Analys från DailyFX
Rising US Yields Building Base for USD, but Don’t Dismiss EUR Rally
Talking Points:
– Euro-Zone data mixed, UK data beats; all European currencies gain versus Dollar.
– ECB needs to take decisive action to keep common currency from rallying.
– US yields softer overnight, but rise past week encouraging ahead of NFPs.
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INTRADAY PERFORMANCE UPDATE: 12:10 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.12% (-0.20% prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
The US Dollar is broadly lower on the day as risk appetite firmed on the back of improving data in the Asian and European trading sessions. Of note, the European currencies have started to perk up in recent hours against the buck, coinciding with slightly softer US Treasury yields on the day.
However, a look at recent changes in US yields suggests that a base may be building for the US Dollar:
While the 1-day change in US yields has aided US Dollar weakness, it’s clear that the tone has clearly improved for the buck over the past weeks. After being negative for the past several weeks, the rolling 1-month change in US yields is essentially flat across the curve, suggesting improving risk appetite in the wake of the US fiscal deal. Furthermore, US yields particularly on the long-end (7Y-30Y) have risen over the past week, implying that recent US data has started to stir speculation over a December Fed taper.
The rise in US yields, however, hasn’t led to an upswing in the US Dollar, which is down by -0.20% over the past 5-days. Before the US Dollar reacts to rising yields – and gets a boost against its major counterparts – a significant fundamental catalyst, like a better than expected NFP print on Friday, is necessary.
The EURUSD, however, may not be the ideal candidate to extend its recent losses should NFPs beat on Friday, considering there are two big obstacles first: the European Central Bank meeting tomorrow; and the 3Q’13 US GDP print tomorrow. Of these, the ECB meeting is likely to be the main driver in the EURUSD the next 24 hours.
EURUSD Hourly Chart: October 22 to Present
Ahead of tomorrow’s ECB meeting, the EURUSD is trading in a sideways channel between $1.3440 and 1.3540. The pair is supported by the rising TL off of the July and September lows, suggesting that we’re at a ‘make or break’ level for the pair: the possibility of a rebound is just as likely as a breakdown from here.
Accordingly, we’re looking for this range to guide expectations for the ECB meeting: a break through 1.3540 would suggest that the ECB won’t implement new dovish policy measures, allowing for a short-covering rally after last week’s meltdown; or a dive through 1.3440 should occur if a rate cut or other substantive easing measures are undertaken.
With EURUSD overnight implied volatility at its highest level since May, a break of this recent range over the next day should be eyed.
Read more: Pound Joins Euro Slide, Drops against US Dollar – $1.6000 in Question
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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— 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
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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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