Analys från DailyFX
Euro, US Dollar Drop versus Japanese Yen amid Political Déjà Vu
Talking Points:
– US government to shutdown as Congress fails…again.
– Italian government under pressure – vote of confidence on Wednesday.
– Complacency in markets – bonds, commodities, equities, and FX – likely finished.
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INTRADAY PERFORMANCE UPDATE: 09:15 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.09% (-0.15%prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
Signs of investors uncertainty amid heightened sovereign credit risk are starting to emerge, as political tensions in the United States and Italy – two of the world’s largest debt markets – have officially boiled over. An increasingly partisan US Congress has pushed the world’s largest economy to the verge of a government shutdown, and perhaps a default on its credit in a few weeks, while Italian political titan Silvio Berlusconi’s declining popularity threatens the stability of the government.
No, this isn’t a summary of events in the summer/fall of 2011. It’s 2013, and we’re witnessing political déjà vu. In the United States, Republicans have decided to leverage the government’s credit worthiness for policy changes, which are highly unlikely to be conceded by Democrats – why would President Obama strike down his own legislative advancements? – making a government shutdown at the start of October all but guaranteed. The debt ceiling debate looms large as the country could default in a few short weeks.
In Italy, it is not Mr. Berlusconi who is losing power but instead he is threatening to take away power, as his Centre-Right party has abandoned the coalition under Centre-Left Prime Minister Enrico Letta. As the issue is quite entangled – the Italian Senate will vote in the coming days on whether or not to ban Mr. Berlusconi from politics – a vote of confidence for the Italian government will now take place to see if new elections are necessary.
As was the case in those rocky months of mid-2011, the Japanese Yen has emerged as a top performer (as has the Swiss Franc) as both the Euro and the US Dollar have suffered. Sovereign CDS contracts (essentially insurance on debt) have widened out suggesting that investors are bracing for impact. Yet FX markets haven’t toppled: the commodity currency bloc (AUD, CAD, NZD) remain buoyant. Accordingly, complacency remains; though once the US government shuts down on Tuesday, the tone should change dramatically.
EURJPY 5-minute Chart: September 30, 2013 Intraday
Taking a look at European credit, rising Italian political tensions have levied pressure on sovereign debt, presenting a sustainable drag on the Euro for the next several sessions. The Italian 2-year note yield has increased to 1.936% (+6.4-bps) while the Spanish 2-year note yield has increased to 1.546% (+1.5-bps). Similarly, the Italian 10-year note yield has increased to 4.488% (+7.6-bps) while the Spanish 10-year note yield has increased to 4.355% (+0.2-bps); higher yields imply lower prices.
Read more: Making Sense of the Fed’s Non-Taper – We Should Have Seen it Coming
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
Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.
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.
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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