Analys från DailyFX
USD Drops On Further Inflation Doubt As Trump Hope Wanes on Healthcare
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Key Takeaways:
- DXY Technical Strategy: DXY remains in “sell the rips” mode below 96.50
- DXY polarity point of 96.50 remains technical line in the sand, bearish below
- Dollar weakness picks up pace as EUR breaks to fresh 14-month highs
The dollar bear market has picked up the pace today on news that Senate majority leader Mitch McConnell would withdraw the vote for the repeal of Obamacare only to show that the ‘Supermajority’ was great in theory, yet poor in practice. Unfortunately, coming into the year, the US was supposed to be a harbinger for fiscal lead inflation a la China, but the paring back of the Trumpflation trade continues.
As we heard last week from Janet Yellen when she testified to Congress, inflation already is a puzzle, which caused the fixed income market to price in a little more than one hike in 2018 despite the Fed looking to hike three times. When looking at the long-term chart (see below), the market is curbing its enthusiasm that began in July 2014 when the Fed had credibly signaled that normalization was coming.
From July 2014 to early 2017, the DXY rose ~30% in anticipation of the great divide in monetary policy. However, we now see that economic strength and data surprises are not ‘Made in the USA,’ but rather in other economies like the Eurozone, Canada, and China. The lack of US growth could mean that the Fed will no longer be the leading central bank in terms of normalization, but possible honing a mea culpa of normalizing too much too soon.
When looking at the chart, you can see that the Dollar is traveling comfortable in a bearish channel and is working to test an internal Trendline drawn from the 2012 peak and the 2016 low. A break below the internal Trendline on a weekly basis would open up the increasing probability of a move to the 38.2% retracement (labeled long-term support) that aligns with the 2016 low at 92.13. Only a daily close above 95.50 would neutralize the current bearish positioning. However, as the blows to hope keep coming for US inflation (despite base metals rallying), I won’t hold my breath in anticipation that the weak USD finds life.
Traders who trade individual pairs are watching to see if EUR/USD can trade to the 2016 high of 1.1616 and the 100-DMA on USD/JPY at 111.78.
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DXY below 96.50 keeps thefocus on downside extension targets @ 92.13, EUR/USD @ 1.16
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 28.1% of traders are net-long with the ratio of traders short to long at 2.56 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.06683; theprice has moved 8.6% higher since then. The number of traders net-long is 1.4% higher than yesterday and 2.2% higher from last week, while the number of traders net-short is 0.8% lower than yesterday and 5.9% 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. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EURUSD price trend may soon reverse lower despite the fact traders remain net-short. (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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