Highlights:
- EUR/USD finds 2015 highs on further dollar weakness ahead of Fed
- USD/JPY lifts higher on UST sell-off, which keeps US10Y Yield above support
- Oil strengthens into strong resistance off higher low, breakout watch ensues
- Sentiment Highlight: EUR/GBP Bulls loading up could limit thrust through 0.9000
EUR strength continues to shock and awe currency traders as Tuesday’s price action took the most heavily traded FX pair to levels not seen since August 24, 2015. Despite the low volatility in other markets, FX trends have been strong at the start of Q3 2017 thanks in large part to the persistently weak USD, and equally persistent strength in commodity FX and EUR. The Dollar downtrend took a bit of a breather this morning after both Consumer Confidence and the Richmond Fed manufacturing index beat estimates. That shift in both hard and soft data to a positive surprise could be tender to lift the USD should the Fed have a hawkish surprise up their sleeves when they announce their rate decision on Wednesday.
The two weakest currencies in G10FX, the USD and JPY have traded victories of late, but a recent trend of higher yields and a lower VIX (nearing an all-time record) is aligning with a higher USD/JPY today. On Tuesday, USD/JPY traded back above the Ichimoku Cloud top, but the thin cloud shows that the support is not very strong and the bounce may not be indicative of a turn. Either way, it’s worth noting that ahead of the FOMC meeting, which will be followed by GDP later in the week the next key direction of USD/JPY could indicate what’s next for risk. The typical view holds that a lift in USD/JPY is risk positive while a drop in USD/JPY tends to be risk negative.
Recommended Reading: US Dollar Doldrums Takes DXY to Levels from Brexit Day
An OPEC meeting in St. Petersburg that was not expected to bring many developments has, in turn, provided strong support for the energy market. In addition to Saudi noting that they were going to limit shipments to 6.6m barrels per day in August, the UAE noted that they would also reduce loadings of three different crude types by 10% in an effort to buttress the commitment by OPEC to repair the supply glut. Traders watching the chart in Crude Oil (see below) should keep an eye on a daily close above 48.20, which would take out the 61.8% retracement of the prior move lower in a potential key bullish development for 2017. We haven’t broken out yet, but if base metals are any indication (I’m looking at you Dr. Copper), we may have seen a base in Crude off the $42/bbl support level in May.
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Recommended Reading: WTI Crude Weekly Gain Slips As Supply Concern And OPEC Doubts Rise
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FX Closing Bell Top Chart: Crude Oil pushes off a higher low to test Trendline resistance
Chart Created by Tyler Yell, CMT
Tomorrow's Main Event: USD Federal Open Market Committee Rate Decision (Jul 26)
IG Client Sentiment Highlight: EUR/GBP longs 45.9% higher from last week
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.
EURGBP: Retail trader data shows 37.8% 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 May 16 when EURGBP traded near 0.84694; price has moved 5.6% higher since then. The number of traders net-long is 2.6% higher than yesterday and 45.9% higher from last week, while the number of traders net-short is 4.6% lower than yesterday and 4.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURGBP 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 EURGBP 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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