– EUR/USD’s sixth gain in seven days continues to lead to ongoing weakness in the DXY Index.
– A confrontational tone by the US at the G7 meetings may rekindle fears of trade wars developing over the coming months.
– Retail traders remain net-short the US Dollar, but have trimmed their positions substantially over the past week.
Looking to learn more about how central banks impact FX markets? Check out the DailyFX Trading Guides.
US Dollar on Pace for Fourth Day of Losses
The US Dollar (via DXY Index) is on pace for its fourth consecutive day of losses (and six out of seven overall) as traders have turned their attention to the upcoming G7 meeting in Canada.
The pullback in the US Dollar has little to do with risk appetite, which has been bolstered in recent days after sharp rebounds by US stocks and US Treasury yields. Concurrently, little attention is being paid to Fed rate expectations, where the odds of a December rate hike (tallying four total for 2018) have risen back to near 50%.
DXY Index Price: Daily Timeframe (August 2017 to June 2018) (Chart 1)
Reports have emerged that key US trading partners are ready to strike a confrontational tone with the Trump administration over its stance on trade, leaving the US Dollar to the whims of speculation around potential trade wars developing (which, historically, are bad for the greenback).
Now that the DXY Index has broken its uptrend from the mid-April and May swing lows, further losses look likely in the near-term as the momentum profile turns more negative: price is below the daily 8-, 13-, 21-EMA envelope; and both MACD and Slow Stochastics have started to turn lower (albeit in bullish territory). The current target for the sell off is down near 92.50/65, the November and December 2017 swing lows and the January 2018 swing higher.
Euro Rallies for Sixth Day in Last Seven as Italian Yields Drop
Much of the attention paid to the Euro over the past week has been revolving around the new Italian government and its exorbitant fiscal spending plans. However, with new Italian Prime Minister Giuseppe Conte promising to reduce Italy’s debt burden alongside new spending efforts, Italian bond yields and CDS spreads have come down today, providing more room for the Euro to recover.
Italy is likely to take a backseat even more in the coming days as attention shifts to the European Central Bank’s June policy meeting next week. We’ve already seen how speculation over the ending of the ECB’s QE program has moved markets this week, and although we’re in the quiet period in the run-up to the meeting, traders will likely continue to speculate in the absence of meaningful commentary by policymakers.
EUR/USD Price: Daily Timeframe (August 2017 to May 2018) (Chart 2)
Given that the Euro is 57.6% of the DXY Index, it’s of little surprise that price action in EUR/USD is essentially a mirror image of what’s happening to the broad gauge of greenback strength. Price has started to move back through 1.1823, the low established on May 5 (and has subsequently served as resistance on a closing basis since the break on May 16), signaling the potential for further gains in the days ahead.
Commensurate with the DXY Index eying a return back to 92.50/65, EUR/USD’s near-term target also aligns with swing levels in November and December 2017 and January 2018 around 1.1945. Ongoing volatility over the coming week should be expected with the G7 over the next two days, the Fed meeting next Wednesday, the ECB meeting next Thursday, and finally the BOJ meeting next Friday.
FX TRADING RESOURCES
Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail firstname.lastname@example.org
Follow him on Twitter at @CVecchioFX
Bitcoin Net-Longs Slide Into 1-Month Lows
Bitcoin Net-Shorts 5.2% Higher Since Last Week
Bitcoin: Retail trader data shows 76.8% of traders are net-long with the ratio of traders long to short at 3.3 to 1. The number of traders net-long is 1.1% lower than yesterday and 8.0% lower from last week, while the number of traders net-short is 0.5% lower than yesterday and 5.2% higher from last week.
Be sure to check out our Bitcoin Trading Guide if you’re new to cryptocurrencies!
Bitcoin Net-Long Dip Indicate Bullish Bias
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Bitcoin prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Bitcoin price trend may soon reverse higher despite the fact traders remain net-long.
— Written by Yayati Tanwar, DailyFX Research
Canadian Dollar (CAD) Eyes Latest Inflation Report
Canadian Dollar Price, News and Analysis
- Inflation expected unchanged, but any uptick could seal another rate hike in October.
- Canadian economy continues to grow strongly.
Canadian Dollar May Receive a Boost on Latest Inflation Report
The Canadian dollar is currently treading water ahead of the July CPI report with the market expecting a 0.1% month-on-month rise and a 2.5% annualized reading, both unchanged from last month’s strong report. Canadian CPI grew at its fastest rate in over six years in June, due to higher energy prices, and another strong reading today will increase pressure on the Bank of Canada to hike rates again, probably at the October meeting. The central bank has already hiked rates by 0.25% twice this year and by a total of four times in the last 12 months. Last week data showed Canadian unemployment falling to 5.8% from a prior 6% while employment grew by 54.1k against expectations of 17K and a prior month’s 31.8k.
USDCAD has remained in a 1.2950 – 1.3200 range over the last month, despite the strength of the US dollar and fears over the NAFTA negotiations. The pair currently trade at 1.3130, just above 23.6% Fibonacci support at 1.3118 and below the July 24 high at 1.3192. An inline or slightly stronger-than-expected reading would seal another 0.25% rate hike and see USDCAD break lower with the 38.2% Fibonacci retracement at 1.2952 the short-term target. A weaker-than-expected reading today would see the July 24 high under pressure.
We have recently released our Q3 Trading Forecasts for a wide range of Currencies and Commodities, including the Canadian Dollar.
USDCAD Daily Price Chart (January – August 17, 2018)
— Written by Nick Cawley, Analyst
To contact Nick, email him at email@example.com
Follow Nick on Twitter @nickcawley1
USD/CNH & Gold Price Action Point to Reversals Gaining Traction
Gold, USD/CNH Technical Highlights
- Gold price reversal and sentiment supportive of a low
- Correlation between Gold & CNH extremely high
- USD/CNH reversing hard from near Dec ’16 peak
For an in-depth intermediate-term technical and fundamental outlook, check out the Q3 Gold Forecast.
Gold price reversal and sentiment supportive of a low
On Wednesday, we were discussing the oversold, overly bearish backdrop in gold, but that first we needed to see some type of swift flush and reverse or something of that nature before looking for a low. We didn’t have to wait long, as the past few sessions qualified as flush-and-reverse price behavior, with silver, unsurprisingly and in silver-like fashion, displaying even more capitulation-like behavior, shedding 3 of its 4% in an hour on Wednesday.
As long as gold & silver can hold onto yesterday’s lows on a closing basis, we’re looking for at least a rebound back to the point of origination of the most recent leg lower (~1210 & 15.30). If another leg lower develops we’ll have to reassess.
Check out the IG Client Sentiment to see how other traders are positioned and why it can be used as a contrarian indicator.
Gold Daily Chart (Flush & Reverse)
Correlation between Gold & CNH extremely high
If gold is reversing then so is CNH and vice versa. Gold and CNH have a 3-month correlation of 97%. They are effectively the same market at this juncture. How one plays it is up to the instrument of choice, but be mindful of total risk if trading both.
Gold/CNH Daily Chart (97% 3-mo Correlation)
USD/CNH reversing hard from near Dec ’16 peak
USD/CNH is in the process of carving out a weekly key-reversal bar just shy of the December 2016 high, assuming it doesn’t post a big rally from here. Trade a little higher today or lower and the reversal currently in place will stand as confirmed.
The candle development along with a break in the upward channel on the daily time-frame should usher in more selling, and perhaps in swift fashion. Looking lower, there are minor levels along the way that were carved out as the channel matured, but the broader target is the bottom of the upward grind since last month, right around the 6.60 mark.
USD/CNH Weekly Chart (Key-reversal nearly complete)
USD/CNH Daily Chart (Channel break to send it lower)
Resources for Forex & CFD Traders
Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.
—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
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