Highlights:
- USD finds support after Friday’s soft CPI print, EUR breaks below the 1.1800
- JPY crosses move higher as risk tone improves and equities move higher
- Bitcoin rises through the weekend to top $4,300. Bulls now eyeing $5,000/coin
- Sentiment Highlight USD/CHF favored higher as retail positions build short exposure
The US Dollar has bounced and recovered from the fifth straight miss on Consumer Price Index that was recorded on Friday. While the Fed saw the dip in inflation as transitory and blamed the downside pressure on such things as falling pricing of mobile contracts, traders looking through those words are worried that there are bearish pressures mounting for the USD relative to Fed expectations of further hikes coming into future meetings.
Either way, the USD is bouncing today, albeit modestly, and EUR/USD is once again below 1.1800, but not fully done with a potential move to and through 1.20 until we see a more pronounced move higher in USD. This week, the data is sparing in importance, and most focus will likely be placed in the UK where the stealth weakness of Sterling could either extend or turnaround if the quagmire of political and economic woes finds support. Either way, the trade to watch unwind would likely be the risk-off trade that caused JPY to strengthen for much of last week.
For traders who are wanting to ‘up their game,' we’ve updated and added new Forecasts and Guides
Two key JPY crosses to watch are USD/JPY and EUR/JPY. The former is coming into key support of the 2017low, and the latter is bouncing off the 200-week moving average. We could see a big move regarding JPY weakness if the North Korea tensions further lessen and the move to watch would be USD/JPY higher off support of the 2017 low at 108.13 or possibly, though not favored, a further pull-back in EUR/JPY off the 200-WMA.
If further weakness arises, I would be on the watch for EUR/JPY breaking above the 200-WMA in a manner that has historically lead to secular JPY weakness (meaning further low volatility) and EUR strength. The latter seems equally viable to the former as we await Draghi’s Jackson Hole speech that may well signal the normalization process of the ECB to begin by year end as European Economic data is becoming the global darling.
In the commodity space, both key markets, Crude Oil, and Gold fall away from key resistance. Gold was nearing $1,300 and was trading at a level that it has been rejected at twice this year. The third rejection, which would be confirmed on a stronger breakdown through $1,250 would likely bring a bias to below $1,200. A breakdown through $1,250 would signal a triple top, that would be reminiscent of the same pattern near $1,800 seen in early 2012 before an aggressive $600/oz decline in 12 months. That outcome is not favored but remains a scenario worth watching. Additionally, Crude Oil is finding resistance at a key psychological barrier, $50/barrel. Data out of China showed that demand via refinery input might be slowing down, which could (though it’s too early to say definitively) signal that the harbinger of global demand is cooling off.
Finally, let’s talk Bitcoin. While the arena of digital currencies is by no means limited to Bitcoin any more than Foreign Exchange is merely limited to the EUR , Bitcoin has surged today to new historical highs. The heights of the recent ascent in Bitcoin would likely make technology stock traders of the late 90s blush, as we have recently seen a 100% gain from 2,000 to 4,000+ in a few weeks. Additionally, as new coins come onto the scene, they are being gobbled up in hopes of becoming a serious contender as speed bumps for global commerce through digital currencies are smoothed. Monday’s high in Bitcoin was over $4,300 with a 25% rise in three days or +$885.25/coin. More aggressive bulls who have been awarded for their extreme views are now looking for Bitcoin to move toward and above $5,000.
What’s worth noting is that this illiquid market is catching the eye of deep pocketed investors, which means the top may be nowhere in sight and valuation is way more art than science at this stage.
Are you looking for trading ideas? Our Q3 forecasts are fresh and ready to light your path. Click here to access for FREE.
JoinTylerin his Daily Closing Bell webinars at 3 pm ET to discusstradeable market developments.
FX Closing Bell Top Chart: Crude Oil sees follow through from Bearish Key Day last week
Chart Created by Tyler Yell, CMT
Tomorrow's Main Event: GBP Consumer Price Index (YoY) (JUL)
IG Client Sentiment Highlight: USD/CHF favored higher as retail positions build short exposure
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.
USDCHF: Retail trader data shows 64.8% of traders are net-long with the ratio of traders long to short at 1.84 to 1. In fact, traders have remained net-long since Apr 21 when USDCHF traded near 1.00169; theprice has moved 2.9% lower since then. The number of traders net-long is 2.0% higher than yesterday and 17.9% lower from last week, while the number of traders net-short is 14.9% higher than yesterday and 46.3% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCHF prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USDCHF price trend may soon reverse higher despite the fact traders remain net-long. (Emphasis added)
---
Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
To receive Tyler's analysis directly via email, please SIGN UP HERE
Contact and discuss markets with Tyler on Twitter: @ForexYell
