EURUSD trades to a 7-day high. Tests 50% retracement/swing area

50% retracement 1.1764.  Swing area between 1.1767 and 1.17748

The EURUSD is trading at a new seven-day high brain going back to September 22).  The pair today based near a swing area at 1.1713-1.1718 and was able to extend above yesterday’s highs between 1.17508 and 1.1755.  The sellers are taking a break in this area. A move back below the 1.1750 level may give some buyers some cause for pause (and give sellers against resistance some comfort). However, the range for the day is only a modest 54 pips vs. a 77 pip average trading range for the last month or so. So there is room to roam, if the buyers can stay in control.
50% retracement 1.1764.  Swing area between 1.1767 and 1.17748_
The high has reached 1.1768 so far. That is above the 50% retracement of the move down from the September 10 high, and between swing areas between 1.17675 and 1.17748. Get above 1.1775, and it should open up the door for a move toward the 61.8% retracement at the nice round number of 1.1800.

Dollar index to hit 90 or 100 first?

DXY at 94.35

I came across a piece on Bloomberg’s Market Live blog making a case for the Dollar Index to hit 90, before 100. Here is the rationale:
1. The recent Dollar strength has been fuelled by US election uncertainties.
2. The rising COVID-19 cases in Europe have been a key part of the EURUSD weakness. Technically the EURUSD is being pushed back down into a large downtrend from 2008.
3. Despite crowded eur longs and USD shorts being a bit cleaner there still remains election risks.
4. The sum conclusion is that once the election tensions fade then the EURUSD will be driven by the fact that the Fed’s stimulus is greater than the ECB’s. Therefore, DXY to move to 90 before 100.
Points 1 and 2  are really two sides of the same coin. EURUSD weakness = DXY strength and vice versa due to their tight negative correlation. US elections are close and tense. The ‘sell everything’ feel has definitely been here with heavy global stock selling.
DXY at 94.35

Dollar Positioning (updated).

Despite the Dollar’s sharp rally this week, Futures traders SOLD another $2.5 Billion – now the biggest Short Dollar position in 9 years. If this USD rally continues, a lot of traders look headed for an expensive lesson in risk management.

 

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CFTC commitments of traders: The EUR longs increase and remains near records. CAD the only shorts.

CFTC commitments of traders data for the week ending September 22, 2020.

  • EUR long 191K vs 179K long last week. Longs increased by 12K
  • GBP long 3K vs 2k long last week. Longs increased by 1K
  • JPY long 30K vs 23K long last week. Longs increased by 7K
  • CHF long 16K vs 12K long last week. Longs increased by 4K
  • AUD long 16K vs 16K long last week. No change
  • NZD long 5K vs 3K long last week. Longs increased by 2K
  • CAD short 19k vs 17K short last week. Shorts increased by 2K

Highlights:

  • The EUR longs increased by 12K to 191K. That is still off the all time high at 212K, but near the high.
  • The JPY long is the next largest position at long 30K.
  • The short in the CAD is the only short of the major currencies..

CFTC commitments of traders data for the week ending September 22, 2020.

Cable extends fall to fresh two-month low as key support levels start to give way

GBP/USD falls to 1.2680, its lowest level since 23 July

GBP/USD D1 23-09

Some modest strength in the dollar is helping to push cable lower, but the pound is still unable to get off the floor for the most part and that is also contributing to the decline in the pair to fresh lows since 23 July now.
Of note, the pair is now breaching key support levels from the confluence of the key daily moving averages @ 1.2724-26 as well as the 61.8 retracement level @ 1.2722.
That is leading to the bias in the pair turning more bearish with the drop under 1.2700 now leaving the pair vulnerable to a potential drop towards 1.2500 next.
The trifecta of bearish factors are also continuing to intensify for the pound.

Time for an intervention

Who was the big buyer in USD/JPY

Who was the big buyer in USD/JPY
The spike higher in USD/JPY is awfully suspicious. Japanese officials my be trying to defend the August low.
USDJPY
The move could also be related to the open of US stock markets and some kind of follow through from that. The buying hit right at 9:30 am ET.
The S&P 500 is down 2%.

GBP lacks any catalyst for a significant bounce – its likely to fall to 1.25

A client note late last week via Société Générale on their outlook for sterling.

In summary:
  • Bank of England gave a strong indication of negative rates coming early 2021, if combined with a no trade deal Brexit could prompt drop for GBP
  • GBP is already weaker than relative growth might suggest, or than relative rates might warrant
  • GBP continues to lack any kind of catalyst for a significant bounce
  • GBP/USD likely to fall 1.25 in Q1 2021
  • EUR/GBP to 0.96 in Q1 2021, to 0.94 in 12 months
SG say they favour shorting GBP/JPY
SG note there is support for GPB :
  • biggest source of support is that it is already so cheap and sentiment is already so bearish
  • as well as the economic and political outlook