Analys från DailyFX
Trade Update: US Dollar Surge the Real Deal, We Like Buying Strength
Article summary: The impressive US Dollar breakout looks like the real deal. Here’s how we’d like to trade the Greenback against the Yen, Euro, Australian Dollar, and others going forward.
An impressive US Dollar surge against the Japanese Yen and broader forex counterparts has coincided with a substantive jump in volatility prices.
We recently wrote that we favored buying the US Dollar near its lows versus the Euro and British Pound as volatility remained low. Higher volatility expectations in the AUDUSD and NZDUSD likewise made buying the US Dollar attractive as it broke to fresh peaks. So far so good—we were correct in our Dollar trading bias and fortunate to be on the correct side of the change in market regime.
A major shift in forex volatility prices now leaves us in favor of further US Dollar gains as volatility prices surge. The Dow Jones FXCM Dollar Index is now at its greatest distance above its 200-day Simple Moving Average since its 2009 peaks.
The fact that the Greenback has rallied so strongly in such a short period of time warns that it might be overextended and we could see a short-term pullback (USDJPY lower; EURUSD, GBPUSD, and AUDUSD higher). Yet the severity of the move warns that this is likely a continuation of the US Dollar uptrend.
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Our sentiment-based trading strategies are now long the US Dollar against the Australian Dollar, Euro, British Pound, Japanese Yen, Swiss Franc, New Zealand Dollar, and Canadian Dollar.
We can’t reasonably advocate loading up on so many USD-long positions given the risk of short-term corrections, but we’ve subsequently changed our trading strategy biases and will look to trade the USD higher going forward.
Wrapping things up: The surge in forex volatility prices suggests that the US Dollar breakout versus the Japanese Yen, Euro, British Pound, Swiss Franc, and Australian Dollar is the real deal. We don’t like switching our trading strategy biases on an intra-week basis, but if the facts change—and they have—we’d be remiss to ignore.
We wouldn’t necessarily advocate getting long the USD into Friday’s close, but we suspect the week ahead will bring a continuation of US Dollar strength.
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— Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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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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