USD Yields Drop, GBP’s Slide, and EUR Sentiment Shift.

USD: U.S. Treasury yields plummeted last week after Fed Chair Powell failed to redirect investors toward pricing further monetary tightening and U.S. employment data revealed a sharp slowdown in hiring activity. The large retreat in yields sent the broader U.S. dollar reeling, paving the way for a furious rally in major currency pairs. Bond market dynamics also benefited risk assets, boosting both the S&P 500 and Nasdaq 100, which had their best week since November 2022. With sentiment clearly recovering and signs that a recession is not yet imminent, stocks may have room to run higher in the near term, with seasonality possibly providing an additional source of strength.

GBP: The British Pound is back at multi-week lows against the Euro and at multi-month lows against the US Dollar as confidence in Sterling continues to dissipate. The forecasted depreciation of the British Pound in the next 3-6 months is closely tied to the Bank of England’s interest rates. Pound Sterling rallied against the Euro ahead of the weekend, helped by a near-euphoric market reaction to some softer-than-expected U.S. data that lowered the odds of further rate hikes at the Federal Reserve. This drove down U.S. yields and the cost of borrowing, not just in the U.S. but globally, which helps ‘risk on’ assets such as the Pound.

EUR: Retail trader data shows 49.70% of traders are net-long with the ratio of traders short to long at 1.01 to 1. In fact, traders have remained net-short since Aug 30 when EUR/USD traded near 1.09, price has moved 1.73% lower since then. The number of traders net-long is 11.28% lower than yesterday and 27.05% lower from last week, while the number of traders net-short is 10.41% higher than yesterday and 40.48% 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. Our data shows traders are now net-short EUR/USD for the first time since Aug 30, 2023 when EUR/USD traded near 1.09. 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.