Analys från DailyFX
EUR/USD Short Term Outlook Ahead of Fed Rate Decision
Talking Points:
– EUR/USD trades between 200, 500 day moving averages ahead of FOMC
– A hawkish Fed could weigh on the pair for more downside conviction
– EUR/USD Volatility measures extremely subdued
The EUR/USD has found support around the last Daily swing low and its 200-day SMA to start the trading day, as the pair continues its predominate sideways trading movement ahead of today’s key event risk.
The Fed Rate Decision is the huge event in front of us, and the FOMC outlook could shape the trend in the weeks (perhaps months) ahead.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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The FOMC Rate Decision is to hit the wires at 18:00 GMT, followed by a speech by Fed Chair Jennet Yellen shortly after.
Markets are pricing in a 22% probability of a hike in today’s decision, meaning that a shock hike will catch most participants off-guard, implying significant US Dollar strength.
Indeed, while a surprise hike is less likely, there is a case to be made for the Fed to move at this meeting, going against market expectations in the short term to gain credibility for the long game, after Fed members leaned to the hawkish side in recent weeks.
If the fed hikes or goes on a hawkish hold signaling a December move, economic projections could indicate a downgrade to the rates path going forward, potentially limiting fallout in risk assets.
Taken together, risks seem skewed for US Dollar strength on a hawkish Fed, but even a slight dovish lean could see the US Dollar tumble.
EUR/USD Technical Levels:
Click here for the DailyFX Support Resistance tool
We use volatility measures as a way to better fit our strategy to market conditions. The Euro is expected to be less volatile versus the US Dollar than most other majors based on implied volatility measures (only the Swiss Franc less), and 20-day ATR readings as well suggest an extremely subdued levels of realized volatility.
In turn, this may imply that the market is not expecting any major swings here, suggesting macro levels could hold if the Fed acts in line with expectations.
EUR/USD 30-Min Chart (With the GSI Indicator): September 21, 2016
(Click to Enlarge)
The EUR/USD is trading around potential resistance at 1.1150, with GSI calculating higher percentages of past movement to the upside in the short term from current levels.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here, and download the Trade Station version here.
Other resistance levels to watch in the short term might be 1.1180, 1.1200, 1.1220 and 1.1250.
Levels of support may be 1.1125, 1.1100, 1.1070 and the 1.1050 level.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.
Read more on the “Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 49.0% of FXCM’s traders are long the EUR/USD at the time of writing, after trades cut shorts rapidly on the latest decline.
You can find more info about the DailyFX SSI indicator here
— Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
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
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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