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EUR/USD Holds Under $1.3200 as Markets Await Fed Today, ECB Tomorrow

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ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is in the midst of its sixth consecutive day of declines ahead of the “true” beginning of the week: the ISM Manufacturing (APR) report due out at 10:00 EST/14:00 GMT. To emphasize this idea (the “true” beginning), one must consider that the Federal Reserve Rate Decision today is not one of the top two events this week; that is a rare occurrence.

Instead, the main attractions this week come on Thursday and Friday, in the form of the European Central Bank Rate Decision and the highly anticipated US labor market report, the Change in Nonfarm Payrolls (APR) and the Unemployment Rate (U3) (APR). As Chief Currency Strategist John Kicklighter notes, the US labor market report “is the lynchpin to stimulus as the Fed is looking for a 6.5% Unemployment Rate to change its policy bearings.

The ECB Rate Decision this week is particularly important because of soaring rate cut expectations among economists, financial media, and market participants alike (including this analyst). In the early part of this week, the Euro has rebounded ahead of the ECB policy meeting, in what I believe to be a “mirror” of the July 2011 ECB policy meeting. At that time, then-president Jean-Claude Trichet raised the ECB main refinancing rate by 25-bps, and the EURUSD tumbled by over 500-pips in the ensuing two weeks. The point is: the Euro’s direction hinges on what’s best for the Euro-zone growth picture, not necessarily the yield outlook. Bond markets have already priced a cut in, so if no rate cut comes, the Euro will be in a tough spot – either way, immense volatility is expected.

Taking a look at European credit, markets have frozen up ahead of the ECB Rate Decision on Thursday, providing little support or resistance to the Euro. The Italian 2-year note yield is unchanged at 1.073% while the Spanish 2-year note yield is unchanged at 1.648%. Similarly, the Italian 10-year note yield is unchanged at 3.881% while the Spanish 10-year note yield is unchanged at 4.112%; lower yields imply higher prices.

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RELATIVE PERFORMANCE (versus USD): 10:35 GMT

GBP: +0.26%

CAD: +0.18%

EUR: +0.17%

NZD:+0.16%

CHF:+0.12%

JPY:-0.11%

AUD:-0.13%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.04% (-1.36% past 5-days)

ECONOMIC CALENDAR

EURUSD_Holds_Under_1.3200_as_Markets_Await_Fed_Today_ECB_Tomorrow_Christopher_Vecchio_body_Picture_7.png, EUR/USD Holds Under $1.3200 as Markets Await Fed Today, ECB Tomorrow

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TECHNICAL ANALYSIS OUTLOOK

EURUSD_Holds_Under_1.3200_as_Markets_Await_Fed_Today_ECB_Tomorrow_Christopher_Vecchio_body_Picture_6.png, EUR/USD Holds Under $1.3200 as Markets Await Fed Today, ECB Tomorrow

EURUSD: The data this morning has kept the pair lower, and once again holding near the magnetic 38.2% Fibonacci retracement on the July 2012 low at 1.2041 to the February 2013 high at 1.3710. The reaction seen today off the data was unique: aggregately, it points to a rate cut by the ECB; yet the EURUSD set its daily low the minute the inflation and labor market data was released. Perhaps this means the market is interpreting a rate cut as a positive (just as the July 2011 ECB rate hike under then-president Jean-Claude Trichet caused the EURUSD to fall). In either case, I’m neutral until the meeting, but will be looking to sell.

EURUSD_Holds_Under_1.3200_as_Markets_Await_Fed_Today_ECB_Tomorrow_Christopher_Vecchio_body_Picture_5.png, EUR/USD Holds Under $1.3200 as Markets Await Fed Today, ECB Tomorrow

USDJPY: No change as price leaks below the 21-EMA: “The Bullish Ascending Triangle pattern was negated late last week and now price has traded below both the 8- and the 21-EMAs, amid a break in the daily RSI uptrend. On Friday I noted “the USDJPY appears ripe for a pullback, which could be provoked by a weaker than expected US 1Q’13 GDP reading.” With this transpiring, a break of the 21-EMA at 97.80/85 could see price extend its losses to former resistance now support at 96.60.”

EURUSD_Holds_Under_1.3200_as_Markets_Await_Fed_Today_ECB_Tomorrow_Christopher_Vecchio_body_Picture_4.png, EUR/USD Holds Under $1.3200 as Markets Await Fed Today, ECB Tomorrow

GBPUSD: No change: “The GBPUSD is finding modest follow through (no doubt tempered ahead of the US 1Q’13 GDP print), pushing closer towards 1.5500 now that mid-April resistance at 1.5410/15 cracked yesterday. If the ascending channel range is to continue to play out, a run towards 1.5550 shouldn’t be ruled out. Declines should be supported in the near-term by 1.5340 (8-EMA) and 1.5285/90 (21-EMA).” The move towards the topside channel rail at 1.5540/60 should bring about some relief; and if the range is to hold, the next leg lower should begin in early-May.

EURUSD_Holds_Under_1.3200_as_Markets_Await_Fed_Today_ECB_Tomorrow_Christopher_Vecchio_body_Picture_3.png, EUR/USD Holds Under $1.3200 as Markets Await Fed Today, ECB Tomorrow

AUDUSD: No change as daily price forms a small Inverted Hammer: “Last week I said: “Mid last week the 8-/21-EMA structure flipped bearish amid the breakdown in the RSI uptrend, coinciding with the rally off of the March 4 and April 8 lows. Fundamentally speaking, amid declining base metals’ prices and poor data out of China, it is our preference to sell the commodity currencies. Technically speaking, it is worth noting that the AUDUSD failed to find follow through on the potential basing pattern, a three day cluster of “Doji-Hammer-Doji.”The back-to-back Inverted Hammers haven’t seen any follow through and now the 8-/21-EMA structure is compressing to the upside, perhaps negating the bearish signal. I’m neutral but looking to sell a rally.”

EURUSD_Holds_Under_1.3200_as_Markets_Await_Fed_Today_ECB_Tomorrow_Christopher_Vecchio_body_Picture_2.png, EUR/USD Holds Under $1.3200 as Markets Await Fed Today, ECB Tomorrow

SP 500: No change: “Is the top in? A dramatic sell-off yesterday dropped the SP 500 below the crucial 1570/75 area, former swing highs as well as the ascending trendline support off of the late-December and late-February swings lows – coincidentally the pre-fiscal cliff deal low and the post-Italian election low. We’re in a bit of “no man’s land” here, with either a close back above 1570/75 necessary for a retest of the highs, or a close below 1530/35 to signal weakness towards and below 1500.”

EURUSD_Holds_Under_1.3200_as_Markets_Await_Fed_Today_ECB_Tomorrow_Christopher_Vecchio_body_Picture_1.png, EUR/USD Holds Under $1.3200 as Markets Await Fed Today, ECB Tomorrow

GOLD: No change: “The major support zone from the past 18-months from 1520 to 1575 gave way with fervor last week, as the combination of weak fundamentals (financial institutions scrambling for cash in Europe after Cyprus) and broken technicals produced the ideal selling climate. Precious metals in general have gotten hammered, and Gold has fallen back to the mid-March swing lows near 1380/85. A weekly close below 1430 this week leaves the possibility of a bigger dip towards 1305.”

— 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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Analys från DailyFX

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

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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

EURUSD Weekly Technical Analysis: New Month, More Weakness

—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.

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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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