Highlights:
- DXY downtrend finds new life after waffling for most of the week on indecisive Fed
- Swiss Franc (CHF) trades at 17-month low against EUR
- Oil strengthens above short-term strong resistance on EIA Inventory report draw
- Sentiment Highlight: EUR/CHF bears add to short positions by 75% favoring further gains from a contrarian's viewpoint
Today’s central bank announcement was looked at as the least anticipated Fed event of 2017. In short, there was no rate hike expected due to falling inflation lately, and the lack of a post-FOMC announcement press conference gave traders confidence the Fed would not surprise markets with starting the balance sheet run off process. The Fed delivered on not shocking the markets, and shortly after the announcement at 2:00 PM EST, there was a modest move higher in risk assets and a sell-off in the DXY back below 94 to session lows. Most of the blame for the Fed-induced weakness is their focus on lower inflation that could derail hawkish action from the Fed in the remaining meeting of 2017 and into 2018. However, commodities turning higher (more below) could shift that picture relatively soon.
While many traders have focused on the surprising resilience of the EUR, which traded to the 1.17 level matching the 2015 high, few have given due attention to the Swissie. EUR/CHF has outdone EUR/USD and has approached the post-peg highs in the unorderly events after January 15, 2015. It looks like there may be short-covering happening at the Swiss National Bank, but even the uber-weak USD has seen a 1.5% rally in recent trading and what the Fed is considering, that lead could extend.
Recommended Reading: US Dollar Doldrums Takes DXY to Levels from Brexit Day
The climb in Crude Oil continued on Wednesday, and picked up a bit of steam late in the session as the USD pushed back toward 14-month lows. However, the true catalyst for Oil was US Crude and Products supplies falling last week per the weekly EIA report. The bullish report aligned with another OPEC development showing that Kuwait would join the Saudis and the UAE in limiting exports starting next month. The one-two punch of a positive inventory report and more OPEC actions to Oil to the highest price in eight weeks and above the Ichimoku Cloud and bearish price channel (red) that we’ve been watching on the chart. A weekly close above $49 could be an indication that the rally that began nearly a month ago is no fluke and may indeed have plenty of gas in the tank.
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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 Durable Goods Orders (Jun P)
IG Client Sentiment Highlight: EUR/CHF shorts jump 75% higher from last week, favoring further gains
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.
EURCHF: Retail trader data shows 42.5% of traders are net-long with the ratio of traders short to long at 1.35 to 1. The number of traders net-long is 3.3% higher than yesterday and 22.3% lower from last week, while the number of traders net-short is 24.5% higher than yesterday and 76.4% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURCHF prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURCHF-bullish contrarian trading bias.(Emphasis mine)
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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