Analys från DailyFX
US Dollar Losses Mount as US Yields Drop Further
Talking Points:
– US Treasury yield curve continues to flatten, although at a slower pace – still considered USD-bearish.
– Weak USD and strong Chinese GDP data have helped commodity bloc maintain weekly gains.
– US event risk heavy next week as data backlog is resolved; September NFPs on Tuesday.
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INTRADAY PERFORMANCE UPDATE: 09:35 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.24% (-1.20% prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
The US Dollar is the worst performing currency for the second day in a row as market participants continue to price in another non-taper at this month’s Federal Reserve policy meeting. This shift in sentiment has been confirmed by price action in the US Treasury yield curve, where the “belly” – 3- to 7-year notes – has seen yields fall faster than either the short- or long-end.
This is important to consider because the exact opposite situation developed between May 22, 2013 (when Fed Chairman Ben Bernanke noted at a Congressional testimony that the Fed could taper QE3 in the next few meetings) and September 17, 2013 (the day before the September FOMC meeting). The chart below illustrates this point:
Whereas the 7Y yield gained the most from May to September, since the September QE3 non-taper, the 7Y yield has dropped by the most. Accordingly, if that steepening of the yield curve midyear helped propel US Dollar strength, then we suggest that a continued flattening of the yield curve will weigh on the greenback; and the belly of the yield curve should be eyed for hints on market expectations for Fed policy.
Whether or not changing dynamics of the US Treasury market continue to weigh on the US Dollar is up in the air, however, now that the US government shutdown has ended. All of the US economic data that was withheld since October 1 will be released over the coming days, providing an extra spark of event-driven volatility. Bond and FX traders should pay particular attention to the calendar on Tuesday, when the September Nonfarm Payrolls report will be released.
AUDUSD5-minute Chart: October 18, 2013 Intraday
For now, “untapering” is occurring in the wake of the US debt deal, and the expectation of prolonged ultra-loose monetary policy from the Fed is helping the commodity currency bloc post the largest gains against the US Dollar thus far on Friday. Also helping the Australian and New Zealand Dollars has been a slew of confirmed-stronger GDP figures from China in the 3Q’13 (although upside has been limited possibly due to the fact that markets may doubt the accuracy of GDP data released just 10 days after the quarter ended).
Read more: Dollar Dives as Focus Moves from Debt Deal to Incoming Fed Rhetoric
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.
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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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