Analys från DailyFX
US Dollar: Chasing A Bounce Could Be Expensive Below Election Gap
Will Dollar weakness persist for the rest of 2017? Get a free DFX market forecast here
Talking Points:
- DXY Technical Strategy: DXY remains in “sell the rips” mode below 98.20 (French Election gap)
- DXY remains at the mercy of whether the EUR will rip or flip
- EUR strength expected to continue per sentiment making DXY gains tough to come by
Dollar Bulls have come out from hiding in the last week on a relief rally that has the Federal Reserve to thank. While discussing the likelihood of Balance Sheet run-off in 2017, the Federal Reserve also said that another rate hike was expected this year followed by three more in 2018. Currently, when looking at Fed Funds futures contracts, the probability is weighted to a hold in September with announcements on Balance Sheet run-off, which is presumed to be USD-positive, and a rate hike in December if warranted by a turnaround in the data. If we had to label the conversations from recent Fed Presidents following the announced rate hike, I would apply the term, very cautious optimism. The Fed does have the benefit of hiking during the easiest money conditions per the Federal Reserve Bank of Chicago Financial Conditions Index since 2014, which is before they began hiking. However, the Citi Economic Surprise Index for the US Economy is rebounding from the weakest levels in six years. Economic surprise indices are subject to wildly optimistic or pessimistic expectations from economists, but they are telling none the less.
Another development in the market worth watching that likely has implications for the Fed, and the Dollar is the flattening US yield curve. Recently, the US5/30 Yield Curve where one would sell the 5-year UST and buy the 30-year UST had seen the spread reduce or flatten to the lowest level since December 2007, when the US Economy was entering into a recession that would eventually lead to the credit crisis of 2008.
Traders should note that as the yield curve flattens, it tends to mark speculative excesses and not the immediate pain that typically arises from yield curve inversion that many associate with recession. While the curve obviously needs to flatten before it can invert, to try to get in front of the trade, could lead to a painful outcome.
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DXY trading below 98.20 keeps focus on downside extension targets @ 95.85-94.83
Chart Created by Tyler Yell, CMT
IG Client Sentiment Highlight: EUR (57.6% of DXY) Sentiment favors further DXY downside
EURUSD: Retail trader data shows 30.9% of traders are net-long with the ratio of traders short to long at 2.24 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.05975; price has moved 5.3% higher since then. The number of traders net-long is 1.4% lower than yesterday and 7.1% lower from last week, while the number of traders net-short is 2.2% lower than yesterday and 3.4% higher 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 less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias. (Emphasis mine)
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Written by Tyler Yell, CMT, Currency Analyst Trading Instructor 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.
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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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