KTM FX Weeky: Fully established death cross pattern

The common currency was somewhat mixed last month against the most trading counterparts. Post-July Fed meeting, the dollar cooled a bit but not out.

The retracement in the US long-dated bond yields suggested investors continue to worry about the delta variant. But we believe traders are waiting for clarity from the Fed about tampering timing. The latest month-end positioning data suggest USD continues to bid ahead of the upcoming FOMC meeting.

FX positioning: IMM and CFTC data show bullish sentiment continues to support the dollar.

RBC Capital Markets cited that “USD longs rise again; EUR longs extend decline.” In the FX positioning note, RBC FX strategists said for the week ending July 27, USD longs continued to increase from 54K to 78K; The below table suggests the net USD longs favoring a double bottom pattern in the dollar.

During the same time frame, EUR longs extended their decline to 38K (the lowest level since March 2020).

Chart source: RBC Capital Markets.

ING FX positioning data confirms the same. “Dollar longs rose into the Fed meeting” ING cited on Monday.

• Francesco Pesole, FX Strategist at ING said, “CFTC data on G10 FX positioning shows that the aggregate dollar positioning continued to rise into net-long territory in the week ending 27 July”. Besides, EUR/USD positioning was at 6% of open interest.

As we kick of another month in the FX market, we don’t expect to witness major moves in the EURUSD. The price continues to tussle between 1.17-1.22 levels.

Data wise manufacturing sector gained momentum in July for EZ and German, according to the official release. Elsewhere UK manufacturing sector pointed to another robust expansion in July at 60.4. Overall manufacturing PMI sector firing with all the cylinders but yields are sitting at the lower side. Are we missing something? Or the action due to unfold in the coming days?

• German manufacturing PMI rose for the second month running to 65.9 in July, from 65.1 in June. The rate of expansion was the third-fastest on record, surpassed only by those registered in March and April.
• Besides, final Eurozone Manufacturing PMI printed at 62.8 in July (Flash: 62.6, Jun Final: 63.4).

Looking ahead US ISM data and employment report will be the key driver to our subject currency. On top of these, US debt ceiling discussions in Congress could change the course of the US yields.

Re employment data, ING economists see employment gains at around 900k according to our estimates, which is largely in line with consensus and should underpin the notion that the labour market is on a solid recovery path.

Technically, the death cross pattern fully establishes on the EURSUD daily chart for the 1st time since June 2018. It seems, the retracement towards 1.16 and 1.15 are due by the end of Q3.

Due to oversold daily indicators, we could see a decent rally towards the resistance spread between 1.1985-1.2010 levels.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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