– US Treasury yields have damaged out to multi-month highs: a 2-year is during a tip turn of a year; and a 10-year is during a tip turn in two-months.
– EUR/USD mangle behind above 1.1820/25 threatens to nullify a near-term conduct shoulders commanding pattern.
– Retail merchant sentiment has clearly incited a dilemma opposite many USD-pairs.
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The second down day in a quarrel for a US Dollar comes as a DXY Index has run into a defining turn for 2017, a forward trendline from a Apr and May pitch highs. Despite this, a US Dollar is on lane for a best week of a year, that given how late in a year it is, speaks to a bad opening by a greenback by a initial 3 quarters.
The pullback in DXY Index appears to be mostly driven by EUR/USD, that has responded definitely to former insurgency incited support around 1.1715. Since a mangle above 1.1715 during a finish of July, EUR/USD has been treating this turn as support. A mangle next here would advise increasing effect for the EUR/USD conduct shoulders aim of 1.1554. On a contrary, a serve pull aloft by 1.1820/25, a neckline of a conduct shoulders pattern, might nullify a near-term bearish outlook.
The best place right now to demeanour for US Dollar strength are opposite a low yielding, protected breakwater currencies: a Japanese Yen and a Swiss franc. Both USD/CHF and USD/JPY have showed heightened sensitivty to US Treasury produce moves via September, with both pairs bottoming within a day of a US Treasury 10-year produce attack a low this month.
USD/CHF’s convene has paused in a 0.9730/70 area, where a operation tip from May and a disappearing trendline from a Dec 2016, Mar 2017, and Apr 2017 highs converge. Yet like USD/JPY, USD/CHF is anticipating support on a daily 8-, 13- 21-EMA envelope; bullish movement stays strong. Now that a US Treasury 2-year produce is during a tip turn of a year, and a US Treasury 10-year produce is during a tip turn in two-months, both USD/CHF’s and USD/JPY’s pullbacks should be well-contained.
See a above video for a technical examination of a DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, Gold, and US yields.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
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