Analys från DailyFX
GBPNZD The Other Great Rotation
Talking Points:
- The other “Great Rotation” is the return of capital to Europe
- A stronger Q1 would be bullish EUR/AUD through the rest of the year
- A break above a sideways channel in GBP/NZD targets 2.2300 to 2.2500
Coming into 2013, many market commentators proclaimed that it would be the year that the US economy finally picked up off the ground, and that investors would reallocate funds from significantly overbought US Treasuries to more cheaply-valued US equities. The other “Great Rotation” is the return of capital to Europe.
Money returning to Europe has two roots. First, growth is starting to return. The United Kingdom is the fastest growing Western economy. Peripheral Euro-Zone nations, while burdened with high taxes, low government spending, and weak labor markets, have seen their respective recessions start to ease. The resurrection of the European consumer over the coming years will be a major draw for foreign investment in the region.
Second, I believe that the end of liquidity programs but not low interest rates forces investors into the second tier of yield – improving, but stable growth. As concerns over emerging markets has risen alongside the chances of QE3 being tapered, investors have started to shift capital away from some of the major beneficiaries in FX – the Australian and New Zealand Dollars. The EURAUD and GBPNZD may be best positioned to take advantage of these shifting themes.
Chart created by Christopher Vecchio using Marketscope 2.0
EURAUD – The EURAUD remains in an ascending channel off of the March and November 2013 lows, with a parallel drawn to the August high. An extension taken off of these prices points to a 100% extension at A$1.6889. Note on the weekly chart that the momentum structure – indicated by the short-term moving averages rising above the longer-term ones (from light to dark, EMAs: 8, 21, 34, 55, and 89). A sustained hold above 1.5000/20 through the 1Q’14 would give confidence for strength through the year.
GBPNZD – The GBPNZD has started to emerge from its multi-year downtrend, with the first instance of a break higher coming above the descending TL off of the 2011 and 2012 highs. A sideways channel has formed since May between N$1.8860 and 2.0060. In conjunction with the break of the TL and the possibility of an Inverse Head and Shoulders pattern (Head: 1.7700; Neckline: 2.0060), a break higher would target as high as 2.2300-2.2500 over the coming 12- to 18-months.
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.
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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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