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US Dollar Unable to Rally Even as Risk Appetite Erodes

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Talking Points:

– The US Dollar isn’t fulfilling the role as safe haven, trading sideways to lower in recent days as US equity markets come under pressure thanks to skepticism over the US-China trade war de-escalation.

– Economic data due out today will shape expectations for the November US Nonfarm Payrolls report due out tomorrow.

Retail traders are still mostly short the US Dollar, but positioning is shifting in a manner that suggests sentiment may flip soon.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

The US Dollar (via the DXY Index) continues to falter in its role as a safe have currency, failing to generate any upside momentum despite a sharp drop in US equity markets in recent days (futures are pointing lower again). The Dow is off of its yearly high by -7%; the S&P 500 by -8%; and the NASDAQ by -12%. Thus far in Q4’18, US stocks are having their worst quarter in seven years.

Whatever signs of detente in the US-China trade war following the G20 summit in Buenos Aires, Argentina have seemingly gone up in smoke over the past 24-hours following the arrest of Huawai CFO Meng Wanzhou in Canada. While US media coverage has been relatively low key, this is decidely not a low key issue in China (the equivalent would be if an Apple executive was arrested). This may be an attempt by the Trump administration to acquire another negotiating chip, but it hasn’t sat well; traders are rightfully concerned

As US Treasury yields pullback amid the demand for less risky assets, two winners have started to emerge in the vacuum of the US Dollar’s lacking performance: Gold and the Japanese Yen. For Gold, the drop in nominal yields with no change in inflation data means real yields are falling; falling real yields tend to be good for Gold prices. The move back through 1236.37 on Tuesday could be what’s needed to signal the turn; we’ll look for confirmation through the end of the week.

Gold Price Chart: Daily Timeframe (July to December 2018) (Chart 1)

US Dollar Unable to Rally Even as Risk Appetite Erodes

For the Japanese Yen, the combination of weakening global risk appetite, softer US Treasury yields, and a Federal Reserve that looks ready to back off its hawkish policy posture, is starting to pave a more bullish path looking ahead. As USD/JPY looks to break lower out of its symmetrical triangle, pairs like CAD/JPY (breaking its uptrend from March) shouldn’t be dismissed either.

DXY Index Price Chart: Daily Timeframe (June to December 2018) (Chart 2)

US Dollar Unable to Rally Even as Risk Appetite Erodes

For now, the DXY Index is still sitting on the precipice of a potentially larger decline; its uptrend from the September, October, and November swing lows continues to be tested. The break in the three-month trend is particularly important when viewed in the context of the failed run-up to fresh yearly highs; a truncated top often speaks to a turn developing. Both daily MACD and Slow Stochastics are gliding lower, albeit not quite yet in bearish territory yet. We maintain that the DXY Index needs to clear out the mid-November swing low at 96.04 to offer a confirmation signal for a top.

Read more: DXY Index on the Edge Ahead of Quieter Trading Day

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 cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX



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Forex

Traders Net-Short Are 63.3% Higher from Last Week

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US500,SP500

TRADERS REMAIN NET-SHORT

US 500: Retail trader data shows 24.6% of traders are net-long with the ratio of traders short to long at 3.07 to 1. In fact, traders have remained net-short since Jan 07 when US 500 traded near 2473.53; price has moved 11.9% higher since then. The number of traders net-long is 1.7% higher than yesterday and 1.6% lower from last week, while the number of traders net-short is 5.2% higher than yesterday and 63.3% higher from last week.

For more in-depth analysis, check out the Q1 2019 Forecast for Equities

S&P 500 SUGGESTS STRONG BULLISH BIAS

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests US 500 prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger US 500-bullish contrarian trading bias.

— Written by Nancy Pakbaz, CFA, DailyFX Research

Follow Nancy on Twitter @NancyPakbazFX



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On to the Next Big Levels of Resistance

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S&P 500/Dow Jones/Nasdaq 100 Technical Highlights:

  • S&P 500 nearing 2800-area, several swing-highs from last year
  • Dow Jones 26k-ish stands between it and record highs
  • Nasdaq 100 trading around resistance already

Check out the forecasts for Global Stock Indices and other markets on the Trading Guides page.

S&P 500 nearing 2800-area, several swing-highs from last year

The S&P 500 is continuing to show impressive strength since its v-bottom began the day after Christmas, with it having a few points along the way where it could have been stopped in its tracks. But it wasn’t, and this has levels prior to the December swoon in view. The area surrounding 2800 is a big one.

From 2800 up to 2817 there were three peaks created from failed rallies, a logical area, with the rally having come this far, to look for stocks to weaken from. Watching price action will be key, as always, but especially around the levels just ahead.

While resistance looks likely to get tested soon, the upward channel structure over the past month will keep stocks pointed higher for as long as it holds. If the S&P is rejected off resistance, to further bolster the notion of a sizable retracement we’ll need to see the underside parallel undermined.

For now, the top-side must be respected, but the time for material weakness may be nearing…

Stocks are rallying, but will it last in the long-term? Find out where our analysts see stocks headed in the Global Equities Forecast.

S&P 500 Daily Chart (2800/817 big spot)

S&P 500 daily chart, 2800/817 big spot

Dow Jones 26k-ish stands between it and record highs

The Dow is nearing the 26k-area, a spot which is basically the equivalent of what 2800 is to the S&P 500. The zone runs up to near 26300. The focus is primarily on the S&P right now as it is the broader index, but depending on how price action plays out, the Dow may be the better index to short at some point if it shows relative weakness to the broader market.

Dow Daily Chart (26k-ish stands in the way)

Dow daily chart, 26k-ish stands in the way

Nasdaq 100 trading around resistance already

The Nasdaq 100 continues to lag behind, which is something to continue monitor given it was the bull-market leader with its leading group of stocks – FAANG – dominating price action and sentiment. The NDX is trading around the 200-day and near late-year swing highs equivalent to the ones discussed with regard to the S&P 500 and Dow. So far, relative weakness is making the 100 the preferred fade if the S&P finds material selling off resistance surrounding 2800/17.

Nasdaq 100 Daily Chart (trading around resistance)

Nasdaq 100 daily chart, trading around resistance

To learn more about U.S. indices, check out “The Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities.” You can join me every Wednesday at 10 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.

Tools for Forex & CFD Traders

Whether you are a beginning or experienced trader, DailyFX has 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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Aussie Dollar Falls on RBA Minutes, US-China Trade Talks Eyed

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TALKING POINTS – AUSSIE DOLLAR, RBA MINUTES, ZEW, TRADE WARS, CHINA

  • Aussie Dollar, commodity bloc FX down on downbeat RBA meeting minutes
  • Germany’s ZEW survey may compound worries about slowing global growth
  • Trade wars in focus on US-China negotiations, fears of US auto tariff hike

The sentiment-linked Australian, Canadian and New Zealand Dollars weakened in otherwise quiet Asia Pacific trade. The move appeared to be inspired by an ominous tone in minutes from February’s RBA policy meeting. Meanwhile, the US Dollar corrected gently higher.

RBA officials cited “significant uncertainties”, noting that trade tensions and cooling domestic demand have increased negative knock-on risks from China. They added that consumption may fall if domestic house prices fall much further. They suffered the worst drop since 1983 in the three months through January.

TRADE WAR DEVELOPMENTS, GERMAN ZEW DATA MENACE MARKETS

Looking ahead, Germany’s ZEW survey of analyst sentiment may compound the downbeat mood, especially if it echoes the disappointing trend in regional data outcomes since September. A small improvement in the forward-looking Expectations index is nevertheless expected to keep it within a hair of six-year lows.

The tone of US-China trade negotiations may also be formative as a delegation from Beijing arrives in the US for continued talks. Both sides painted a rosy picture earlier in the week, but the Trump administration may be preparing a spoiler as the President ponders raising auto import tariffs.

What are we trading? See the DailyFX team’s top trade ideas for 2019 and find out!

ASIA PACIFIC TRADING SESSION

Asia Pacific Trade Economic Calendar

EUROPEAN TRADING SESSION

Europe Trade Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



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