- Dollar Recovers Lost Ground as Risk Appetite Cools, Euro Questions Return
- Euro Slides against the Dollar, Franc as Traders Digest ECB Purchases, Merkel’s Threat of Withdrawal
- Australian Dollar Holds Steady after the RBA Holds Rates, Voices Concern over the Currency and Europe
- Canadian Dollar Traders Look for Some Sort of Clarity from the BoC Tuesday Morning
- British Pound Steady after Poor Retail Sales Showing, Now on to Industrial Production and the BoE
Dollar Recovers Lost Ground as Risk Appetite Cools, Euro Questions Return
After three days of steady selling through the second half of last week, the US dollar finally found its bearings Monday. However, there is a big difference between qualifying a meaningful reversal and a necessary correction. Just like the abrupt reversal of dollar buying starting this past Wednesday was an overdue pullback, the flash selling that took place through Friday can easily find a level of moderation without a necessary catalyst to keep the trend going. Starting out this new trading week, we see the two most important catalysts for sustaining selling pressure for the greenback (a recovery in European financials and a swell in risk appetite) were absent. Most notable was the curbs that have been put in on investor sentiment. We can gauge the taste for risk in the cumulative demand of the Aussie dollar, Japanese yen, Swiss franc and other currencies; but the easier barometer is the S&P 500 – our benchmark equities index. While the bearing on this barometer is still bullish; the market has nonetheless stalled in its progress just at the mark of the November 9th swing high. This ceiling may prove temporary given the progress of higher highs; but this bullish temptation itself will likely be the responsibility of fundamental developments.
When looking for risk appetite catalysts, there are two brands of potential drivers: scheduled event risk and exogenous developments. While we would prefer the scheduled brand is preferable amongst traders (knowing the specific time that a trend or volatility can take off – even if you don’t know direction – is valuable); it is typically those news events that simply pop up on the headlines that really get the market moving. That said, it may be the case that European financials can play two roles for the dollar at once. The connections between the euro’s performance and dollar’s appeal are well-founded. However, a critical disconnect in the region’s health and stability was that it didn’t fully undermine market-wide sentiment when it had swelled through November – this seen through the S&P 500’s refusal to break below 1,175. That said, the persistence of fear related to this particular development could eventually heat up as traders’ imaginations run towards another subprime-like crisis could infect capital flows globally. On this point, we note that Monday brought a few concerning headlines and tomorrow we have Ireland’s 2011 budget vote (which we will talk about in the Euro section). With this round of news, we would see hesitation; but not quite risk aversion.
Domestic catalysts for investor fear are out there as well. Sunday evening, a pre-recorded interview with Fed Chairman Ben Bernanke was aired; and there was some noteworthy commentary to take note of. Though Reuters leaked some of the commentary well before the show was aired (likely an effort by the Fed itself to remain as transparent as possible) and Bernanke didn’t deviate from the normal script the policy group has worked out; there were a few candid notes. The suggestion that further purchases were a possibility has been priced in well before the $600 billion program was confirmed. More important was the suggestion that the US economy may not be in a self-sustaining recovery and unemployment could take five years or more to get back to the level of ‘normal’ Americans were used to before 2007/2008. These aren’t far of the market with the broader market is expecting; but there is a level of tangibility when an official says it. In other news, President Obama has voiced his support of a jobless insurance extension and tax cut extensions. Clearly a recovery is more still more important than the deficit.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: A Small EURUSD Trade as we Await a Clear Trend
Euro Slides against the Dollar, Franc as Traders Digest ECB Purchases, Merkel’s Threat of Withdrawal
Though fear that a financial crisis was enveloping the European markets ebbed this past week; the fundamental concerns that breed this panic through November has not dissipated. In fact, Monday would supply the necessary headlines to stoke wholesale euro selling; but sentiment itself has to combust the fundamental fuel that has been supplied. It is difficult to saw when optimism will collapse on itself; but in the meantime, we should keep on top of fundamental developments. Among the top concerns was the news from the Guardian late last week that Merkel threatened to withdrawal Germany from the EMU in a private exchange in early October. She may have backed off this threat; but we know Monday she shot down a discussion to increase the size of the EFSF (European Financial Stability Fund) and a joint issue of Eurozone bonds. Why would Germany’s Chancellor rebuff these suggestions – because Germany would incur much of the cost.
In other news, Moody’s downgraded Hungary’s sovereign debt rating to the lowest investment level in the scale. Elsewhere, details of Ireland’s bailout did little to comfort the market given that the ECB reported purchases of 1.97 billion euros in government bonds last week (the most in 22 weeks). Ireland will stay in focus over the coming European session with the 2011 budget vote scheduled. It seems the government will find the votes needed to pass the tenuous austerity measures; but it may cost the Prime Minister his job. No agreement would be a painful outcome.
Australian Dollar Holds Steady after the RBA Holds Rates, Voices Concern over the Currency and Europe
Expectations heading into the RBA’s rate decision were firmly set. With inflation measures easing, global uncertainty rising and the recent 3Q GDP reading cooling to its weakest level in two years, there was little doubt among the crowd that the central bank would hold. Hold they did; but their commentary did have a dovish slant. Worries about inflation and the high currency were among a few highlights.
Canadian Dollar Traders Look for Some Sort of Clarity from the BoC Tuesday Morning
The outlook for the Bank of Canada’s rate decision is very similar to what the RBA’s was. There is a different bias in this meeting; but the market is well set in its expectations for no change to the benchmark – nor a clear sign as to the next change. That said, there is still pent up hike expectations in swaps. This could lead to some selling pressure if the BoC keeps to its path towards more dovish commentary.
British Pound Steady after Poor Retail Sales Showing, Now on to Industrial Production and the BoE
There weren’t many critical, fundamental drivers for the pound on or off the docket Friday. However, the sterling’s connection to euro kept the currency under pressure. A notable, early-Tuesday release was the weak 0.7 percent BRC retail sales showing. That said, the upcoming NIESR GDP estimate for November and industrial production reading for October carry far more weight fundamentally.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
23:00 |
QV House Prices (YoY) (NOV) |
1.1% |
Oct. rise was slowest since 2009. |
|
|
JPY |
23:50 |
Official Reserve Assets (NOV) |
$1118.1B |
Reserves rose in the last 5 months. |
|
|
GBP |
NIESR Gross Domestic Product Estimate (NOV) |
0.5% |
Positive growth in last 12 months. |
||
|
AUD |
0:00 |
Australia Manpower Survey (1Q) |
20% |
4Q reading led by finance, services. |
|
|
AUD |
3:30 |
Reserve Bank of Australia Interest Rate Decision |
4.75% |
4.75% |
Market implies no chance of hike. |
|
JPY |
5:00 |
Leading Index (OCT P) |
97.3 |
98.6 |
Japanese leading index dipped in September to a seven-month low. |
|
JPY |
5:00 |
Coincident Index (OCT P) |
100.8 |
102.1 |
|
|
CHF |
6:45 |
Unemployment Rate s.a. (NOV) |
3.6% |
3.6% |
Swiss jobless rate fell to the lowest in over 1.5 years in October. |
|
CHF |
6:45 |
Unemployment Rate (NOV) |
3.6% |
3.5% |
|
|
GBP |
9:30 |
Industrial Production (MoM) (OCT) |
0.3% |
0.4% |
U.K. industrial production rose for a third consecutive month in Sept. |
|
GBP |
9:30 |
Industrial Production (YoY) (OCT) |
3.9% |
3.8% |
|
|
GBP |
9:30 |
Manufacturing Production (MoM) (OCT) |
0.3% |
0.1% |
U.K. factory production expanded for a fifth month in September. |
|
GBP |
9:30 |
Manufacturing Production (YoY) (OCT) |
5.4% |
4.8% |
|
|
EUR |
11:00 |
German Factory Orders s.a. (MoM) (OCT) |
1.9% |
-4.0% |
German factory orders unexpectedly fell in September on weak demand. |
|
EUR |
11:00 |
German Factory Orders n.s.a. (YoY) (OCT) |
18.6% |
14.0% |
|
|
14:00 |
Bank of Canada Interest Rate Decision |
1.00% |
1.00% |
Market implies 4% chance of hike. |
|
|
USD |
15:00 |
IBD/TIPP Economic Optimism (DEC) |
47.2 |
46.7 |
Likely rose to 7-month high in Dec. |
|
USD |
20:00 |
Consumer Credit (OCT) |
-$1.0B |
$2.1B |
Declined in 7 of the past 8 months. |
|
NZD |
21:45 |
Manufacturing Activity (3Q) |
3.1% |
N.Z. manufacturing sales volumes slumped to a 10-year low in 2Q. |
|
|
NZD |
21:45 |
Manufacturing Activity Volume (3Q) |
0.6% |
-1.8% |
|
|
USD |
22:00 |
ABC Consumer Confidence (DEC 5) |
-45 |
Sits at highest reading since Oct. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
EUR |
18:15 |
ECB’s Vitor Constancio Speaks on European Economy |
SUPPORT AND RESISTANCE LEVELS
CLASSIC SUPPORT AND RESISTANCE – 18:00 GMT
|
Currency |
EUR/USD |
GBP/USD |
USD/JPY |
USD/CHF |
USD/CAD |
AUD/USD |
NZD/USD |
EUR/JPY |
GBP/JPY |
|
Resist 2 |
1.3840 |
1.6420 |
89.00 |
1.0460 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3700 |
1.5800 |
86.00 |
1.0000 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3312 |
1.5725 |
82.66 |
0.9820 |
1.0049 |
0.9900 |
0.7618 |
110.03 |
129.98 |
|
Support 1 |
1.3000 |
1.5500 |
80.00 |
0.9500 |
0.9950 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2925 |
1.5300 |
75.00 |
0.9000 |
0.9700 |
0.9375 |
0.6585 |
100.00 |
119.00 |
CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
|
Currency |
USD/MXN |
USD/TRY |
USD/ZAR |
USD/HKD |
USD/SGD |
Currency |
USD/SEK |
USD/DKK |
USD/NOK |
|
Resist 2 |
14.4500 |
1.6755 |
8.7915 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
13.8500 |
1.4865 |
8.3675 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.5400 |
6.1150 |
|
Spot |
12.3727 |
1.4811 |
6.8765 |
7.7610 |
1.3035 |
Spot |
6.8457 |
5.5988 |
5.9964 |
|
Support 1 |
12.0500 |
1.3665 |
6.6950 |
7.7490 |
1.2750 |
Support 1 |
6.4500 |
5.2625 |
5.7030 |
|
Support 2 |
11.7200 |
1.3475 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
6.1250 |
5.1000 |
5.5200 |
INTRA-DAY PIVOT POINTS 18:00 GMT
|
Currency |
EUR/USD |
GBP/USD |
USD/JPY |
USD/CHF |
USD/CAD |
AUD/USD |
NZD/USD |
EUR/JPY |
GBP/JPY |
|
Resist 2 |
1.3529 |
1.5838 |
83.16 |
0.9956 |
1.0112 |
0.9971 |
0.7709 |
111.71 |
131.15 |
|
Resist 1 |
1.3420 |
1.5781 |
82.91 |
0.9888 |
1.0081 |
0.9936 |
0.7664 |
110.87 |
130.56 |
|
Pivot |
1.3334 |
1.5719 |
82.74 |
0.9807 |
1.0051 |
0.9892 |
0.7625 |
110.25 |
130.06 |
|
Support 1 |
1.3225 |
1.5662 |
82.49 |
0.9739 |
1.0020 |
0.9857 |
0.7580 |
109.41 |
129.47 |
|
Support 2 |
1.3139 |
1.5600 |
82.32 |
0.9658 |
0.9990 |
0.9813 |
0.7541 |
108.79 |
128.97 |
INTRA-DAY PROBABILITY BANDS 18:00 GMT
|
Currency |
EUR/USD |
GBP/USD |
USD/JPY |
USD/CHF |
USD/CAD |
AUD/USD |
NZD/USD |
EUR/JPY |
GBP/JPY |
|
Resist. 3 |
1.3506 |
1.5905 |
83.62 |
0.9942 |
1.0163 |
1.0048 |
0.7734 |
111.75 |
131.92 |
|
Resist. 2 |
1.3458 |
1.5860 |
83.38 |
0.9911 |
1.0134 |
1.0011 |
0.7705 |
111.32 |
131.43 |
|
Resist. 1 |
1.3409 |
1.5815 |
83.14 |
0.9881 |
1.0106 |
0.9974 |
0.7676 |
110.89 |
130.95 |
|
Spot |
1.3312 |
1.5725 |
82.66 |
0.9820 |
1.0049 |
0.9900 |
0.7618 |
110.03 |
129.98 |
|
Support 1 |
1.3215 |
1.5635 |
82.18 |
0.9759 |
0.9992 |
0.9826 |
0.7560 |
109.17 |
129.01 |
|
Support 2 |
1.3166 |
1.5590 |
81.94 |
0.9729 |
0.9964 |
0.9789 |
0.7531 |
108.74 |
128.53 |
|
Support 3 |
1.3118 |
1.5545 |
81.70 |
0.9698 |
0.9935 |
0.9752 |
0.7502 |
108.31 |
128.04 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com
