Analys från DailyFX
JPY Reverses Hard against AUD, NZD as Chinese Liquidty Concerns Arise
Talking Points:
– Post-NFP rally over as attention shifts immediately to Asia.
– Yen boosted by weak NFP and by Chinese liquidity concerns.
– Big picture: Fed QE3 taper expectations continue to dissolve.
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INTRADAY PERFORMANCE UPDATE: 09:45 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.02% (-0.82% prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
The past several days we’ve been focusing on the shifting US yield curve as a way to prognosticate market sentiment regarding incoming economic data and events. Having established that investors were buying US Treasuries especially in the “belly” of the curve – 3- to 7-year notes – yesterday’s significantly disappointing September US NFP report all but confirms that the Federal Reserve won’t taper QE3 next week.
While the prolonged period of excessive Fed monetary easing might prove positive for higher yielding currencies and risk-correlated assets over the coming months, there has been absolutely zero follow through today. While the USDJPY’s weakness following the US labor report isn’t surprising, the US Dollar’s resiliency elsewhere is purely a function of widespread risk aversion in FX markets.
The input fact that changed overnight leading to the severe sharp decline in the Australian and (especially) New Zealand Dollars was a spike in short-term Chinese money rates. The 7-day repo contract, already seeing higher rates over the past two weeks, spiked higher by more than 100-bps today.
It is worth mentioning that the Chinese credit crunch isn’t necessarily organic; that is, the PBOC has intentionally kept its lending standards tight despite slowed growth prospects. Part of the reason is to keep inflation in check, which has proven difficult amid a wave of foreign capital coming into the country to take advantage of the strengthening Chinese Yuan. Regardless; the Yen has stepped in to fill the role of safe haven du jour.
NZDJPY 5-minute Chart: October 23, 2013 Intraday
Will the JPY crosses keep selling off on these Chinese headlines? History might suggest otherwise. The last bout of tight Chinese credit was met with intervention after several tense days in June 2013. Quantitatively, this type of risk aversion in FX is too intense for continuation; in 2013, the four occurrences that saw the NZDJPY depreciate by more than 2% in a 24-hour period had an average 5-day return of +1.85%.
Read more: US Dollar Drops as September NFPs Miss – EUR/USD Hits Fresh 2013 High
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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
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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
—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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