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MARKET DEVELOPMENT – EUR CHOPPY AS MERKEL BEGINS EXIT

EUR: A choppy session thus far for the Euro amid the latest newsflow surrounding German politics. After another poor performance for the CDU and SPD parties in the Hesse state election. German press reports noted that Chancellor Merkel was to step down from re-election for CDU party chair, which sparked selling the Euro. However, the Euro did nurse some losses as sources highlighted that Merkel was to complete her 4th term (ends in 2021). Euro fails to hold above 1.14 with resistance situated at 1.1430. On the downside, support sits at the YTD low (1.1301)

USD: Short term drivers in focus for the greenback this week with month-end rebalancing models suggesting strong buy signals for the US Dollar against its major counterparts. Elsewhere, the Federal Reserve will let another slew of debt roll off on the 31st leading to a potential net negative liquidity, which typically supports the US Dollar. Consequently, the YTD highs (9660) could be tested.

BRL:The Brazilian Real had been notably firmer this morning after Jair Bolsonaro won the second round of the Brazilian election.However, the opening gains has been subsequently pared, given that the victory had been widely expected amid recent polling data.

DailyFX Economic Calendar: Monday, October 29, 2018 – North American Releases

EUR Choppy as Merkel Begins Exit, Short Term Drivers Support USD - US Market Open

DailyFX Webinar Calendar: Monday, October 29, 2018

EUR Choppy as Merkel Begins Exit, Short Term Drivers Support USD - US Market Open

IG Client Sentiment: EURUSD Chart of the Day

EUR Choppy as Merkel Begins Exit, Short Term Drivers Support USD - US Market Open

EURUSD: Retail trader data shows 63.5% of traders are net-long with the ratio of traders long to short at 1.74 to 1. In fact, traders have remained net-long since Oct 01 when EURUSD traded near 1.16024; price has moved 1.6% lower since then. The number of traders net-long is 7.8% lower than yesterday and 4.4% higher from last week, while the number of traders net-short is 16.3% lower than yesterday and 19.9% lower from last week.

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

Five Things Traders are Reading

  1. UK Week Ahead: Brexit and the Bank of England | Webinar” by Nick Cawley, Market Analyst
  2. Euro Forecast: After ECB, Downside in Focus as Italian Issues Festerby Christopher Vecchio, CFA , Sr. Currency Strategist
  3. CoT Update: Crude Oil Speculative Long Positioning to Keep Shrinkingby Paul Robinson , Market Analyst
  4. EURUSD Struggling to Stay Above 1.1400, Sentiment Negative” by Nick Cawley, Market Analyst
  5. USD Outperformance on Merkel Exit, Fed QT and Month-End Rebalancing” by Justin McQueen, Market Analyst

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX