- Dollar Suffers its Worst Decline in Six Weeks as Risk Appetite Swells and the Euro Catches a Break
- Euro Rallies Across the Board as Investors Bet on an ECB Bailout Akin to the Fed’s Program
- British Pound Takes more Guidance from Risk Trends than Housing and Manufacturing Data
- Australian Dollar Well Positioned to Follow Speculative Trends but there is still a Sensitivity to Data
- Swiss Franc: The Euro is Franc Traders’ Primary Concern, but 3Q GDP may have a Lasting Influence
- Japanese Yen Finds an Economic Juxtapose its Speculatively Derived Appeal
Dollar Suffers its Worst Decline in Six Weeks as Risk Appetite Swells and the Euro Catches a Break
It was inevitable. After three weeks spent in a consistent and aggressive rally, the dollar was overdue for a correction. And, considering the fundamental developments through Wednesday’s session, the market wasn’t left wanting for a reason to pull the currency back. That said, a catalyst wasn’t really necessary. A move that is as unwavering as the one the greenback has put in for will eventually reach an exhaustion point and find a market itching to book profit and perhaps attempt to fade the prevailing move. Nonetheless, bears would find more than enough justification in the day’s headlines to finally make their move. Taking stock of the dollar’s performance, the trade-weighted index put in for its most forceful decline since the currency initiated its advance back on November the 5th. Amongst the majors perhaps the most remarkable development was the fact that GBPUSD advanced for the first time in time in nine days – breaking the pair’s longest slide since September 8th 2008 (back when the global financial crisis was in full bloom). However, if we want to assess where the market’s most liquid currency goes from here, we need to establish what the key drivers are and how they are likely to develop going forward. At this point, it should be easy to see the influence that the euro and risk appetite trends have on the greenback.
The most prominent, fundamental provocateur for the dollar’s rally through November was without doubt the inspiration garnered through the euro’s own troubles. As the FX market’s most liquid currency pair, EURUSD acts as a natural conduit for capital leaving or entering the US. Consequently, the spread of a financial crisis that claimed Ireland as a victim and has set its sights on Portugal and Spain, would offer a steady flow of speculative funds from European to American markets. Yet, this connection works both ways. With the influence of the fundamental driver solidified, the unavoidable break in fear would lead to an immediate correction of EURUSD which would lead to selling for the dollar across the board. Wednesday, the market would finally see the spark of hope that Europe’s financial troubles could finally find meaningful resolution. This expectation of relief was first entertained by the rumor that the IMF would boost its monetary support to the region via larger contributions made by the United States. US officials, however, denied this story; and such an effort would certainly rouse anger on the same day the Fed released the details of its bailout efforts over the past three years (more about that in a second). Now, the responsibility for holding the euro up (and the dollar down) has been passed on to the ECB who will deliberate on monetary policy tomorrow. Aside from the euro’s influence though, we have also been discussing the influence that risk appetite itself can have on the dollar – though mostly the positive effects. With the biggest rally from the S&P 500 though, we are reminded of the greenback’s safe haven status. Though this rally was dramatic, it does not yet confirm a lasting trend. We will see the momentum on investor sentiment going forward and keep a close on Europe for this as well.
There is little doubt at this point that the market is fully occupied with the immediate influence that the Euro’s bearings and underlying sentiment trends have on the US dollar; but we should take note of the other headlines. This does not mean macroeconomic data. Rather, this is a reference to the Fed’s release of all its stimulus programs over the past three years. Names were named and amounts tallied. Knowing that banks like BoA and Wells Fargo were amongst the neediest could easily stoke fear should another housing crisis take hold.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Taking Profit on EURUSD but Keeping GBPUSD and AUDUSD
Euro Rallies Across the Board as Investors Bet on an ECB Bailout Akin to the Fed’s Program
Though many market participants and analysts were talking about the dollar, the top story Wednesday was the euro – and it is likely to be the top story Thursday. Despite news that Portugal’s bond sale drew much higher yields and the EU would require restructuring plans for all banks that required assistance; traders were more wrapped up first in the rumor that the IMF would boost aid through the dollar and later speculation that the ECB was going to increase its efforts to stabilize the region’s markets. The central bank has a number of options; but officials have generally withheld support to this point. A liquidity expansion could hold the euro; but the status quo would likely hammer the currency.
British Pound Takes more Guidance from Risk Trends than Housing and Manufacturing Data
A boost for the euro helps the sterling against its non-European counterparts; while an advance in risk appetite trends bolsters the currency’s appeal against safe havens like the yen and dollar. This is the exact link we should be concerned about tomorrow. But, for longer-term concerns, it is worth nothing that UK manufacturing activity hit a 16-year high and housing prices slipped to a year low. There is an uneven economy here.
Australian Dollar Well Positioned to Follow Speculative Trends but there is still a Sensitivity to Data
If the S&P 500 and other benchmark equity indexes are putting in for a sharp rally, there is little doubt that the Australian dollar is doing the same. The Aussie currency’s role is clear in the FX market; but then again, this function won’t hold forever. It may be a long ways off before the Aussie dollar breaks its positive correlation to risk trends; but events like the biggest drop in retail sales 15 months will help make it happen.
Swiss Franc: The Euro is Franc Traders’ Primary Concern, but 3Q GDP may have a Lasting Influence
Like the dollar, the Swiss franc is closely monitoring the health of the euro – but the link here is more intense. Where the dollar represents an alternative for investors, the franc is the objective of European’s savings that fear the health of their local banks. That said, we should take a moment to watch the 3Q GDP numbers. Talk of a near-term SNB rate hike will find objection or support from this particular release.
Japanese Yen Finds an Economic Juxtapose its Speculatively Derived Appeal
Though the Japanese yen backs an economy that is struggling with deeply rooted deflation, ongoing credit problems and an active effort by the BoJ to depreciate its currency; it is still considered a safe haven when sentiment hits an extreme. But what happens when people are more familiar with alternatives? In the meantime, capital spending through the 3Q hit its highest level since the opening quarter of 2007.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
23:50 |
Monetary Base (YoY) (NOV) |
6.4% |
Rose YoY in the last 26 months. |
|
|
JPY |
23:50 |
Capital Spending (3Q) |
6.0% |
-1.7% |
Capital spending likely rose in 3Q for the first time since 2007. |
|
JPY |
23:50 |
Capital Spending ex Software (3Q) |
6.0% |
-1.5% |
|
|
USD |
ICSC Chain Store Sales (YoY) (NOV) |
1.6% |
Rose YoY in the last 11 months. |
||
|
AUD |
0:30 |
Retail Sales s.a. (MoM) (OCT) |
0.4% |
0.3% |
Increased in the last seven months. |
|
AUD |
0:30 |
Trade Balance (Australian dollar) (OCT) |
2000M |
1760M |
Surplus narrowed as exports fell. |
|
EUR |
6:30 |
French ILO Unemployment Rate (3Q) |
9.8% |
9.7% |
French jobseekers fell in October by the most in over two years as companies resumed hiring. |
|
EUR |
6:30 |
French ILO Mainland Unemployment Rate (3Q) |
9.4% |
9.3% |
|
|
EUR |
6:30 |
French Mainland Unemployment Change (3Q) |
-70K |
||
|
CHF |
6:45 |
Gross Domestic Product (QoQ) (3Q) |
0.5% |
0.9% |
Swiss economy expanded in the last four quarters. |
|
CHF |
6:45 |
Gross Domestic Product (YoY) (3Q) |
3.1% |
3.4% |
|
|
CHF |
8:15 |
Retail Sales (Real) (YoY) (OCT) |
4.1% |
Rose YoY for a tenth month in Sept. |
|
|
GBP |
9:30 |
Purchasing Manager Index Construction (NOV) |
51.3 |
51.6 |
Fell to 8-month low in October. |
|
EUR |
10:00 |
Euro-Zone GDP s.a. (QoQ) (3Q P) |
0.4% |
0.4% |
Europe’s economic growth weakened in the third quarter from the fastest pace in four years as government austerity measures to cut deficits dented the recovery. |
|
EUR |
10:00 |
Euro-Zone GDP s.a. (YoY) (3Q P) |
1.9% |
1.9% |
|
|
EUR |
10:00 |
Euro-Zone Household Consumption (QoQ) (3Q P) |
0.2% |
0.2% |
|
|
EUR |
10:00 |
EZ Gross Fixed Capital Formation (QoQ) (3Q P) |
0.4% |
1.5% |
|
|
EUR |
10:00 |
Euro-Zone Government Expenditure (QoQ) (3Q P) |
0.3% |
0.5% |
|
|
EUR |
10:00 |
Euro-Zone Producer Price Index (MoM) (OCT) |
0.3% |
0.3% |
Producer prices rose in September, led by a 1.2% rise in Romania. |
|
EUR |
10:00 |
Euro-Zone Producer Price Index (YoY) (OCT) |
4.3% |
4.2% |
|
|
EUR |
12:45 |
European Central Bank Interest Rate Decision |
1.00% |
1.00% |
No chance of hike at this meeting. |
|
USD |
13:30 |
Initial Jobless Claims (NOV 27) |
424K |
407K |
U.S. jobless claims fell last week to the lowest level since July 2008. |
|
USD |
13:30 |
Continuing Claims (NOV 20) |
4200K |
4182K |
|
|
USD |
15:00 |
Pending Home Sales (MoM) (OCT) |
-0.9% |
-1.8% |
Pending home sales unexpectedly declined in September. |
|
USD |
15:00 |
Pending Home Sales (YoY) (OCT) |
-24.9% |
||
|
USD |
21:00 |
RPX Composite 28 Day (YoY) (SEP) |
-2.68% |
RPX composite index declined annually in the last two months. |
|
|
USD |
21:00 |
RPX Composite 28 Day Index (SEP 30) |
195.01 |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
JPY |
5:30 |
BoJ’s Kiyohiko Nishimura Speaks on Japanese Economy |
|
EUR |
13:30 |
ECB President Jean-Claude Trichet Holds Press Conference |
|
USD |
17:20 |
Fed’s Charles Plosser Speaks on Economic Outlook |
|
USD |
17:30 |
Fed’s James Bullard Speaks on U.S. Economy, Monetary Policy |
|
USD |
19:00 |
Fed’s Elizabeth Duke Speaks on Consumer Credit |
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 |
1.5650 |
86.00 |
1.0000 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3125 |
1.5607 |
84.21 |
1.0030 |
1.0166 |
0.9678 |
0.7495 |
110.53 |
131.44 |
|
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 |
12.4056 |
1.4899 |
7.0205 |
7.7690 |
1.3100 |
Spot |
6.9770 |
5.6785 |
6.1497 |
|
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 |
1.3304 |
1.5701 |
85.02 |
1.0109 |
1.0323 |
0.9795 |
0.7579 |
112.26 |
132.62 |
|
Resist 1 |
1.3214 |
1.5654 |
84.61 |
1.0069 |
1.0245 |
0.9736 |
0.7537 |
111.39 |
132.03 |
|
Pivot |
1.3093 |
1.5601 |
84.00 |
1.0028 |
1.0193 |
0.9637 |
0.7470 |
109.91 |
130.98 |
|
Support 1 |
1.3003 |
1.5554 |
83.59 |
0.9988 |
1.0115 |
0.9578 |
0.7428 |
109.04 |
130.39 |
|
Support 2 |
1.2882 |
1.5501 |
82.98 |
0.9947 |
1.0063 |
0.9479 |
0.7361 |
107.56 |
129.34 |
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 |
1.3325 |
1.5795 |
85.19 |
1.0157 |
1.0284 |
0.9827 |
0.7614 |
112.33 |
133.49 |
|
Resist. 2 |
1.3275 |
1.5748 |
84.94 |
1.0126 |
1.0255 |
0.9790 |
0.7584 |
111.88 |
132.98 |
|
Resist. 1 |
1.3225 |
1.5701 |
84.70 |
1.0094 |
1.0225 |
0.9753 |
0.7554 |
111.43 |
132.47 |
|
Spot |
1.3125 |
1.5607 |
84.21 |
1.0030 |
1.0166 |
0.9678 |
0.7495 |
110.53 |
131.44 |
|
Support 1 |
1.3025 |
1.5513 |
83.72 |
0.9966 |
1.0107 |
0.9603 |
0.7436 |
109.63 |
130.41 |
|
Support 2 |
1.2975 |
1.5466 |
83.48 |
0.9934 |
1.0077 |
0.9566 |
0.7406 |
109.18 |
129.90 |
|
Support 3 |
1.2925 |
1.5419 |
83.23 |
0.9903 |
1.0048 |
0.9529 |
0.7376 |
108.73 |
129.39 |
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
