Can the USD stage a rebound? See our forecast to find out!
Talking Points:
- NAFTA renegotations lift USD vs. trade partners
- EUR/JPY IGCS showing bears increase fight by 137% WoW
- EMFX takes a hit after Trump’s talk of tariffs
Join Tyler in his Daily Closing Bell webinars at 3 pm ET to discuss the top market-moving developments and key news.
Wednesday’s price action was USD centric as the Mexican Peso recorded its largest intraday loss in three months and USD/CAD looked ready to stay above 1.3600 after a short bout of CAD strength on the EIA data that showed U.S crude stockpiles posted largest draw this year mainly on the back of large refinery demand.
Behind the price action, we’re still seeing signs that risky currencies could continue to feel the pinch despite record high in multiple global indices. Traders have been seen dumping the favority carry trade benefactors that typically include commodity currencies as well has higher yielding emerging markets while EUR remains and GBP, two of the strongest G8 currencies look stable as they move into forms of respective resistance across a handful of crosses.
Lastly, tomorrow brings a central bank showdown between the BoJ & ECB. Neither are expected to produce fireworks, but the options market seems to show upside bias. On the chart below, we show how the out of the money premium being paid for puts on EUR/JPY beyond one-month has fallen and the 1-year downside protection is at its lowest level since January 2015. On the chart, you can see that EUR is continuing to find a bid and EUR/JPY has moved up to a multi-month Trendline. I favor a breakout from here, but that could have more to do with favoring EUR strength over JPY weakness.
Interested in seeing what IG client’s positioning means for the USD? Find out here !
Closing Bell’s Top Chart: April 26, 2017, EUR/JPY stares at resistance ahead of central bank showdown
Tomorrow’s Main Event: Central Bank Meetings Galore
Thursday will provide three key central bank meetings. The headline meeting is the ECB. On Tuesday, Reeuters noted that while we should not see changes to the economic projectsions this week, we’re likely to see a tweak (economic growth) at the June ECB meeting. Traders will likely look for the ECB to continue and verbally back up markets while discussing the desire to eventually exit from current easing measures while acknowledging a reduction in downside risks.
The other key CB meetings are the Bank of Japan, which is not expected to roil markets and will likely keep USD/JPY trading within 110-112 with the potential that they will revise the CPI forecast lower. Also expected to keep rhetoric the same, the Riksbank (SEK) will meet and they may tell the market theat they are looking to extend asset purchases beyond the current end date of June.
Fun Fact: All three CBs on Thursday have a rate below 0%. What a world!
IG Trader Sentiment Highlight: EUR/JPY bears hope for downtrend to resume
EURJPY: As of April 26, IG retail trader data shows 35.0% of traders are net-long with the ratio of traders short to long at 1.86 to 1. The number of traders net-long is 22.8% lower than yesterday and 61.0% lower from last week, while the number of traders net-short is 18.5% higher than yesterday and 135.7% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURJPY 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 EURJPY-bullish contrarian trading bias. (Emphasis Mine)
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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