Receive the DailyFX Morning Digest in your inbox every day before US equity markets open - signup here

The US Dollar is rallying for the second consecutive day as rates markets’ pricing of a December 2017 rate hike from the Federal Reserve continue to firm up. Now at 63%, Fed funds futures contracts were pricing in a 45% chance of a 25-bps rate hike by December one week ago. Rising rate expectations are helping the US Dollar turn around versus a number of currencies, most notably the Euro in recent days. With retail trader sentiment swinging quickly, and EUR/USD technical rapidly eroding, it would seem that evidence of a top in the pair is starting to pile up. Elsewhere, risk appetite has started to firm up (with Gold slipping and the Japanese Yen’s gains ceasing) as US Secretary of Defense James Mattis reiterated that a diplomatic outcome with North Korea was preferred over an escalation to war.

DailyFX Economic Calendar: Tuesday, September 26, 2017 - North American Data Releases

DailyFX Morning Digest: US Dollar Rally versus the Euro Accelerates

It’s another quiet data day on the economic calendar for the US Dollar, with many uninspiring reports set to be released. A few items stand out, however. The September US Consumer Confidence report at 10 EDT/14 GMT will offer insight into consumer sentiment. Historically, elevated sentiment levels coincide with higher consumption levels; for the US economy, nothing is more important than consumption (70% of headline GDP).

In terms of non-data events on the docket, there are four Fed speakers due up, with our attention honed in on Fed Chair Janet Yellen at 12:30 EDT/16:30 GMT. Giving a speech titled, “Inflation, Uncertainty, and Monetary Policy” less than one week after the Fed’s September policy meeting, it seems likely that Fed Chair Yellen will reiterate the views espoused last Wednesday. Accordingly, with the Fed having reaffirmed their belief that another rate hike would be appropriate by December – something that markets were not pricing in at the time, and are barely pricing in now (Fed funds 63% today versus 45% one week ago) – it would appear that Fed Chair Yellen’s speech may have a hawkish glow to it.

DailyFX Webinar Calendar: Tuesday, September 26, 2017

DailyFX Morning Digest: US Dollar Rally versus the Euro Accelerates

IG Client Sentiment Index Chart of the Day: EURUSD

DailyFX Morning Digest: US Dollar Rally versus the Euro Accelerates

Learn more about the IG Client Sentiment Index on the DailyFX Sentiment page

EURUSD: Retail trader data shows 41.5% of traders are net-long with the ratio of traders short to long at 1.41 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.8% higher since then. The percentage of traders net-long is now its highest since Apr 19 when EURUSD traded near 1.07154. The number of traders net-long is 38.8% higher than yesterday and 23.7% higher from last week, while the number of traders net-short is 12.3% lower than yesterday and 5.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EURUSD price trend may soon reverse lower despite the fact traders remain net-short.

Five Things Traders are Reading

  1. “EUR/USD Head & Shoulders Suggests US Dollar is Bottoming” by Christopher Vecchio, CFA, Senior Currency Strategist
  2. “Crude Oil Price Stabilizes After Rise on Kurdish Independence Poll” by Martin Essex, MSTA, Analyst & Editor
  3. “Trading Outlook for Gold Price, Crude Oil, DAX & More” by Paul Robinson, Market Analyst
  4. “FTSE Testing Major Threshold, but Yet to See Rejection” by Paul Robinson, Market Analyst
  5. “Korea Tensions Spur Only Limited Demand For Gold, Yen and Franc” by Martin Essex, MSTA, Analyst & Editors

The DailyFX Morning Digest is published every day before the US cash equity open - you can signup here to receive this report in your inbox every day. The DailyFX Evening Digest is published every day before the Tokyo cash equity open - you can signup here to receive that report in your inbox every day. If you're interested in receiving both reports each day, you can signup here.