USD Buying Prompted by Fed Quantitative Tightening Day - US Market Open
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MARKET DEVELOPMENTS – USD GAINS, EQUITIES DIP ON FED QT DAY
Risk averse sentiment remains prominent with equity markets holding modest losses with US equity futures slipping 0.6-0.8% this morning. The drop also coincides with the Federal Reserve’s balance sheet unwind, which typically sees equities fall.
USD: The US Dollar is receiving a bid this morning amid the Federal Reserve’s balance sheet unwind, which is set to create a net negative liquidity of $12.6bln. Typically, on QT day, the USD has gained an average of 0.4% over the past 5 redemptions with today looking no different. This in turn has seen EURUSD take another leg lower towards the 1.13 handle. This in turn has kept the bearish Euro trend intact with 1.1190 the next key target on the downside.
GBP: Today’s inflation report had little impact on the Pound, despite the first increase in inflation for the first time since November. Headline CPI printed in line with expectations at 2.5%, however, with Brexit talks set to resume tomorrow, this will likely guide price action in the near term. Support at 1.2690-1.2700 has been broken, consequently putting the pair on course for a test of 1.26.
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GBPUSD: Data shows 70.8% of traders are net-long with the ratio of traders long to short at 2.42 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.40482; price has moved 9.5% lower since then. The percentage of traders net-long is now its lowest since Aug 08 when GBPUSD traded near 1.28833. The number of traders net-long is 0.9% higher than yesterday and 1.3% lower from last week, while the number of traders net-short is 12.8% higher than yesterday and 1.0% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse higher despite the fact traders remain net-long.
Five Things Traders are Reading
- “DXY Index Extends Gains as EM Pressure Continues to Build” by Christopher Vecchio, CFA, Sr. Currency Strategist
- “GBPUSD Price: All About US Dollar Strength and Brexit Talks" by Nick Cawley, Market Analyst
- “Gold & Silver Price Outlook: Oversold, but in Need of Bullish Price Action”by Paul Robinson, Market Analyst
- “Euro at Risk on Banking Fears Despite Rally in Turkish Lira”by Martin Essex, MSTA, Analyst and Editor
- “EURUSD to Extend Losses on Today’s Federal Reserve Balance Sheet Unwind” by Justin McQueen, Market Analyst
--- Written by Justin McQueen, Market Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.