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Retail FX Remains Net-Short EUR/USD Despite ‘Funding-Currency’ Status

Retail FX Remains Net-Short EUR/USD Despite ‘Funding-Currency’ Status

David Song,

Talking Points:

- EUR/USD Rallies to Fresh Weekly High; Retail FX Remains Net-Short Ahead of ECB Minutes.

- USD/JPY Fails to Preserve Triangle/Wedge Formation; Downside Targets in Focus Ahead of BoJ.

- USDOLLAR Risks Further Losses as Dismal NFP Report Drags on Rate Expectations.

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EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD climbs to a fresh weekly high of 1.1317 following the dismal data prints coming out of the U.S. economy; a closing price above near-term resistance around 1.1260 (50% retracement) to 1.1270 (38.2% retracement) may generate a larger advance in the days ahead especially as the Relative Strength Index (RSI) preserves the bullish formation from back in March.
  • Even though the European Central Bank (ECB) stands ready and willing to further embark on its easing cycle, the meeting minutes may continue to highlight a wait-and-see approach, and risk trends may largely impact EUR/USD in the week ahead as market participants treat the Euro as a ‘funding-currency.’
  • Despite the rebound, DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short EUR/USD since March 9, but the ratio appears to be working its way back towards recent extremes as it widens to -1.49, with 40% of traders long.


USD/JPY Daily Chart
  • Even though USD/JPY holds above the September low (118.58), the pair may continue to track lower ahead of the Bank of Japan (BoJ) interest rate decision on October 7 as the triangle/wedge formation unravels, while the RSI retains the bearish momentum from May.
  • Despite speculation for a further expansion of the BoJ’s asset-purchase program in 2015, more of the same from Governor Haruhiko Kuroda may heighten the appeal of the Japanese Yen as the central bank head remains confident in achieving the 2% inflation target over the policy horizon.
  • Need a close below 119.50-60 (38.2% retracement) to favor a further decline in the exchange rate, with the next region of interest coming in around 118.20 (23.6% retracement) to 118.30 (78.6% expansion).

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Read More:

Price & Time: Big Test Coming Up For USD Bulls Next Week

Worst US Jobs Report of 2015 Sinks USD/JPY, Supercharges EUR/USD

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12042.5112080.1412011.29-0.22138.79%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Dow Jones-FXCM U.S. Dollar stands at risk for a larger correction as the dismal U.S. Non-Farm Payrolls (NFP) report undermines expectations for a 2015 Fed rate hike; may see the Federal Open Market Committee (FOMC) come under increased scrutiny to further delay its normalization cycle amid subdued wages accompanied by the ongoing deterioration in labor-force participation.
  • Fed commentary remains in focus for the first full-week of October as Kansas City Fed President Esther George, San Francisco Fed President John Williams, St. Louis Fed President James Bullard, Minneapolis Fed President Narayana Kocherlakota, Atlanta Fed President Dennis Lockhart and Chicago Fed President Charles Evans are all scheduled to speak in the days ahead.
  • Failed attempts to close above 12,082 (61.8% expansion) may spur a larger pullback, with the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (23.6% retracement) on the radar.

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--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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