Analys från DailyFX
Whats Driving the Dollar Lower, and Can it Continue?
Article Summary: The DJ FXCM Dollar Index (ticker: USDOLLAR) trades at its strongest-ever correlation to US Government Bond Yields. What does this mean for Dollar forecasts and trades?
Correlation between US Dollar Index (ticker: USDOLLAR) and US 10-Year Treasury Yield Near Record
Data source: Bloomberg, Chart Source: R
The strong correlation almost certainly is linked to the US Federal Reserve, and as such the Fed’s next moves are critical to outlook for the recently-downtrodden US currency. A chart below underlines the significance of the post-FOMC and post-Bernanke price level extremes on the Dow Jones FXCM Dollar Index.
Dollar Surges Post-FOMC Meeting then Tumbles Post-Bernanke—currently at key level
Source: FXCM Trading Station Desktop, Prepared by David Rodriguez
Where does this leave us? As an old saying goes, “Don’t fight the Fed.” Bernanke and Co. are not scheduled to meet this week, and a view of top 5 pieces of forex economic event risk shows that there’s no significant US data on the schedule.
Yet it will be critical to watch next week’s potentially pivotal US Nonfarm Payrolls report as Bernanke made it quite clear that the Federal Reserve’s next moves will depend on labor market trends. (See it on the DailyFX Economic Calendar)
In the meantime we believe that especially low forex market volatility hurts outlook for the safe-haven US currency, and indeed our short-term preference remains to sell into US Dollar weakness absent a turnaround in market sentiment.
I’ll continue updating changes to conditions via my regular reports—follow future updates via my e-mail distribution list and intraday via Twitter.
Forex Correlations Summary
View forex correlations to the SP 500, SP Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.
Data source: Bloomberg. Chart source: R
SEE GUIDE ON READING THE ABOVE CHART
— Written by David Rodriguez, Quantitative Strategist for DailyFX.com
Receive future special reports on the Australian Dollar and other studies via this author’s e-mail distribution list with this link.
David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.
Contact and follow David via Twitter: https://twitter.com/DRodriguezFX
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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