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USD Drop Spurred by Institutional Positioning, OPEC Lifts Crude Oil

USD Drop Spurred by Institutional Positioning, OPEC Lifts Crude Oil

Tyler Yell, CMT, Currency Strategist

Highlights:

On Monday, the dollar drop lacked the acceleration we’ve become accustomed to, but there is something on the way in the US that is expected to boost the volatility. Wednesday will have a press conference-less Federal Reserve rate announcement meeting on Wednesday and the first look at Q2 GDP later in the week. Because the Fed will not have a press conference, the market response will be dependent on the statement, which is expected to state the Balance Sheet run off is expected to start soon.

Either way, when looking at the USD we see little reason to buy when compared to the EUR and other commodity currencies. Currently, the best thing the USD may have going for it is that it has likely been oversold or traders are paying too much in protecting the dollar downside. Any unwind of that trade could help to lift the USD, but nothing expected to make the USD an attractive buy against other better-positioned currencies.

Recommended Reading: US Dollar Doldrums Takes DXY to Levels from Brexit Day

When looking north of the border, the Canadian Dollar traded to the highest level against the USD since June 2016 on Monday and within one day’s range of the strongest level since early May 2016 when USD/CAD traded at 1.2460. Much of the focus on Canadian Dollar strength has been on the market beginning to price in hikes from the Bank of Canada, while at the same time, paring bets that the Fed will be as hawkish as previously thought. The market is currently pricing in a ~70% probability of a hike from the Bank of Canada for the October meeting whereas the Fed has a less than 50% probability of hiking again before the end of the year and the market is only pricing in one full hike in 2018 when looking at Eurodollar futures.

Are you looking for trading ideas? Our Q3 forecasts are fresh and ready to light your path. Click here to access for FREE.

The downtrend in Crude Oil took a break on Monday on news that Saudi was expected to continue and limit exports to help reduce the supply glut while allowing Nigeria and Libya to increase production. This shows how keen Saudi is on making this work, and much of it likely has to do with the upcoming Saudi Aramco partial-IPO. The statement was made in St. Petersburg at an OPEC meeting designed to talk about the progress of the production curb. Another positive development for the balancing of the Oil market came from the US Baker Hughes number on Friday afternoon, which helped to show that new Oil rigs in West Texas have nearly flatlined in recent months, which helps to show that E&P in the shale regions may be tapping the brakes in light of Oil’s persistence weakness, which could, in turn, lift the Crude market.

Recommended Reading: WTI Crude Weekly Gain Slips As Supply Concern And OPEC Doubts Rise

JoinTylerin hisDaily Closing Bell webinars at 3 pm ETto discusstradeable market developments.

FX Closing Bell Top Chart: CAD trades to 14-month highs against USD on expectantly hawkish BoC

USD Drop Spurred by Institutional Positioning, OPEC Lifts Crude Oil

Chart Created by Tyler Yell, CMT

Tomorrow's Main Event: USD Consumer Confidence (Jul)

IG Client Sentiment Highlight:AUD/JPY increase in daily long positions could precede a turn lower

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.

USD Drop Spurred by Institutional Positioning, OPEC Lifts Crude Oil

AUDJPY: Retail trader data shows 37.9% of traders are net-long with the ratio of traders short to long at 1.64 to 1. In fact, traders have remained net-short since Jun 29 when AUDJPY traded near 84.805; the price has moved 3.8% higher since then. The number of traders net-long is 44.8% higher than yesterday and 27.7% higher from last week, while the number of traders net-short is 14.2% higher than yesterday and 4.6% lower 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.Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current AUDJPY price trend may soon reverse lower despite the fact traders remain net-short. (Emphasis mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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