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US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200

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ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is near its daily highs as it continues its impressive outperformance since June 17, having gained nearly +3.50% since then, while only posting two down days in the process. While the Japanese Yen was a prime reason the USDOLLAR surged over this time frame, today the drivers of bullish USD price action are the Australian and New Zealand Dollars, on the back of renewed concern that the commodity/carry trade will continue to unwind over the coming months.

In its policy statement released early this morning, the Reserve Bank of Australia noted that “commodity prices have declined further but, overall, remain at high levels by historical standards,” and that the “Australian dollar has depreciated by around 10 per cent since early AprilIt is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.” This apparent dovish bias refreshes our core outlook that we should expect to see another 50-bps cut from the RBA’s main rate by the end of the year, which should remain a significant bearish influence on the Aussie; and as such, the Australian Dollar is the worst performer.

Heading North and West, European trade today has yielded little positivity around the regional currencies, although recent price action suggests that the British Pound, the Euro, and the Swiss Franc might be poised to extend their recent rallies against the Yen. More specifically, despite the bullish technicals engulfing the Euro (save the EURUSD), pressure is on the single currency today ahead of the European Central Bank policy meeting on Thursday thanks to faster deflation in the May PPI report.

Taking a look at European credit, yields across the continent (save Greece) have slumped; and in context of the ECB’s policy meeting on Thursday, given the divergence with the Euro, there is perhaps positioning for a dovish bias from President Draghi (this fits in with the soft PPI reading today). The Italian 2-year note yield has decreased to 1.760% (-3.5-bps) while the Spanish 2-year note yield has decreased to 2.004% (-4.2-bps). Similarly, the Italian 10-year note yield has decreased to 4.394% (-1.8-bps) while the Spanish 10-year note yield has decreased to 4.578% (-0.8-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 10:45 GMT

JPY: -0.08%

GBP: -0.16%

CAD: -0.25%

CHF:-0.25%

EUR:-0.28%

NZD:-0.41%

AUD:-0.60%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.24% (+0.90%prior 5-days)

ECONOMIC CALENDAR

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_Picture_1.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200

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TECHNICAL ANALYSIS OUTLOOK

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1028.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200

EURUSD: On Wednesday I said “I’d look into $1.3070/80 (38.2% Fib July 2012 low to February 2013 high, 50% Fib April low to June high) for resistance for the next short opportunity.” Price has approached and sold off at this level the past three days (with some slight overreach towards 1.3100), suggesting that a Bear Flag might have formed on lower time frames. Risk should be contained to the June 25 high at 1.3150, looking for a break below 1.2970 to yield a move towards 1.2770/800.

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1029.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200

USDJPY: Price has unfolded as expected, having noted earlier “a near-term bullish bias is warranted as long as price holds 96.65/80; a medium-term bearish bias is warranted as long as price holds 99.25/35.” With 99.25/35 broken, the technical structure shifts medium-term bullish so long as 96.75 holds lower. Ultimately, now that the downtrend from the May 22 has been broken, the Symmetrical Triangle suggests a continuation towards 99.80/100.00 and 100.40/75.

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1030.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200

GBPUSD:Overall, the pair is trading back to support in an ascending channel off of the March 12 and May 29 lows; a test of 1.5100 is called for over the coming weeks. Further US Dollar strength is contingent upon sentiment remaining that the Fed will taper QE3, and the more evidence that builds on the fundamental side, the greater the probability that the ascending channel that has guided price the past three months is only a Bear Flag. Big picture: the GBPUSD broke the uptrend off of the 2009, 2010, and 2012 lows, signaling the beginning of a greater selloff towards 1.4200. Any rallies in the pair look to be sold; price could climb to 1.5290 (50% Fib March low to May high) on a rebound now that the GBPUSD has broken through RSI trend support off of the March 12 and May 29 lows.

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1031.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200

AUDUSD: No change: “Fresh selling has provoked an even steeper decline in the AUDUSD, with the pair falling towards the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie.” Bullish divergence on the daily chart has formed once more, suggesting that consolidation or perhaps a small rally back towards 0.9330/420 is due; or another quick, sharp drop is necessary to clear the technical discrepancy.

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1032.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200

SP 500: Last week I said “a bearish bias is appropriate unless 1605/08 is broken.” Indeed, the post-FOMC swing high was broken and the SP 500 held the daily RSI 38/45 zone which has capped selloffs since the beginning of the year. Significant resistance is overhead though at 1635/40 (23.6% Fib Feb low May high, 61.8% Fib May high June low). Today is more or less a neutral day, as the Inside Day following yesterday’s Inverted Hammer warrants a look lower should 1625/27 hold.

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1033.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200

GOLD: No change from Friday: “Gold has fallen into the 10/20 RSI support region, where price has held on numerous probes lower ultimately producing a short-term rally. More recently, daily RSI has only dipped into this region in mid-February and mid-April…Basing just below $1200/oz shouldn’t be dismissed, as at 1189.91 lies the 100% extension of March high/April low/April high move, as well as the 61.8% extension of the October high (post-QE3 announcement)/April low/April high move at 1192.” The rally off of Friday’s low has produced +7.36% so far, eclipsing the rebound seen from late-May to early-June, when Gold rebounded by +6.36%.

— 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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Analys från DailyFX

EURUSD Weekly Technical Analysis: New Month, More Weakness

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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

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at@PaulRobinonFX.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

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

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

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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