Analys från DailyFX
US Dollar Reversal Accelerates Pre-FOMC as December Highs are Broken
Talking Points:
– USDJPY sets new yearly high at ¥103.92.
– Aussie remains under pressure after yesterday’s RBA-driven selloff.
– Continued rise in US yields will underpin further Dollar strength.
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INTRADAY PERFORMANCE UPDATE: 11:15 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.17% (+0.58% prior 5-days)
ASIA/EUROPE FOREX NEWS WRAP
Weak hands may have been shaken out of their USD-long positioning the past few days, as a break in the USDOLLAR index coinciding with softer US Treasury yields allowed the EURUSD to climb back to $1.3800. However, in the wake of improving economic data out of the US, mainly, the “big three”: 3Q’13 GDP was upgraded; November NFPs beat; and November Advance Retail Sales beat.
With a fiscal deal out of the way, Congressional intransigence is no longer a viable reason for the Federal Reserve not to taper QE3 – it having been a prime reason to maintain its $85B/month stimulus program in a shocking plot twist this September. Whereas market participants may have taken the data initially as a sign that, yes, the Federal Reserve will taper QE3, but no, there won’t be higher interest rates anytime soon, there is evidence of an evolution in this mindset.
In fact, after wiping out earlier this week, US Treasury yields, especially in the QE3 taper –sensitive ‘belly’ (3Y to 7Y notes) have rebounded, helping lift the USDOLLAR:
The structure of the yield curve is shifting as well that would suggest market participants are bringing forward QE3 taper expectations. There are two spreads – the difference in yields between different securities – that are exhibiting such behavior.
The 5Y/30Y spread (5s30s), which dove to near 200-bps (2.000%) in September, shot higher back above 250-bps (2.500%) by the end of November. It has plummeted back to near 235-bps (2.350%) in the past two weeks, and a further decline here would suggest a more taper-friendly bias.
The same can be said about the more widely observed 2Y/10Y spread (2s10s), which is mirroring behavior last seen during the height of QE3 taper expectations building into the September FOMC meeting. This spread recently broke its 2013 high, and is now at its widest differential since July 2011, before the US was stripped of its ‘AAA’ rating by Standard Poor’s.
USDOLLAR Daily Chart: June 3 to Present
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– The USDOLLAR regained lost support from the October 23 and November 20 lows, breaking to new December highs (invalidating the potential bearish outcome).
– A flag (10600 to 10670) with a false break lower may have developed, and the measured outcomes are 10760 (61.8%) and 10880 (100%).
– 100% extension coincides with August highs.
– Will look for daily RSI (21) to remain above 50 during uptrend; recent bounce at 50 coincided with base forming at moving average cluster (now TL support off of October 25 and December 10 lows, parallel drawn to November 12 high).
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
There are no data on the North American economic calendar for Friday, December 13, 2013.
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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