. Daily FX Analysis-Euro Surges, Sterling Weakens; Japan Cautious on Yen Volatility

Daily FX Analysis-Euro Surges, Sterling Weakens; Japan Cautious on Yen Volatility

Daily FX Analysis-Euro Surges, Sterling Weakens; Japan Cautious on Yen Volatility

06 Oct 2023

Introduction:

In recent financial news, the Euro (EUR) experienced a notable two-day surge, its strongest since mid-September. However, growing caution among retail traders, with 65% holding net-long positions on EUR/USD, hints at a potential bearish outlook. Concurrently, the U.S. is set to tighten chipmaking equipment export rules to China, straining bilateral relations. Meanwhile, the British Pound (GBP) dipped slightly amid a fifth week of losses due to a robust U.S. Dollar, while U.K. house prices showed slight improvement. Japan also redefined “excessive” yen volatility thresholds as a precaution, and the U.S. Dollar Index (DXY) hit an 11-month high, with 12 consecutive weeks of gains expected, while AUD and NZD faced declines due to central bank decisions.

Markets In Focus Today –

EUR/USD:

Euro Rises for Second Consecutive Session Amidst Growing Retail Trader Concerns

In a remarkable two-day performance, the Euro has surged in value for the second consecutive trading session, demonstrating its most impressive gains since mid-September. However, beneath the surface, there are signs that retail traders are becoming increasingly cautious about the currency’s prospects. A closer look at the IG Client Sentiment (IGCS), which often acts as a contrarian indicator, reveals an intriguing shift in market sentiment. The big question now is whether this upward momentum in the exchange rate can be sustained.

The IGCS data indicates that approximately 65% of retail traders are currently positioned as net-long on EUR/USD. Given the bullish bias that most of these traders hold, this suggests a potential bearish outlook for the currency in the near future. Interestingly, there has been a noticeable uptick in bearish bets, with a 7.05% increase compared to the previous day and a significant 14.98% rise from last week. These recent shifts in trader positioning raise the possibility of a reversal in the Euro’s fortunes.

Technical Overview With Chart:

Moving Averages:

Exponential:

  • MA 5: 1.0531 | Positive Crossover | Bullish
  • MA 20: 1.0604 | Negative Crossover | Bearish
  • MA 50: 1.0715 | Negative Crossover | Bearish

Simple:

  • MA 5: 1.0508 | Positive Crossover | Bullish
  • MA 20: 1.0609 | Negative Crossover | Bearish
  • MA 50: 1.0768 | Negative Crossover | Bearish

RSI (Relative Strength Index): 39.53 | Sell Zone | Bearish

Stochastic Oscillator: 100 | Overbought Zone | Bullish

Resistance And Support Levels :

  • R1:1.0553 | R2: 1.0566
  • S1: 1.0513 | S2: 1.0500

Overall Sentiment: Bearish | Market Direction: Sell

Trade Suggestion: Strong Sell: 1.0548 | Take Profit: 1.0489 | Stop Loss: 1.0620

GBP/USD

Sterling Faces Challenges as U.K. House Prices Decline

The British Pound witnessed a minor decline of 0.03%, settling at $1.2188. This dip extends its losing streak into a fifth consecutive week, primarily due to the strengthening U.S. Dollar. Meanwhile, U.K. house prices showed some signs of improvement, falling by 0.4% in September, an improvement from the 1.8% decline observed the previous month, according to data from Halifax.

The ongoing scenario paints a picture in which the Federal Reserve adopts a notably hawkish stance compared to the European Central Bank, Bank of England, Reserve Bank of Australia, and the Bank of Japan, according to Thierry Wizman, Macquarie’s global FX and interest rates strategist.

Technical Overview With Chart:

Moving Averages:

Exponential:

  • MA 5: 1.2168 | Positive Crossover | Bullish
  • MA 20: 1.2273 | Negative Crossover | Bearish
  • MA 50: 1.2435 | Negative Crossover | Bearish

Simple:

  • MA 5: 1.2137 | Positive Crossover | Bullish
  • MA 20: 1.2275 | Negative Crossover | Bearish
  • MA 50: 1.2515 | Negative Crossover | Bearish

RSI (Relative Strength Index): 38.99 | Sell Zone | Bearish

Stochastic Oscillator: 100 | Overbought Zone | Neutral

Resistance And Support Levels :

  • R1:1.2199 | R2: 1.2221
  • S1: 1.2131 | S2: 1.2109

Overall Sentiment: Bearish | Market Direction: Strong Sell

Trade Suggestion: Sell: 1.2205 | Take Profit: 1.2133 | Stop Loss: 1.2261

USD/JPY

Japan’s New Yen Volatility Interpretation

Japan has recently redefined the threshold for what it deems “excessive” yen volatility. This move is not necessarily aimed at intervention but rather serves as a warning to investors, keeping them vigilant in a market where monetary conditions are expected to tighten domestically.

The USD/JPY exchange rate has remained below the 150 mark since Wednesday and is currently trading at 148.60 as of Friday. Japan’s previous intervention in currency markets occurred in September and October of the previous year when the yen eventually reached a 32-year low of 151.94 against the U.S. Dollar.

Technical Overview With Chart:

Moving Averages:

Exponential:

  • MA 5: 86.98 | Negative Crossover | Bearish
  • MA 20: 86.98 | Negative Crossover | Bearish
  • MA 50: 83.06 | positive Crossover | Bullish

Simple:

  • MA 5: 86.98 | Negative Crossover | Bearish
  • MA 20: 86.98 | Negative Crossover | Bearish
  • MA 50: 83.06 | positive Crossover | Bullish

RSI (Relative Strength Index): 73.72 | Overbought Zone | Bullish

Stochastic Oscillator: 50 | Buy Zone | Neutral

Resistance And Support Levels :

  • R1:148.96 | R2: 149.17
  • S1: 148.30| S2: 148.09

Overall Sentiment: Bullish | Market Direction: Buy

Trade Suggestion: Buy: 148.93 | Take Profit: 149.88 | Stop Loss: 147.13Elsewhere In The Forex Market

In the broader market context, the U.S. Dollar Index (DXY), which reached an approximately 11-month high of 107.34 earlier in the week, has recently settled at 106.43. However, it remains on course for 12 consecutive weeks of gains, a feat not seen since 2014.

Additionally, AUD/USD has experienced a marginal 0.02% drop to $0.6369, while NZD/USD has slipped by 0.04% to $0.59605. Both of these Antipodean currencies faced declines earlier in the week, driven by their respective central bank decisions. USDCAD is down by 0.02%, while USDCHF is demonstrating strength with a 0.01% rise, positioning it firmly in the buy zone.

Key Economic Events & Data Release Today:

(USD) Average Hourly Earnings (MoM) (Sep)  Forecast- 0.3%, Previous- 0.2% at 08:30.

(USD) Nonfarm Payroll (Sep) Forecast – 170K, Previous – 187K at 08:30.

(USD) Unemployment Rate (Sep) Forecast – 3.7%, Previous – 3.8% at 08:30.