ThinkForex - Analytics


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    Back to the futures: Greenback on cusp of net-short exposure

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    A similar pattern emerged to the previous week; Risk-off dominated with stocks and bond yields falling sharply, whilst money piled into JPY and Gold. However, Friday saw a reversal of some of these trends and early Asia trading has extended Friday's turnaround, as reports over the weekend emerge that the 'remain' group are clawing back votes. 

    USD Futures: Net long exposure, at a mere 4.7k is the lowest level of bullish bets for large speculators since June 2014. As this data was compiled one day before the dovish FOMC meeting then there is a strong chance this is now net short. Interestingly open interest, a proxy for volume is also at similar levels since June and only the second occasion since then it has been on such low volume. The volume read has been driven down by a reduction of both longs and shorts to denote a lack of confidence of future direction from both bulls and bears. 

    USD: Eyes on the 93.50 low

    Last week closed with a shooting star reversal, with the high respecting the 20-week MA and remaining well below the bearish engulfing candle three weeks ago, raising the odds of a lower high to have formed. 

    A break below 93.50 could target a 92.95 but we may still be part of an ABC correction from the 96 high. If, however we move to the downside with force then this significantly raises the odds of a run towards the 91.90 swing low and perhaps even a break to new lows. 

    As of last week our bias was for prices to remain contained within the prior three weeks trading range, so a strong downside move will change this outlook. If prices do remain contained within range, then the original bias for a wave to (and break above 96) remains on the table. 

    GBP: Brexit fears help the bearish wedge pattern underway

    The gap higher in Asia is nothing short of impressive and further highlights how the EU referendum polls are essentially dictating global sentiment on a day-by-day basis. 

    Friday’s high respected the 20-week MA but the gap higher is now well clear of his level and may act as support this week (assuming UK remain within EU). An additional bullish signal can be taken from the bullish hammer on exceptionally high volume. We can also invalidate the bearish wedge formation highlighted a few weeks ago. So whilst the near-term appears bullish, the longer-term patterns are less clear, thus making a directional bias this week very tricky. 

    JPY: Breaks to new highs to confirm bulish resumption

    The drivers for the break to new highs last week were two-fold; Fear of Brexit in the run-up to this weeks’ EU referendum; Bank of Japan help rates and hinted at no further monetary easing measures. 

    We continue to take note of rising prices along with lower volume but, as previously stated higher highs and lows take precedent over falling volume despite the fact we would prefer to see them rise in tandem. That said, we did see an increase in volume last week to help justify the near-term gains and break above the prior swing high so as long as there is no further easing and fear of (or realisation of) Brexit, then further gains on JPY could be assumed. Of course we may find that if the UK remains within the EU then the short rally on JPY will reverse very quickly indeed. With any hawkish murmurs form FED members helping to push USDJPU higher at a faster pace. 


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