CURRENCY HIGHLIGHTS – Januar 2019
The recent breakout in EUR/USD unravels as Italian Deputy Prime MinisterMatteo Salvini criticizes the European Central Bank (ECB), stating that ‘transparency is needed to squash the doubt that the ECB is making political use of the powers attributed to it,’ and the exchange rate may continue to consolidate over the remainder of the week as it snaps the series of higher highs & lows from the previous week.
Fresh data prints coming out of the Germany casts a weakened outlook for the monetary union as growth in Europe’s largest economy slows to 1.5% from 2.2% per annum in 2017 to mark the lowest reading since 2013, and President Mario Draghi & Co. may continue to tame bets for an imminent shift in monetary policy as the central bank struggles to achieve its one and only mandate for price stability.
It remains to be seen if the ECB will alter the forward-guidance over the coming months as euro-area interest rates are expected to ‘remain at their present levels at least through the summer of 2019,’ and the Governing Council may stick to the same script at the next meeting on January 24 as ‘the balance of risks is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.’
Retail trader data shows 56.4% of traders are net-long with the ratio of traders long to short at 1.3 to 1. In fact, traders have remained net-long since Dec 18 when USDJPY traded near 113.376; price has moved 4.5% lower since then. The number of traders net-long is 1.7% higher than yesterday and 2.4% higher from last week, while the number of traders net-short is 8.5% higher than yesterday and 19.5% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY 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 USDJPY price trend may soon reverse higher despite the fact traders remain net-long.
UK PM May will face a no confidence vote later in the session – one that she is fully expected to win - and will face calls from within her party to change her Brexit bill after last night’s humiliating defeat. And with a growing groundswell of MPs saying that they will reject any No Deal Brexit scenarios, Sterling should benefit from this improved sentiment. And with sentiment playing an increasingly important role in trading, especially in the Sterling space, any edge can help. The IG Client Sentiment Data shows how retail traders are positioned and why it matters. Currently retail are 51.4% net-long of GBPUSD, a mildly bearish contrarian set-up. However, daily and weekly changes in the data set suggest that GBPUSD may in fact trend higher.
GBPUSD currently trades around 1.2875 and continues to nudge higher, with the 23.6% Fibonacci retracement level at 1.2894 the first, close, target. Above here the important short-term target is the 200-day moving average at 1.2990, which if broken will see GBPUSD break 1.3000 in quick order, printing a two-month high. Above here, 1.3177 – 38.2% Fibonacci – and 1.3300 come into play and if broken and closed above will add an extra positive momentum to Sterling, breaking a recent pattern of lower highs.
Gold prices are struggling to make good on a bearish Dark Cloud Cover candlestick pattern, but the setup is yet to be conclusively invalidated. A move below initial support at 1282.27 targets the 1257.60-66.44 area (former resistance, rising trend line). Alternatively, a push above resistance in the 1302.97-07.32 region exposes a minor hurdle at 1323.60, followed by a trend-defining top in the 1357.50-66.06 zone.
BITCOIN and ALTCOINS
Bitcoin: Retail trader data shows 75.9% of traders are net-long with the ratio of traders long to short at 3.14 to 1. The number of traders net-long is 2.6% higher than yesterday and 2.3% higher from last week, while the number of traders net-short is 5.8% higher than yesterday and 5.1% higher from last week.
Overall marekts conditions are relatively unchanged week-on-week with low turnover and slim trading ranges. We have talked before about the potential for a sharp break-out and still see this as a strong possibility going into the 2019.