Analys från DailyFX
Holding Euro Positions May Get Expensive as Overnight Rates Spike
What’s happening to Euro interest rates and why does it matter to traders?
The end of the trading quarter means that demand for borrowing some major currencies has risen sharply, and interbank lending rates have shifted dramatically—particularly for Yen and Euro pairs.
In fact forward rates show that holding a Euro/US Dollar short position may cost a trader nearly 30 times more than the same position held on Thursday. The end of the fiscal quarter in Japan will likewise make borrowing the Japanese Yen quite expensive. Why does this represent an important risk and how might we take advantage?
Source: Bloomberg Generic Price – “Consensus” Pricing
Understanding Forex Rollover
Trading forex on leverage involves borrowing one currency in order to purchase another. In effect this means traders will pay interest rates for the currency which they sell, while they receive interest rate payments for the currency which they buy. In FX terminology this is most often called “Rollover” or “Swaps”.
Overnight interest rates will guide whether the trader will ultimately pay to hold a position or earn interest on the trade, and any sharp changes in the supply or demand for a specific currency can shift overnight interest rates in a hurry.
This dynamic can be very seamless to the trader, and indeed the parent company of DailyFX in FXCM Inc. posts the Rollover rates for both “Buy” and “Sell” orders directly on their trading platform.
Read more on forex rollover on FXCM.com
End of the Quarter Means Euro Demand Surges, Japanese Fiscal Year End Makes JPY Expensive
We often see such sharp supply and demand imbalances at important dates in the calendar year—namely months, quarters, and years. These are the times in which many borrowers or lenders must settle major positions, which may involve buying back or selling significant amounts of a specific currency.
Traders should note that this means interest rate charges/credits will be far larger than normal for EUR and JPY pairs. This does represent a potential opportunity: traders may receive the higher Euro interest rate if they buy the currency into the New York close. For the JPY this means that those short the Yen (e.g. long USDJPY, GBPJPY) will receive lower interest rate payments than normal.
For those short Euro in particular they should note that said position may become quite expensive. Caution is urged ahead of the weekend as interbank lending rates spike.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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.
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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