EUR & GBP Outperform as Dollar Extends on Losses - US Market Open

2018-09-17 13:37:00

MARKET DEVELOPMENT – DXY DECLINES EXTEND WHILE GBP HITS 6-WEEK HIGH

USD: Despite the escalation in trade war rhetoric from the Trump administration following reports that that the US are looking to impose $200bln worth of tariffs on China as soon as today. The USD is surprisingly underperforming against its major counterparts, while the uptick in US yields with the 10yr at the highest in 4-months has also failed to exert any real buying pressure in the USD-index. However, with regard to escalating trade tensions, the US is to impose tariffs at 10% as opposed to 25%, consequently taking some of the sting out of the latest measures. Elsewhere, the latest CFTC data showed that the crowded USD long trade continued to recede with speculators reducing around $1.5bln.

GBP: The Pound continues to find support from the positive sentiment regarding Brexit, which in turn has taken GBPUSD back above 1.31 to reach a fresh 6-week high at 1.3150. CFTC speculative positioning showed another reduction GBP shorts, however, short position remains very large and as such suggest that there is scope for further upside.

EUR: The softer Dollar has helped lift the Euro this morning, however, sizeable option expiries at 1.17 has contained price action for now. Headline inflation had been confirmed at 2%, while the ECB’s preferred measure of inflation (core), remained at 1%, which is still some way off the ECB’s target. Tightening US-German spreads have also helped buoy the Euro this morning with the 10yr bond spread narrowing 1.3bps.

DailyFX Economic Calendar: Monday, September 17, 2018 – North American Releases

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IG Client Sentiment Index: GBPUSD Chart of the Day

GBPUSD: Data shows 65.9% of traders are net-long with the ratio of traders long to short at 1.94 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.40768; price has moved 7.2% lower since then. The number of traders net-long is 3.2% lower than yesterday and 17.3% lower from last week, while the number of traders net-short is 23.0% lower than yesterday and 13.5% lower 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. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBPUSD trading bias.

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