Analys från DailyFX
US DOLLAR Technical Analysis: Support Showing Fault Lines
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Talking Points:
- US Dollar Technical Strategy: US Dollar near Weakest G10 FX Currency Favors Shorts
- Probability of Fed Hike Is Vanishing Alongside US Dollar Bulls
- Seasonal Tendencies Favor USD Weakness for February, Score one for seasonality
The hits keep coming for the US Dollar. Janet Yellen came off the first day of her testimony as dovish and persistently concerned about global growth, which could further delay prospects of a Fed Rate Hike.
To see how FXCM traders are positioned after such a big move, click here.
Right now, there is a sparring of sorts among economists and markets (markets are usually right), about whether the Fed will hike this year. Many economists are still expecting a few hikes, albeit less than four showed on the Fed Dot Plot while the Fed Futures market shows little faith in a hike through February 2017. This market reality has led to an offered US Dollar.
Now, after an overheating in US Dollar in late January thanks to an equal weighting to AUD, EUR, JPY, GBP, and the Bank of Japan’s negative interest rate action, markets have sold the US Dollar. The US Dollar was easily the strongest currency to end January and have switched places with GBP within the G10 this February with the weakest currency. Currently, the Japanese Yen is the strongest currency within the G10, and the strength isn’t slowing down as the topping pattern looks to be scaring many JPY bears.
Key Levels: Watch the Recent Pivot to Hold
The pattern on the chart above looks like a bearish rising wedge pattern. Such a bearish pattern favors a retracement of 61.8-100% of the wedge. A price break below wedge support would turn focus lower toward 11,891-11,634 respectively. The lower high of 12,156 should remain a key focus for Bulls wanting to test the water on the long side.
While many comparisons have been made to the 2008 in debt and equity markets, a worthy mentioned would also be the US Dollar. Before the bottom fell out in late 2008, the US Dollar fell 8.5% in January-March 2008. We are only half-way through a similar drop, and should history repeat itself; it would favor more downside to go.
Another development worth watching has been the drop in US 2yr yields. US 2yr yields have nearly erased its 4Q rise as markets fear rates set by the Fed will stay lower for longer. A break on the US 2yr Yield below the October low of 0.5379 would likely align with further US Dollar weakness.
T.Y.
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
You can receive Paul’s analysis directly via email bysigning up here.
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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