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EUR/USD Pares Fed-Driven Decline; Retail FX Flips Back to Net-Short

EUR/USD Pares Fed-Driven Decline; Retail FX Flips Back to Net-Short

David Song, Strategist

Talking Points:

- EUR/USD Pares Fed-Driven Decline; Retail FX Flips Back to Net-Short.

- GBP/USD Mounts Larger Rebound Ahead of BoE Inflation Report.

- USDOLLAR Outlook Mired by Mixed Data; Fed Rhetoric, NFP Report in Focus.

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EUR/USD

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • With EUR/USD largely reversing the losses following the Federal Open Market Committee (FOMC) interest rate decision, the pair may face a larger rebound in the days ahead following the failed test of the August low (1.0847); the bearish formation in the Relative Strength Index (RSI) favors the approach to ‘sell-bounces’ in EUR/USD, but the pair may mount a larger rebound as the oscillator fails to push into oversold territory.
  • Despite speculation for a major announcement at the European Central Bank’s (ECB) December 3 interest rate decision, the uptick in the Euro-Zone core Consumer Price Index (CPI) may encourage central bank President Mario Draghi to endorse a wait-and-see approach as the non-standard measures continue to work their way through the real economy.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd flipped back net-short EUR/USD on October 29, with the ratio slipping to -1.09 as 48% of traders are now long.

GBP/USD

GBP/USD Daily Chart
  • Following the failed test of the May low (1.5088) earlier this month, GBP/USD may consolidate ahead of the Bank of England (BoE) interest rate decision on November 5 as the pair largely remains capped by the 100-Day (SMA).
  • With the BoE also scheduled to release its quarterly inflation report next week, the fresh developments coming out of the ‘Super Thursday’ event may undermine the near-term rebound in GBP/USD should Governor Mark Carney and Co. highlight a more delayed normalization cycle.
  • GBP/USD remains at risk for a longer-term decline as the RSI retains the bearish formation from back in May, and will look for a break/close below 1.5240 (50% retracement) to 1.5250 (100% expansion) to favor a further decline in the exchange rate.

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Read More:

Price & Time: USD/JPY – 1998 High Still An Influence?

USD/CAD Technical Analysis: Reaching a Polarity Point?

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12035.5812084.8412024.74-0.42120.27%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Dow Jones-FXCM U.S. Dollar gives back the advance following the Fed meeting amid the ongoing mixed batch of data coming out of the U.S. economy; with U.S. Non-Farm Payrolls currently projected to increase 182K in October, a disappointing employment report may further dampen the appeal of the greenback as the FOMC remains in no rush to normalize monetary policy.
  • At the same time, will keep a close eye on the slew of central bank rhetoric as Fed Chair Janet Yellen, Vice-Chair Stanley Fischer, Governor Lael Brainard, Governor Daniel Tarullo, New York Fed President William Dudley, Atlanta Fed President Dennis Lockhart and St. Louis Fed President James Bullard scheduled to speak in the week ahead.
  • With the RSI threatening the bearish formation from earlier this year, will retain a constructive view on the USDOLLAR, and will keep a close eye around the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (23.6% retracement) as the greenback searches for support.

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--- Written by David Song, Currency Analyst

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

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