Analys från DailyFX
Price & Time: A Contrarian’s Paranoia
Talking Points
- USD/JPY overcomes key long-term retracement
- GBP/USD stuck between two critical levels
- Too many people positioned for the same thing in EUR/USD?
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Foreign Exchange Price Time at a Glance:
Price Time Analysis: USD/JPY
Charts Created using Marketscope – Prepared by Kristian Kerr
- USD/JPY stormed through the 78.6% retracement of the 2007-2011 decline near 113.75 yesterday to trade at is highest level in almost seven years
- Our near-term trend bias is higher in USD/JPY while above 112.00
- A close over 114.00 is needed to set off the next leg higher in the rate towards range expansion objectives near 115.00
- Minor turn windows are eyed tomorrow and early next week
- A daily close under 112.00 would turn us negative on the exchange rate
USD/JPY Strategy: Like the long side while over 112.00.
Price Time Analysis: GBP/USD
Charts Created using Marketscope – Prepared by Kristian Kerr
- GBP/USD traded at its lowest level in several weeks yesterday before finding support near the 78.6% retracement of the late October range
- Our near-term trend bias is lower in Cable while under 1.6180
- The year’s closing low around 1.5880 is an important downside pivot with a daily close below this level needed to confirm a resumption of the broader decline
- A minor turn window is eyed later this week
- A close over 1.6180 would turn us positive on the pound
GBP/USD Strategy: Square for now.
Focus Chart of the Day: EUR/USD
The decline in EUR/USD under 1.2500 over the past few days has gotten the FX market excited and looking for a resumption of the broader downtrend – us included as we were looking for and got a reversal in the pair after last week’s FOMC meeting. What we don’t like about recent action is sentiment. One of our favorite measures of sentiment is the Daily Sentiment Index. Last month when the euro initially traded down to 1.2500 the DSI fell to 3% bulls in EUR (signaling a looming counter-trend reaction). After a month of corrective action and consolidation we find the euro back around the same levels in terms of price and with virtually identical levels of extreme negative sentiment as the DSI fell to 4% bulls yesterday. This is not ideal to say the least. We had hoped the price action over the past month or so would have cleared the market of some of its excess in terms of sentiment and positioning, but this clearly has not been the case as conviction is high that the single currency is about to head sharply lower again. This widespread conviction in the direction of the euro makes us nervous and has us questioning whether our timing is off. If it is then the next couple of days should be “the tell” as a close back over 1.2580 would warn that the exchange rate is headed higher – possibly for a couple of weeks. A close, on the other hand, under 1.2450 (along with a close over .9700 in USD/CHF) this week would help alleviate some of the contrarian’s paranoia we are experiencing and signal the herd indeed has it right.
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This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.
— Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX
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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- All eyes on OPEC V8 and their July quota decision on Saturday
- Brent steady at $65 ahead of OPEC+ and Iran outcomes
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