FXCM/DailyFX Signals and Analysis

[Jason Rogers]

EUR/CHF

David Rodriguez posted a screenshot of EUR/CHF SSI to his twitter feed showing just how extreme positioning has become as we near the 1.2000 level. The area I circled at the bottom right of the chart shows how much long positioning has increased over the past month as we wait for the Swiss National Bank to defend this level. USD/JPY traders were rewarded last October when the BOJ intervened and traders are now hoping for the same with EUR/CHF.

[Jason Rogers]

Written by Joel Kruger of DailyFX.com

Medium-term technical studies point to more Euro weakness in Coming Months

A closer look at the longer-term chart shows the market locked in a well defined downtrend since posting record highs just over 1.6000 back in 2008. An initial low was recorded in October 2008 by 1.2330, followed by a lower top at 1.5145 in November 2009, a lower low at 1.1875 in June 2010 and the latest anticipated lower top by 1.4940 in April 2011. The failure to move higher in 2011 opens the door for the current downside extension which should ultimately look to retest and eventually break below the 1.1875, June 2010 lows. This would confirm the next lower top at 1.4940 and potentially point towards a deeper drop towards 1.1500.

As such, our outlook for the first half of 2012 is predominantly bearish while the market adheres to the broader underlying downtrend, and we would expect to see a move towards 1.1875 at a minimum before considering the potential for any meaningful recovery. In the interim, any rallies should therefore continue to be very well capped, with overbought short-term rallies viewed as compelling opportunities to look to build on short positions. Ultimately, only a 2-week close back above 1.3500 would bring this outlook into question and give reason for concern.

Source: http://www.dailyfx.com/forex/fundamental/article/special_report/2012/02/01/euro_forecast_for_2012.html

[Jason Rogers]

Written by David Song of DailyFX

Euro: Germany Prepares To Vote On Bailout, ECB To Preserve Dovish Tone

The Euro climbed to an overnight high of 1.3287 as European policy makers prepare to release the EUR 130B rescue package for Greece, and the single currency may appreciate further during the North American trade as the development fuels risk-taking behavior. Indeed, Germany said it may vote on the bailout package as soon as next week according to a spokesman for the Christian Democratic Union, while the deputy CEO of the European Financial Stability Facility said the fund will probably play a role in the Greek PSI as the European Central Bank refuses to take a haircut on its Greek debt holdings.

As talks on the debt-swap deal are expected to resume in Paris tomorrow, positive developments coming out of the meeting is likely to increase the appeal of the single currency, but the European Central Bank interest rate decision could pave the way for a short-term reversal in the EUR/USD as we expect President Mario Draghi to maintain a dovish tone for monetary policy. As the euro-area slips back into recession, the ECB may talk up speculation for additional monetary support, and the Governing Council may see scope to push the benchmark interest rate below 1.00% as subdued growth dampens the outlook for inflation. At the same time, Mr. Draghi may encourage commercial banks to take advantage of the second three-year loan facility on tap for the end of the month, and we may see the central bank carry its easing cycle into the second-half of the year as the fundamental outlook for the region remains bleak. As the EUR/USD struggles to push above the 100-Day SMA at 1.3340, we should see the exchange rate consolidate ahead of the ECB rate decision, but the euro-dollar could face a sharp selloff if the central bank surprises the market with a 25bp rate cut.

British Pound: BoE To Expand QE, 38.2% Fib To Serve As Support

The British Pound pared the rally to 1.5928 as market participants expect the Bank of England to boost the Asset Purchase Facility beyond the GBP 275B target, and the sterling may face additional headwinds on Thursday should the central bank keep the door open to expand its balance sheet further. According to a Bloomberg News survey, 49 of the 50 economists polled see the BoE increasing the AFP by at least GBP 50B in order to shore up the ailing economy, but the central bank may see scope to expand monetary policy further over the coming months as the Monetary Policy Committee continues to see a risk of undershooting the 2% target for inflation. In turn, the GBP/USD may have put in a near-term top following the failed run at the 200-Day SMA (1.5944), and should see the exchange rate fall back towards the 38.2% Fibonacci retracement from the 2009 low to high around 1.5730-50 to test for support.

U.S. Dollar: Index Eyes November Low, RSI Holds Above Oversold Territory

The greenback remained under pressure on Thursday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to a low of 9,672, and the reserve currency may continue to trade heavy during the North American trade as the U.S. equity market opens higher. As the rise in risk-taking behavior gathers pace, we may see the USDOLLAR make a run at the November low (9,665), but the index looks poised for a rebound as the relative strength index continues to hold above 30. As the benchmark equity indices come off of their highs, a shift in risk sentiment could pave the way for a near-term in the USD, and the reserve currency may track higher during the remainder of the week should the ECB and BoE rate decisions spur a flight to safety.

Source: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2012/02/08/Euro_Rally_At_Risk_Sterling_To_Falter_On_More_QE.h tml

[Jason Rogers]

Written by DailyFX Analyst David Rodriguez

EURUSD – Retail forex trading crowds have remained aggressively net-short the Euro against the US Dollar since the pair broke above $1.2700, and the fact that crowds continue to sell gives us consistent signal that the pair may yet head higher. Total short positions rose 12.3% from last week, while longs are down a similar 13.3%.

Our Speculative Sentiment Index ratio stands at -1.93 as there are 1.93 traders short for every long (approximately two-thirds of all traders are short). As long as traders remain so aggressively bearish we will continue to watch for further highs.

There seems to be little in the way of Euro technical resistance until the 61.8% Fibonacci retracement of the 1.4250-1.2620 decline at 1.3620 as well as significant highs near 1.3550. Traders might also watch how the EURUSD reacts around the 100-day SMA at 1.3330.

Source: http://www.dailyfx.com/technical_analysis/sentiment/?technicalSentiment=EUR/USD

[gainforexsignal]

I think this is the permament end of this downtrend. Its time to unwind those shorts.

Euro FX
EUR/USD
Date 09/02/2012
Total Open Interest 283,223
Net Marginal Change -5,434
Change in Total OI (%) -10.369


Euro dropped further 5,434 transactions. The total decrease since the 25th Jan accounts for 32,127 contracts. Euro’s open interest is now over 10% smaller than a month ago. This signals that many shorts are now being stopped out. Traders covering their short positions are putting upwards pressure on the price.
There is a 100% negative correlation between approx.10% drop in open interest in Euro market and the trend reversal. The ratio in euro options market remains over 57% - in favour of higher prices. Historically, euro spot price tends to reverse around rollover in option market and dropping open interest. Both dynamics are in place this time. The spot price is climbing higher despite negative outlook in Europe. Strategy – buy EUR/USD on corrections.

[TurtleForex]

I agree with you GFX. There's also a little hint that AUD/USD longs may be starting to unwind their positions as well.

[Jason Rogers]

I think this is the permament end of this downtrend. Its time to unwind those shorts....

We're starting to see a moderate unwinding of short positions from about 65% of positions in EUR/USD being short to about 56% as of the last reading this afternoon.

[Jason Rogers]

Regarding forex volatility, this from DailyFX....

Volatility expectations trade near their lowest levels since the onset of the financial crisis in 2008. Such extremely low levels favor slow trends and tight currency trading ranges until further notice.

During periods of low volatility, range trading strategies tend to perform better so it's no surprise that the range strategy indication is starting to appear this week for a few more currency pairs. Here's the list from DailyFX:

David Rodriguez's full volatility article for this week can be found here http://www.dailyfx.com/forex/fundamental/article/weekly_strategy_outlook/2012/02/13/forex_us_dollar_forecast_market_volatility.html

[TurtleForex]

Volatility expectations trade near their lowest levels since the onset of the financial crisis in 2008. Such extremely low levels favor slow trends and tight currency trading ranges until further notice.

ATR for EUR/CHF around 30. USD/JPY was around the same a couple weeks ago but has since moved up to the low 40's. I can't recollect ranges being as tight across the board as they are now.

[Jason Rogers]

Written by David Song


Euro: Germany Softens Support For Greek Bailout, ECB Sees Negative GDP In 2012

The Euro slipped to a fresh monthly low of 1.2973 as German policy makers softened their support for Greece’s second bailout package, and the growing rift within the EU may continue to drag on the exchange rate as the heightening risk for contagion weighs on investor confidence. At the same time, the European Central Bank monthly report noted an economic contraction for 2012, with the new figures projecting a 0.1% decline in gross domestic product, and the single currency remains primed to face additional headwinds over the near-term as the fundamental outlook for the euro-area turns increasingly bleak.
As the ECB prepares to push through its second three-year loan facility at the end of the month, it seems as though the Governing Council will preserve a wait-and-see approach throughout the first-quarter, but central bank Mario Draghi may show an increased willingness to push the benchmark interest rate below 1.00% as the slowing recovery in the euro-area dampens the outlook for inflation. According to Credit Suisse overnight index swaps, market participants see a 60% chance for a 25bp rate cut at the next meeting on March 8, and speculation for lower borrowing costs supports our bearish outlook for the EUR/USD as interest rate expectations falter. As the EUR/USD carves out a top in February, the single currency should continue to give back the advance from earlier this year, and we may see the pair make a run at the 23.6% Fibonacci retracement from the 2009 high from the 2010 low around 1.2630-50 as it searches for support.

British Pound: U.K. Assets Get Treated As Safe-Haven, Outlook Hinges On BoE

In contrast with its European counterpart, the British Pound pared the overnight decline to 1.5654, and the sterling may continue to outperform as market participants appear to be treating the U.K. currency as a safe haven. Although Moody’s lower Britain’s credit rating outlook to negative, the ongoing turmoil in the euro-area appears to be spurring demands for the sterling, and the pound may move to the beat of its own drum as the U.K. remains ahead of the curve in addressing its budget deficit. However, as the Bank of England maintains a cautious tone for the region, speculation for more quantitative easing hampers the outlook for the sterling, and we may see the GBP/USD track within a broad range as market participants weigh the prospects for future policy. As the GBP/USD continues to hold above the weekly low (1.5644), we may see the pair consolidate going into the end of the week, and the pound-dollar may track sideways in the days ahead as the exchange rate remains capped by the 200-Day SMA at 1.5923.

U.S. Dollar: Economic Activity Gradually Gathers Pace, Risk Appetite Resurfaces

The greenback continued to appreciate against its major counterparts, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) advancing to an overnight high of 9,879, but the reserve currency is struggle to hold its ground during the North American trade as risk appetite flows back into the currency market. Indeed, the more robust recovery in the labor market paired with the gradual rise in private sector activity appears to be fueling risk-taking behavior, and we may see the dollar consolidate going into the end of the week as the slew of positive developments coming of the world’s largest economy instills an improved outlook for future growth. Although the shift in market sentiment dampened demands for the reserve currency, we should see the Federal Reserve continue to soften its dovish tone for monetary policy as the risk of a double-dip recession subsides.

Source: Euro Outlook Deteriorates Amid EU Rift, Pound Takes Safe-Haven Role | DailyFX