10%
AUD:+0.10%
EUR:+0.05%
CAD:-0.05%
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.11% (-0.35% prior 5-days)
ECONOMIC CALENDAR
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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
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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