US Dollar Price Action: USD Selloff, AUD/USD Shorts Covered, EUR/USD Upside Stalls

1

US Dollar, EUR/USD, AUD/USD Analysis and News

  • USD Selloff Extends
  • EUR/USD Next Leg Depends on NFP
  • AUD/USD Negatives Largely in the Price, Shorts Covered

The US Dollar extended its pullback during yesterday’s session following weaker than expected ADP data and a contraction in the ISM Manufacturing employment sub-component, highlighting that the spread of the Delta variant has weighed on labour market activity. That being said, the ADP report has been very poor as of late in providing much insight into the outcome for NFP and thus while the predictive value is weak, the data does set the bar low for NFP to surprise on the upside given market participants will be positioned for a soft report.

Taking a look at EUR/USD overnight vols, they are higher than they were for the July NFP, which is understandable given that the importance of the NFP report has for the implications of the taper timeline. While the more hawkish members of the FOMC would prefer taper to be announced in September should we have another strong NFP report much like in June and July, the consensus appears to be leaning more towards Nov/Dec.

EUR/USD Overnight Volatility Rising Ahead of Tomorrow’s NFP Report

US Dollar Price Action: USD Selloff, AUD/USD Shorts Covered, EUR/USD Upside Stalls

Source: Refinitiv

EUR/USD: The pair has staged an impressive rise since failing to sustain a break below 1.1700. However, as EUR/USD stalls at short term resistance at 1.1850, another leg higher will be dependent on tomorrow’s NFP reading, in which a large miss on the headline would likely see the pair rise to 1.1900-20. Alongside this, the focus on the ECB has stepped up in recent surprise as ECB hawks do a lot of the talking ahead of next week’s meeting, while the latest inflation reading hit a decade high, raising the likelihood that CPI forecasts will be upgraded. Although, with the ECB only recently updating their forward guidance, Euro bulls may be setting themselves up for a dovish trap, which in turn would likely renew downside in the pair. On the downside, support sits at 1.1800 and 1.1750.

EUR/USD Chart: Daily Time Frame

US Dollar Price Action: USD Selloff, AUD/USD Shorts Covered, EUR/USD Upside Stalls

Source: Refinitiv

EUR/USD IGCS: Stronger Bullish Contrarian Bias

Data shows 45.19% of traders are net-long with the ratio of traders short to long at 1.21 to 1. The number of traders net-long is 6.09% lower than yesterday and 15.27% lower from last week, while the number of traders net-short is 6.89% higher than yesterday and 14.40% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias.

AUD/USD: A change in fortunes for the Australian Dollar, which is the top-performing currency over the past week. This is despite the increasing signs of Chinese economic activity slowing as well as Australian Covid cases hitting record daily increases, which the currency has seemingly shrugged off. Perhaps this may be more of a reflection of negative news is largely reflected in the price as well as positioning, given that the latest CFTC data shows speculators hold the largest bearish bet on the currency in 2yrs. That said, the RBA meets next week where they are largely expected to delay their taper announcement and thus the recent rise in the currency may see little in the way of a catalyst to fuel a bigger correction.

AUD/USD Positioning

US Dollar Price Action: USD Selloff, AUD/USD Shorts Covered, EUR/USD Upside Stalls

Source: Refinitiv

Taking a look at the chart, with AUD/USD breaching the 50DMA, eyes will be on a close above the indicator, which then puts 0.7400-25 in focus.

AUD/USD Chart: Daily Time Frame

US Dollar Price Action: USD Selloff, AUD/USD Shorts Covered, EUR/USD Upside Stalls

Source: Refinitiv

AUD/USD IGCS: Stronger Bullish Contrarian Bias

Data shows 48.83% of traders are net-long with the ratio of traders short to long at 1.05 to 1. The number of traders net-long is 7.17% lower than yesterday and 16.95% lower from last week, while the number of traders net-short is 4.87% higher than yesterday and 12.23% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/USD prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bullish contrarian trading bias.

Comments are closed.