Talking Points:
- EUR/USD Clings to Bearish Sequence Ahead of ECB Meeting Minutes.
- AUD/USD Continues to Search for Support as RBA Sticks to Wait-and-See Approach.
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EUR/USD bounces back from a fresh weekly-low 1.1730, but the lack of momentum to snap the recent series of lower highs & lows raises the risk for a larger correction amid the mixed language coming out of the European Central Bank (ECB).
The ECB appears to be in no rush to remove the quantitative easing (QE) program as Governing Council member ChrystallaGeorghadji argues ‘only a sustained adjustment in the path of inflation would warrant the gradual withdrawal of our exceptional degree of monetary policy accommodation,’ while Peter Praet warns the asset-purchase program may run beyond the December deadline as ‘overall inflation developments, despite the solid growth, have remained subdued.’ The cautious remarks suggest the ECB will continue to utilize its balance sheet throughout the remainder of the year, and President Mario Draghi and Co. may ultimately reveal a more detailed exit strategy in 2018 as the central bank struggles to achieve its one and only mandate for price stability.
In turn, the ECB meeting minutes due out later this week may have a limited impact on the monthly opening range as the central bank attempts to buy more time and tames expectations for a material shift in monetary policy.
EUR/USD Daily Chart
- EUR/USD stands at risk for a larger correction following the failed run at the 1.2130 (50% retracement) hurdle, while both price and the Relative Strength Index (RSI) snap the bullish formations from earlier this year.
- May see the former-support zone around 1.1860 (161.8% expansion) now offer resistance, with a break/close below the 1.1670 (50% retracement) region opening up the next downside target around 1.1580 (100% expansion).
- However, failure to test the August-low (1.1662) may spur range-bound conditions ahead of the next ECB meeting on October 26.
AUD/USD struggles to hold its ground following the Reserve Bank of Australia (RBA) meeting, with the pair at risk of extending the decline from earlier this month as the central bank appears to be on course to preserve the record-low cash rate throughout 2017.
It seems as though Governor Philip Lowe and Co. will carry the wait-and-see approach into 2018 as ‘wage growth remains low,’ and the central bank may continue to tame expectations for higher borrowing-costs as ‘slow growth in real wages and high levels of household debt are likely to constrain growth in household spending.’ With that said, the RBA may ramp up its efforts to jawbone the Australian dollar as ‘an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast,’ and the aussie-dollar exchange rate stands at risk of giving back the advance from the summer months especially as the Federal Open Market Committee (FOMC) appears to be on course to deliver a December rate-hike.
AUD/USD Daily Chart
Chart - Created Using Trading View
- AUD/USD stands at risk for a further decline as both price & the Relative Strength Index (RSI) snap the bullish formations from earlier this year, with the downside targets on the radar as the pair carves a near-term series of lower highs & lows.
- The Fibonacci overlap around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion) remains on the radar as it largely lines up with the 100-Day SMA (0.7771), with the next downside region of interest coming in around 0.7650 (38.2% retracement).
Retail Sentiment
Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning
- Retail trader data shows 39.0% of traders are net-long EUR/USD with the ratio of traders short to long at 1.56 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.07831; price has moved 9.0% higher since then. The number of traders net-long is 17.8% higher than yesterday and 4.9% higher from last week, while the number of traders net-short is 3.4% lower than yesterday and 0.7% higher from last week.
- Retail trader data shows 45.4% of traders are net-long AUD/USD with the ratio of traders short to long at 1.2 to 1. The number of traders net-long is 5.9% lower than yesterday and 15.7% higher from last week, while the number of traders net-short is 12.7% higher than yesterday and 15.7% lower from last week.
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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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