Analys från DailyFX
Sterling Continues to Outshine on PMI Upswing; USD Backtracks Post-NFPs
ASIA/EUROPE FOREX NEWS WRAP
The British Pound is running neck and neck with the Japanese Yen as top performer to start the week, as the slate of improved British data since late-May continued. Today, it was the UK PMI Services report for July, surging to its highest level since December 2006, at 60.2 versus 57.4 expected.
The data follows last week’s improved July PMI Construction and Manufacturing reports, and overall caps what has been a stream of improved PMI surveys beginning in May. But as much as the British Pound has benefited the past few days, especially against the US Dollar (top performer; from $1.5102 on August 2 to as high as 1.5378 today), the streak of good fortune may hit a wall on Wednesday.
As per the Bank of England policy meeting on Thursday, Governor Mark Carney made clear that details on the central bank’s new “forward guidance” policy would be set forth alongside the pertinent Quarterly Inflation Report. In the July meeting, forward guidance was announced to reflect the BoE’s intent to keep rates pointed towards zero for the next several years. The reaction in the Sterling was quite negative; indeed, we are biased towards a bearish reaction by the British Pound.
Governor Carney has suggested that a nominal GDP target could work, and at the current rate of growth (+1.4% annualized), it’s no stretch of the imagination to think that a growth benchmark would be set higher (say, four consecutive quarters of growth exceeding +2%; or growth achieving +3%, etc). Regardless – the UK economy will fall short of whatever benchmarks are established at present time, which will deflate some of the optimism behind the Sterlin.
Read more: UK Services PMI sets a 6.5-year High, Pound Rallies
Taking a look at European credit, slight weakness in the periphery is being offset by risk taking in the core, pushing the Euro up only marginally on the day. The Italian 2-year note yield has increased to 1.458% (+1.4-bps) while the Spanish 2-year note yield has increased to 1.837% (+3.2-bps). On the contrary, the Italian 10-year note yield has increased to 4.233% (-1.4-bps) while the Spanish 10-year note yield has decreased to 4.540% (-1.3-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 09:40 GMT
JPY: +0.56%
GBP: +0.48%
CAD: +0.09%
EUR:+0.07%
CHF:+0.05%
AUD:+0.03%
NZD:-0.69%
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.24% (+0.66%prior 5-days)
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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TECHNICAL ANALYSIS – CHART OF THE DAY
GBPUSD – The pair remains corrective after the rally off of the early-July lows, but a breach of the July highs around 1.5400 would negate this bias. The hold of the channel support at 1.5100/50 (off of the March 12 and May 29 lows) puts in focus a new developing ascending channel off of the July 9 and August 2 lows. Accordingly, a breach of 1.5430/40 puts in focus 1.5529/77 (ascending channel resistance; lower bound: 76.4% Fib retracement June high to July low; upper bound: 50% Fib retracement yearly high/low). A break of 1.5100 negates developing bullishness.
— Written by Christopher Vecchio, Currency Analyst
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
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.
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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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