|

Trend-followers start tearing their hair out

Outlook: Data today will be critical to the dollar. We get the personal-consumption expenditures price index, where the core is forecast up 0.2% m/m in August and 3.9% y/y. Remember that last time, it went up instead of down. We also get actual consumer spending and personal income for August, forecast up 0.4%. Later it’s the University of Michigan consumer sentiment index. 

fxsoriginal

The point of all this data is to inform sentiment. We tend to forget that data itself is not sentiment. Sentiment takes in a broader environmental perspective and context. This time the context is a near certain government shutdown this weekend that could last weeks, considering the dreadful conduct of the clowns we elected to the House. We also have the auto workers’ strike, the resumption of student loan payments, and a few other issues.

Some of the Feds are seizing the opportunity to waffle on the interest rate outlook. Richmond Fed Barkin says "It would be hard to figure out what's actually happening in the economy without the jobs data," meaning the month-end nonfarm payrolls that is normally due on Friday.

As noted above, nobody ever knows how long a corrective move will last but this one began with a loud bang. We trend-followers start tearing our hair out—go with the countertrend move or just find better entries to stay with the trend? Various broken rules, including the ATR, channel and B band lines, even the 5-10-20 day moving average lines—have yet to confirm this correction is going to be a big one. In other words, it can be a false breakout.

But given the deeply overbought condition of the dollar and the tension caused by record high yields, the new move is like a fever breaking. We need to watch the yields to see where they stabilize. There is a possibility that softer US inflation and other factors, including the shutdown, could take the Q4 rate hike off the table.

Forecast: Our advice to pare positions was right (this time). In case you question the indicators that show the dollar overbought, see the table below that an eagle-eyed Reader sent to us. The dollar is not only overpriced against the majors, but everything else, too, on the long-term basis. This is more fun than useful, but still—the dollar rally is of long-standing. We don’t expect a full reversal to some number like 1.2000 against the euro, but near-term, red resistance lies at about 1.0736 and that is well within a realistic possible range.

Chart

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!


This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

Author

Barbara Rockefeller

Barbara Rockefeller

Rockefeller Treasury Services, Inc.

Experience Before founding Rockefeller Treasury, Barbara worked at Citibank and other banks as a risk manager, new product developer (Cititrend), FX trader, advisor and loan officer. Miss Rockefeller is engaged to perform FX-relat

More from Barbara Rockefeller
Share:

Editor's Picks

AUD/USD remains confined in a range above 0.7100

AUD/USD extends its consolidative price move above 0.7100 through the Asian session on Tuesday, shrugging off hawkish comments from RBA Assistant Governor Sarah Hunter as traders keenly await the crucial Trump-Xi summit later this week. Meanwhile, escalating tensions in the Middle East and the Fed's hawkish outlook remain supportive of the bullish US Dollar undertone, capping spot prices.

USD/JPY bulls seem cautious below 157.50 as JPY intervention risks loom

USD/JPY consolidates below mid-157.00s during the Asian session on Tuesday as intervention fears help limit losses for the Japanese Yen. However, the BoJ's dovish rate hike to a 31-year high keeps JPY bulls on the back foot. At the same time, the US Dollar retains its bullish undertone amid the Fed's hawkish outlook and escalating Middle East tensions, acting as a tailwind for the pair.

Gold benefits from falling US bond yields; remains below $4,400 amid bullish USD

Gold regains positive traction during the Asian session on Tuesday, though it lacks bullish conviction and remains below $4,400. Falling oil prices ease inflation fears, dragging US bond yields lower and supporting the non-yielding yellow metal. Meanwhile, the Fed's hawkish stance, along with escalating Middle East tensions, keeps the US Dollar near its highest level since late July and acts as a headwind for the bullion.

Ethereum rallies above $2,700 as investors shrug off bearish sentiment
Ethereum (ETH) climbed above $2,700 on Monday after investors defended the realized price level despite negative sentiment over the Clarity Act's failure and the Federal Reserve rate hike. After the Clarity Act failed to advance in the Senate, ETH dipped below $2,400 last week. But right below that price is the top altcoin's realized price, or average on-chain cost basis, at $2,310.
The week ahead: Fuel prices in focus as we lead up to key eco releases

Financial markets are in a strange position as we move to the final weeks of Q3, uncertainty and volatility continue to grip markets, but the oil price is falling; and European and US stocks are poised to open higher later on Monday. Market stresses are concentrated in sovereign bonds, and European and US yields had another scare late on Friday, and moved higher.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.