Analys från DailyFX
Steepening Yield Curve after FOMC Minutes Bodes Well for Dollar
Talking Points:
– Euro-Zone PMI figures disappoint, confirming ECB’s reason to cut rate again.
– US yields, especially on long-end, soared yesterday after a December QE3 taper was made possible.
– Relatively light calendar in US today keeps focus on FOMC.
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INTRADAY PERFORMANCE UPDATE: 11:00 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.23% (+0.15% prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
The US Dollar surged yesterday and has retained its gains overnight after the Federal Reserve’s October meeting Minutes suggested that an improving economy could warrant a taper of QE3 over the coming months. Considering that the October policy meeting took place before the October NFP figures were made available – they were pushed back a week thanks to the government shutdown – it’s possible that early hope for further improvement in data may already be transpiring.
Accordingly, as the Fed struggles to differentiate “tapering” from “tightening” – a way to show that they intend to keep rates low even after bond buying ends – market participants have taken the news as the most recent sign that a relatively more hawkish stance in monetary policy should be expected.
Over the past few days, certainly aided by the FOMC Minutes, the US Treasury yield curve has undergone a phase of “bear steepening” – that is, longer-term interest rates are rising than short-term term interest rates. The widening of the yield curve is apparent when looking at nominal changes over the past week and month:
A steepening yield curve in the fashion it is occurring is often indicative of confidence in the economy. As such, the US Dollar has leapt higher against the two groups that are highly sensitive to QE3 taper talk and higher US yields: the commodity currencies and the safe havens. Of interest today is the USDJPY which is attempting to confirm a major topside breakout:
USDJPY Daily Chart: September 11, 2013 to Present
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– The USDJPY remains supported by an uptrend dating back to November 2012, and a more concerted uptrend since April 2013.
– Price broke out of the symmetrical triangle (dating back to May) in early-November, but faces its first major former swing level today at ¥100.60/86.
– Profit taking may occur (longs trapped since September, last time price traded this high), but the trend remains higher until 99.00 is closed below on a weekly basis.
– A weekly close above 100.86 (alongside higher US yields – 10YY above 2.830%) would suggest that a return to the yearly highs (103.73) may be around the corner in December.
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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
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