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EUR/USD Gives Back All Gains after Euro-Zone GDP, Ahead of Yellen

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Talking Points:

Dollar top performer on session despite kneejerk weakness after yesterday’s close.

Prepared remarks necessarily dovish; Yellen QA to be more neutral toned.

– Dollar rebound hinges on US yields turning higher again.

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INTRADAY PERFORMANCE UPDATE: 10:45 GMT

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.45% (+0.82% prior 5-days)

ASIA/EUROPE FOREX NEWS WRAP

A week absent of significant event risk may see the most important event come to pass today, and already market participants have shifted their attention. Ahead of the Senate confirmation hearings for the Federal Reserve’s Janet Yellen, the prearranged comments were released ahead of time, sending the US Dollar lower and US yields lower amid a perceived dovish tone.

Nevertheless, if the comments released are the most dovish as Ms. Yellen intends to get today – she being considered more dovish than other policymakers – then any damage levied against USD-denominated assets may have run its course.

Focus will remain on the nature of this comment from Ms. Yellen’s statement: “A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

There are two takeaways here: first, that Ms. Yellen might not think the economy is strong enough to taper QE3 at present; and second, that Ms. Yellen finds fiscal policy restrictive, which has necessitated the Fed’s ultra-easy stance. Yet these comments aren’t that dovish; they are more or less facts about the US economy. The Fed’s forward guidance remains in place as the thresholds haven’t been hit (+2.5% y/y CPI, 6.5% Unemployment Rate), and the federal deficit is falling at its fastest pace in the post-WWII era.

EURUSD 5-minute Chart: November 14, 2013 Intraday

EURUSD_Gives_Back_All_Gains_after_Euro-Zone_GDP_Ahead_of_Yellen__body_x0000_i1027.png, EUR/USD Gives Back All Gains after Euro-Zone GDP, Ahead of Yellen

If Ms. Yellen has no ace up her sleeve, the QA portion of the testimony could help draw out expectations for a QE3 taper timeline. Accordingly, in light of the initial reaction (weak USD, weak US yields), a ‘buy the rumor, sell the news’ situation may be evolving.

With Euro-Zone GDP (3Q A) disappointing, the economic fears laid out last week as signaled by the ECB’s rate cut were vindicated, leading to a marginally weaker Euro in the wake of the release. Accordingly, if the ‘sell the news’ situation emerges, then the EURUSD is primed to slip intraday on a rebound in the buck and stronger US Treasury yields.

EURUSD H1 Chart: November 1 to Present

EURUSD_Gives_Back_All_Gains_after_Euro-Zone_GDP_Ahead_of_Yellen__body_x0000_i1028.png, EUR/USD Gives Back All Gains after Euro-Zone GDP, Ahead of Yellen

– The EURUSD initially broke out of its post-ECB/post-NFP Symmetrical Triangle consolidation to the upside on Tuesday.

– Price restested the underside of the ascending TL from the July and September lows at 1.3495/3510 and failed (four consecutive Inverted Hammers on H1).

– Price has fallen through pre-Yellen comments (1.3454) and trades closer to yesterday’s lows than the highs.

– Break below 1.3400 today could signal beginning of further weakness.

– Conviction on breakdown increases through 1.3350, 1.3290.

Read more: Euro Hobbled by ECB, NFPs – Will 3Q GDP Reports Confirm Fears?

ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION

EURUSD_Gives_Back_All_Gains_after_Euro-Zone_GDP_Ahead_of_Yellen__body_Picture_1.png, EUR/USD Gives Back All Gains after Euro-Zone GDP, Ahead of Yellen

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

To be added to Christopher’s e-mail distribution list, please fill out this form

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EURUSD Weekly Technical Analysis: New Month, More Weakness

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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

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at@PaulRobinonFX.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

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

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

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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