• Euro Selling Subsists through Correction in Risk Trends, Fundamental Gravity Increasing
  • British Pound Steady in the Face of GDP Figures that Hint at Trouble Ahead
  • Japanese Yen Pairs Nicely with Risk Trends as the Carry Influence Leverages Correlation
  • Australian Dollar’s Risk-based Rally Unencumbered by Disappointing Growth Data
  • Canadian Dollar: Is a Drop in 3Q Canadian Bank Profits More Important than Crude Prices?

Dollar Steady in its Bullish Bearing Despite a notable Rally from the S&P 500

Risk appetite marked a sharp recovery through Wednesday’s trading session – or did it? Looking to our preferred investor sentiment barometer, we see that the S&P 500 put in for a remarkable rally that nearly fully retraced the losses of the previous day. This advance was further complemented by a surge in oil and drop in for the Japanese yen (the traditional carry funding currency). Yet, we see that the US dollar was ultimately little changed on the day. In fact, the on-again-off-again safe haven and funding currency would actually push for a positive performance through the end of the trading day. Looking at the Dollar Index, the greenback put in for a third consecutive advance – the best series for this particular view of the currency since the initial and aggressive reversal post-FOMC. Amongst the majors, EURUSD would edge down towards 1.33, GBPUSD was ultimately little moved and USDJPY would push back up to the top of its recent congestion pattern north of 83. How do we reconcile this? First of all, it is important to note that the dollar posted substantial declines against its Australian, Canadian and New Zealand counterparts. What’s more, a positive risk bearing would fit the bullish drift on USDJPY. Altogether, this seems like a sign of unique (uncorrelated) stability for the world’s largest reserve currency while sentiment trends have in fact recovered.

However, we should be critical of today’s upswing in risk appetite. A meaningful recovery in sentiment does not fit the general bearing of fundamentals and speculative interests this past week. Looking at the range of issues that face investor sentiment, all the major concerns are still there. European instability is just as tangible today as it was Tuesday when the fixed income markets were reeling from the failure of the announced Irish bailout to encourage confidence in the region’s financial health. In fact, today we see concern that Europe’s troubles run deeper than just one or two irresponsible members has gained further traction. Calls from the group’s best performing member (Germany) for investors in these governments’ debt can do that. It is perhaps this fear that one of the world’s largest collective economies and markets is heading towards a more pained period that adds to the dollar’s stability today and its marked appreciation these past weeks. As the primary liquid and regulated alternative to Europe’s markets, the American markets naturally catch much of the outflow of capital. That said, the suggestion that risk appetite was actually putting in for a strong climb through the day is itself dubious. Sure, there was a marked advance from the S&P 500 and other risk-based assets; but this upswing hasn’t offset any of the prevailing bear trends. More likely, we are seeing the effort to pull these markets back from the frontier of larger bear trends ahead of the US liquidity drain in the second half of the week with the Thanksgiving holiday.

As for data, today’s event risk was generally very disappointing. For a look at the consumer, we see that while personal income would rise more than expected (0.5 percent), the more important spending number for October would miss slightly. Further down the scale of disappointing, we see that durable goods orders dropped sharply by 3.3 percent. What’s more, the more stable ex-transport figure would also drop 2.7 percent and non-defense orders excluding aircraft (a proxy for business investment) would stumble 4.5 percent. Most notable is the 8.1 percent plunge in new home sales. We may have more pressing issues at the moment; but the threat of a second round US housing crisis is very real. Keep an eye on this as well as Chinese efforts to curb its market’s expansion.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Protecting Profits on EURUSD and Laying out a AUDUSD Setup

Euro Selling Subsists through Correction in Risk Trends, Fundamental Gravity Increasing

Though risk appetite was on generally up on the day; the euro really wouldn’t see fit to improve its standing. The shared currency was down against the dollar and more significantly so against the less risk-sensitive currencies. It would seem an unusual outcome for those looking just at the data that was up for release – German business sentiment actually hit a record high in November. However, this only exaggerates the divergence in performance for the region’s best performers and its worst performers. While Irish, Portuguese and even Spanish yields surge; we see German Chancellor Merkel once again call for a permanent bailout solution for bond investors to share in future losses.

British Pound Steady in the Face of GDP Figures that Hint at Trouble Ahead

Though the pound is still showing sympathy in performance to the euro and Ireland specifically, that factor was offering the currency relatively little guidance Wednesday. Instead, what was far more interesting was the second read of 3Q GDP figures. Though the market offered little reaction, the fact that personal consumption was revised down to a 0.3 percent contraction sets up trouble ahead with government cuts.

Japanese Yen Pairs Nicely with Risk Trends as the Carry Influence Leverages Correlation

Is the Japanese yen an actual safe haven currency? If we are comparing the currency to many of its Asian counterparts, the argument could be made that it is; but for the global currency trader, the currency is more prominently a funding currency in the carry trade. Knowing this, a sharp rebound in fickle sentiment trends actually amplifies yen selling. Watch this play between risk and carry factors. They aren’t the same thing.

Australian Dollar’s Risk-based Rally Unencumbered by Disappointing Growth Data

The Aussie dollar rallied against most of its lower yielding and safe haven counterparts Wednesday. This rally however is likely to be only as strong as the equity markets’ performance. And, if we are to take that performance as a benchmark, the liquidity issue of the next 48 hours can be problematic. In the meantime, we note that the leading indicators index dropped 0.1 percent.

Canadian Dollar: Is a Drop in 3Q Canadian Bank Profits More Important than Crude Prices?

I often here talk about the correlation between crude oil and the performance of the Canadian dollar. It is true that the commodity is an important export of Canada; but does this factor actually overwhelm concerns like risk appetite trends, yield forecasts and stimulus? No. In reality, the correlation comes via the Canadian dollar’s association to risk trends which, like crude, is positive.

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ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

JPY

23:50

Corporate Service Price (YoY) (OCT)

-1.1%

-1.1%

Decreased YoY in last 24 months.

JPY

23:50

Adjusted Merchandise Trade Balance (Yen) (OCT)

871.1B

791.1B

Japan’s exports grew at the slowest pace this year in September, as demand for Japanese goods weakened abroad.

JPY

23:50

Merchandise Trade Balance Total (Yen) (OCT)

622.3B

587.6B

JPY

23:50

Merchandise Trade Exports (YoY) (OCT)

10.7

14.3

JPY

23:50

Merchandise Trade Imports (YoY) (OCT)

11

10

AUD

0:30

Private Capital Expenditure (3Q)

3.1%

-4.0%

Unexpectedly declined in 2Q.

EUR

7:45

French Consumer Confidence Indicator (NOV)

-34

-34

Confidence rose on job prospects.

CHF

8:15

Employment Level (YoY) (3Q)

0.6%

Swiss payrolls increased in 2Q by the most since early 2009.

CHF

8:15

Employment Level (3Q)

3.968M

EUR

8:30

Italian Business Confidence (NOV)

99.5

99.8

Rose to 29-month high on exports.

GBP

11:00

CBI Reported Sales (NOV)

33

36

Likely fell to lowest level since July.

Currency

GMT

Upcoming Events & Speeches

JPY

1:30

BoJ’s Seiji Nakamura Speaks on Japanese Economy

GBP

10:00

BoE’s King, Tucker, Dale, Posen, Sentence Attend Treasury Hearing

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

1.6715

89.00

1.0460

1.0922

1.0600

0.8230

127.60

146.05

Resist 1

1.3700

1.6420

86.00

1.0000

1.0750

1.0200

0.8000

120.00

140.00

Spot

1.3326

1.5770

83.62

0.9967

1.0110

0.9822

0.7614

111.44

131.87

Support 1

1.3300

1.5650

80.00

0.9500

0.9950

0.9640

0.6850

103.80

125.00

Support 2

1.2925

1.5500

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

12.3779

1.4798

7.0739

7.7598

1.3106

Spot

6.9534

5.5940

6.0943

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

1.3480

1.5879

84.13

1.0042

1.0305

0.9932

0.7675

112.64

132.73

Resist 1

1.3403

1.5825

83.87

1.0004

1.0207

0.9877

0.7645

112.04

132.30

Pivot

1.3344

1.5783

83.41

0.9952

1.0150

0.9798

0.7613

111.18

131.58

Support 1

1.3267

1.5729

83.15

0.9914

1.0052

0.9743

0.7583

110.58

131.15

Support 2

1.3208

1.5687

82.69

0.9862

0.9995

0.9664

0.7551

109.72

130.43

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

1.3520

1.5952

84.57

1.0097

1.0228

0.9974

0.7734

113.13

133.86

Resist. 2

1.3472

1.5906

84.33

1.0065

1.0199

0.9936

0.7704

112.71

133.36

Resist. 1

1.3423

1.5861

84.10

1.0032

1.0169

0.9898

0.7674

112.29

132.87

Spot

1.3326

1.5770

83.62

0.9967

1.0110

0.9822

0.7614

111.44

131.87

Support 1

1.3229

1.5679

83.14

0.9902

1.0051

0.9746

0.7554

110.59

130.87

Support 2

1.3180

1.5634

82.91

0.9869

1.0021

0.9708

0.7524

110.17

130.38

Support 3

1.3132

1.5588

82.67

0.9837

0.9992

0.9670

0.7494

109.75

129.88

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

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