Analys från DailyFX
Subdued FX Price Action Shifts Focus 11 Fed Speeches Next Week
Talking Points:
– German parliamentary election on Sunday unlikely to be EUR-negative.
– Attention in US turns to seemingly hopeless fiscal debate.
– FOMC surprise could be rebuked amid 11 speeches by Fed members next week.
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INTRADAY PERFORMANCE UPDATE: 09:20 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.55% (+0.01%prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
As the week comes to a close, volatility in FX markets has cooled dramatically as investors recalibrate to the non-tapered world. While the Federal Reserve’s rate decision on Wednesday certainly shocked investors, the fact of the matter is that the Fed did very little – no change in the overnight interest rate and no change in the pace of QE3.
What the Fed did do, however, is adjust its US growth, inflation, and labor market forecasts for 2013 and 2014, which once again showed that policymakers overestimated the strength of the US economy. This in and of itself is a dovish policy move: by reducing growth assessments, it is implied that accommodative policy will be needed longer than previously anticipated.
While the US Dollar weakened immediately on the news, in particular against the beleaguered emerging market currencies (generally anything high beta/high yielding surged), scope for further losses – or gains – is hazy in the near-term given the calendar ahead. Next week, there are 11 speeches by Fed policymakers and in light of the fact that general commentary is that the Fed lost credibility by not tapering, it will be particularly interesting to gauge market reactions around these commentaries.
If the US Dollar is sensitive to these collective remarks, it will be a sign that credibility is not lost among Fed members; but if no attention is paid, it will be a clear sign that incoming economic data now trumps rhetoric, adding another layer of importance to the September NFP release on October 4.
Elsewhere, the Euro is trading slightly lower ahead of the German parliamentary elections this weekend, though the chance for weakness ensuing is low. Polls show that current Chancellor Angela Merkel’s CDU party holds a 10-point cushion over the top challenger SPD. While plurality is unlikely, a grand coalition could arise from the elections that will keep Merkel in power; the Euro could see a brief rally on the news.
EURUSD 5-minute Chart: September 20, 2013 Intraday
Taking a look at European credit, subdued price action in credit has helped keep the Euro steady on Friday as investors wait for the German election. The Italian 2-year note yield has increased to 1.814% (+1.8-bps) while the Spanish 2-year note yield has increased to 1.570% (+1.1-bps). Similarly, the Italian 10-year note yield has increased to 4.303% (+1.9-bps) while the Spanish 10-year note yield has increased to 4.336% (+2.8-bps); higher yields imply lower prices.
Read more: Making Sense of the Fed’s Non-Taper – We Should Have Seen it Coming
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
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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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