Highlights:
- Stage is set for USD to claw back recent losses but gains expected to be limited
- CAD remains near 2017 highs with ~92% probability of a hike on Wednesday
- Gold double top could signal market fears are on summer vacation
- Sentiment Highlight: JPY weakness remains in favor as retail Bears' arise
All eyes are on North America this week and rightly so. Markets will first fixate on the Bank of Canada this Wednesday with a priced-in probability north of 90% that they will hike and a ~40% pricing in of an additional hike in October. Volatility will likely come from the statement following the hike as any indication that they are not yet ready tobegin a hiking cycle could scare CAD longs and bring a USD/CAD pullback.
Trading CAD crosses? You may like this: USD/CAD Price Analysis: Significant Trading Risk Ahead of BoC
Traveling south, the US will see their own market moving events this week in the form of two rounds of testimony from Fed Chairwoman, Janet Yellen, Consumer Price Index, and Retail Sales. Traders are likely looking for encouragement after a headline beat in the monthly NFP report showed weak wage inflation pressure and Monday showed the Federal Reserve's Labor Market Conditions Index for June only rose 1.5 points vs. an expected rise of 2.5. Lastly, the Fed will release their Beige Book report on Wednesday, but the market discount any news from the Beige Book given other Tier 1 Releases.
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Outside of Canada and the US, traders are continuing to watch the reaction in Emerging Markets like MXN, a 2017 top performer and other risk assets after a dissapointing June. It’s worth noting that EMFX suffered a similar fate as the Nasdaq 100 over the last month, which may end up being five steps forward, and a few steps back move after peaking in early June and now looking stable. If risk-sentiment stabilizes both equities and EMFX could resume their trend higher.
One sign that the sell-off may be temporary is the double top in the original fear index, the price of Gold. The yellow metal looks to be working on a double top, which if valid would indicate a strong move to ~$1,165/oz (61.8% Fibo extension of double top range) and could test 2017 lows set at the beginning of the year. If Gold is working its way lower, we should anticipate a slow rise in yields, stocks, and EMFX as market fears put another layer of sunblock on to soak up the sun while the Bulls behind the risky asset rally remains in charge.
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Closing Bell’s Top Chart: July 10, 2017, Double top in Gold may signal fear is on summer vacation
Chart Created by Tyler Yell, CMT
Tomorrow's Main Event: CAD Housing Starts (JUN)
IG Client Sentiment Highlight: AUD/JPY upside remains favored as retails shorts increase ~36% WoW
The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.
AUDJPY: Retail trader data shows 40.5% of traders are net-long with the ratio of traders short to long at 1.47 to 1. In fact, traders have remained net-short since Jun 29 when AUDJPY traded near 85.786; price has moved 1.1% higher since then. The number of traders net-long is 16.9% higher than yesterday and 28.7% higher from last week, while the number of traders net-short is 10.4% higher than yesterday and 35.6% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUDJPY prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed AUDJPY trading bias. (Emphasis mine)
If you're trading AUD/JPY, you may enjoy reading this analyst pick.
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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