Euro lags while the dollar outperforms as rate cut likelihoods drop
ZEW figures out of the Eurozone set to be released today, but risk-taking remains limited ahead of tomorrow’s FOMC.
EUR/USD: Lagging heavily ahead of today’s ZEW figures
The euro underperformed compared to the remaining FX majors, keeping its bear trend channel intact and taking its price back below the last of its main short-term moving averages. Negative technical bias remains despite the retracement at the end of last week, with the ECB in QE mode and its chief economist saying that the central bank is prepared to cut rates again. Against a greenback that has been strengthening in the FX market, focus will shift towards tomorrow’s FOMC, with ZEW figures released today out of the Eurozone that are expected to show ongoing – but not as severe – contraction. Overall market focus remains on risk appetite given increased geopolitical tensions factoring into the equation. In terms of sentiment, retail bias is back up at heavy long levels jumping 8% as freshly initiated shorts take profit and longs await retracement.
GBP/USD: Lagging alongside the euro as Brexit uncertainties persist
On the political and Brexit front, it’s the toughest pair to crack. However, from a technical standpoint there’s been more positive technical bias forming with its price above most of its main moving averages, a positive DMI, and piercing the upper extremes of the band. Should volatility remain high and contrarian breakout strategies may be more ideal, though a lack of data today would make that a tougher sell, especially with the Fed’s announcement tomorrow set to effect the USD aspect of this pair and UK CPI figures and the BoE effecting the GBP aspect.
USD/JPY: Gapping lower but ending higher as positive technical bias fails to subside
Although it was a bank holiday yesterday for Japan, it didn’t stop the safe haven currency from gapping higher (i.e. USD/JPY gapping lower) on a risk-off play in the financial markets following weekend attacks on oil facilities that kept energy prices at the highs. Towards the end of the session it managed to finish in the green and close the gap and keep its positive technical bias intact whereby most of its indicators are flashing green. However, with fundamental items on the economic calendar with tomorrow’s Fed and the BoJ the day after, volatility-based strategies may be more ideal, especially if accompanied with severe risk-off/on plays. An initial trade agreement between the US and Japan announced recently certainly removes one uncertainty from the equation.
USD/CAD: Volatility remains high as CAD’s energy underlying fails to settle down
It was no surprise that this pair’s price gapped lower Monday morning, especially with oil prices gapping 10% higher and aiding CAD’s energy underlying. A surprise it was however that it failed to hold onto those gains and has been relatively weak against a strong US dollar despite oil prices edging back up. From a technical standpoint – and it means less – all its main technical indicators are neutral but with a trending ADX, offering little on that front in terms of direction. Expectations are for the pair’s price to remain volatile so long as energy prices don’t settle, especially with tomorrow’s FOMC announcement and Canadian CPI release prior. In terms of bias, retail sentiment is majority short at 60% and unchanged, in need of further price declines to take profit.
AUD/USD: RBA minutes take the commodity currency lower as its initializing bull trend stalls
Its technical overview of an initializing bull trend was already on the verge of stalling having failed to make recent fresh highs, with today morning’s RBA minutes more on the dovish side given consideration for further policy easing to support growth and inflation targets, and yesterday’s Chinese data a serious disappointment. Overall, attention has been on energy and mining given weekend attacks, as investors begin to price in risks that thus far is aiding commodity producers not part of the conflict but capable of enjoying higher prices. Retail bias is nearly in the middle with most longs having gotten out on the retracement back up from the 0.66s to the 0.68s, while institutional bias remains heavy short.
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