• Dollar Ready to Respond to a Clear Sentiment Trend but Liquidity may be an Issue Next Week
  • Euro Traders Prepare for a Resolution for Ireland and to Shift the Focus on Portugal, Spain
  • British Pound Stumbles on Drop in Construction Expectations, Tucker Downplaying Inflation
  • Canadian Dollar Sensitive to Investor Optimism but CPI and Retail Sales May Steal the Show
  • Japanese Yen Slowly Deflating as Market Comes to Grips with Lasting Stimulus
  • Australian and New Zealand Dollars Remain Highly Sensitive to Ripples in Global Risk Appetite

Dollar Ready to Respond to a Clear Sentiment Trend but Liquidity may be an Issue Next Week

The dollar retraced nearly all of the gains it had made in the first two days of this past week when all was said and done. Friday offered up the third consecutive decline for the benchmark currency; and the technical implications of this final performance could not be ignored. For the trade-weighted dollar index, the week-ending push made a notable test of the same level that held the currency down for nearly six weeks before Tuesday’s critical breakout. It is no coincidence that this former ceiling is now marking a tentative floor to impede trend development. From the majors, we can see the same measured correction. The most familiar setup comes from EURUSD which has moved back up to the frequented 1.37 level; though retracements for GBPUSD, USDCAD and AUDUSD are very similar in nature even if the technical figures are not as prominent. What truly grounds this shared path for the greenback in fundamentals though is the correlation it maintains with other asset classes. With the S&P 500 equities index gravitating back towards 1,200 and gold testing $1,365 (the breaking point of a bull trend that directed price action for over three months), it is clear that there is an underlying current to investor sentiment itself.

Through the final 24 hours of this past trading week, there were notable updates on two of the market’s most headline-worthy themes. Ireland has focused general concerns surrounding the convoluted situation the European Union faces in securing financial stability in the region. That said, a definitive move from capital flows and the dollar in response to this matter is now being reserved for the next consequential development – namely, the announcement of a bailout. Therefore, speculation that Ireland will have to abandon its favorable tax policies and news that Allied Irish is marching towards a liquidity crisis is merely building interest into what traders see as a meaningful climax (though Europe’s troubles hardly end with this single member). The same, tepid interest from investor confidence was paid to the announcement that China had raised the reserve ratio for its banks for a fifth time this year. Though a step clearly intended to cool growth and capital turnover in the economy, the market has grown accustomed to the PBoC’s measured efforts. Going forward, either or both of these particular catalysts can shape the appeal of the dollar as a safe haven currency; but a market weary of the pitfalls in speculative trends overshooting fundamentals may require a more explicit resolution to these bigger fundamental themes before committing to a lasting run.

When the financial headlines are dedicated to global developments, it is easy to miss the fundamental developments that direct the dollar’s bearing. The US docket may have been empty of scheduled indicators through the final session of this past week; but comments directed to the Fed’s stimulus program bear reflection. Board member Plosser remarked Friday that it was “premature” to assume the central bank would buy the entire $600 billion available over the coming 8 months. If indeed the Fed decided it was appropriate to discontinue its monthly purchases, a significant burden would be lifted for the greenback. Looking out over the next week, we have a concentrated docket for economic releases. A range of indicators including the second reading of 3Q GDP, existing and new home sales, personal income and spending, durable goods and a national activity index are squeezed into a period foreshortened by the Thanksgiving holiday. Falling on Thursday, this American holiday will sap speculative liquidity over the final two days of the week. As such, it could be exceptionally difficult to jump start a meaningful trend next week.

Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Holding Long Dollar a Risky Proposition into the Weekend

Euro Traders Prepare for a Resolution for Ireland and to Shift the Focus on Portugal, Spain

We seem to detect new symptoms of the Euro-region’s financial troubles every day. However, the market seems to be acclimatizing itself to these developments, waiting for evidence of the true fallout. However, as fundamental traders, we should take note of these developments to assess the likelihood of and full consequences to a true crisis. With EU, IMF and ECB officials currently scrutinizing Ireland’s financial books; news that Allied Irish lost 17 percent of its deposits this year and tripled its dependency on ECB loans suggests there is no natural solution to be found. In the meantime, Germany and the Netherlands are forging ahead with permanent bailout regulations to share losses with bond holders.

British Pound Stumbles on Drop in Construction Expectations, Tucker Downplaying Inflation

Bank of England Deputy Governor Paul Tucker could have balanced dovish rate expectations when he said the group shouldn’t dilute its price stability commitments; but a forecast for prices to drop below the 2 percent target did little to further interest rate calls. For macro data, a quarterly RICS construction activity survey dropped to its lowest level in a year-and-a-half as a supply glut and weak economy curb activity.

Canadian Dollar Sensitive to Investor Optimism but CPI and Retail Sales May Steal the Show

When it comes to USDCAD, the influential swings in risk appetite trends are significantly subdued. For a true trend to develop for this pair, the outlook for growth and interest rates between the two has to shift. We may see just such a meaningful change develop next week. On the loonie’s docket, we have both retail sales and CPI data. This could raise doubts about growth and feed criticism in the BoC’s early hikes.

Japanese Yen Slowly Deflating as Market Comes to Grips with Lasting Stimulus

It is worth noting that over the past three weeks we have seen both a strong rallies and slumps in risk appetite trends. And, through it all, USDJPY has maintained its steady appreciation. From this, we can start to see the yen’s position as a safe haven fade – a reality that has been ignored for too long. Next week, CPI data will help to remind investors that there is long-standing deflation and little hope for yield in Japan.

Australian and New Zealand Dollars Remain Highly Sensitive to Ripples in Global Risk Appetite

In monitoring underlying sentiment trends, the natural inclination is to keep track of those currencies that are directly responsible for the fundamental bustle. However, given the nature of capital flow, it is those currencies that are at the extremes of the risk spectrum that see the biggest moves. Both the Aussie and Kiwi dollars are tuned into Irish, Chinese and the US news wires, waiting for their net meaningful trend.

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ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

NZD

21:45

New Zealand Net Migration s.a. (OCT)

1070

Sept. total was highest in 8 months.

JPY

5:00

Supermarket Sales (YoY) (OCT)

-0.3%

Declined annually in last 22 months.

JPY

7:00

Convenience Store Sales (YoY) (OCT)

12.9%

Rose annually in the last 3 months.

CHF

8:00

Money Supply M3 (YoY) (OCT)

6.8%

Increased over 6% in last 5 months.

USD

13:30

Chicago Fed National Activity Index (OCT)

-0.37

-0.58

Likely negative for sixth time this yr.

EUR

15:00

Euro-Zone Consumer Confidence (NOV A)

-11

-11

Beat forecasts in December.

Currency

GMT

Upcoming Events & Speeches

EUR

16:00

ECB President Jean-Claude Trichet Delivers Annual Report

USD

18:30

Fed’s Narayana Kocherlakota Speaks on Monetary Policy

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

1.4450

1.6715

89.00

1.0460

1.0922

1.0600

0.8230

127.60

146.05

Resist 1

1.3840

1.6420

86.00

1.0000

1.0750

1.0200

0.8000

120.00

140.00

Spot

1.3673

1.5979

83.55

0.9923

1.0168

0.9866

0.7787

114.23

133.51

Support 1

1.3465

1.5650

80.00

0.9500

0.9950

0.9640

0.6850

103.80

125.00

Support 2

1.3310

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

12.2603

1.4420

7.0021

7.7545

1.2955

Spot

6.8593

5.4519

5.9966

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

1.3793

1.6160

83.94

1.0052

1.0258

0.9962

0.7830

114.80

134.74

Resist 1

1.3733

1.6070

83.74

0.9988

1.0213

0.9914

0.7809

114.51

134.13

Pivot

1.3670

1.6002

83.44

0.9931

1.0188

0.9863

0.7777

114.02

133.58

Support 1

1.3610

1.5912

83.24

0.9867

1.0143

0.9815

0.7756

113.73

132.97

Support 2

1.3547

1.5844

82.94

0.9810

1.0118

0.9764

0.7724

113.24

132.42

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

1.3860

1.6157

84.49

1.0048

1.0285

1.0014

0.7906

115.84

135.39

Resist. 2

1.3813

1.6113

84.25

1.0017

1.0255

0.9977

0.7876

115.44

134.92

Resist. 1

1.3766

1.6068

84.02

0.9985

1.0226

0.9940

0.7846

115.04

134.45

Spot

1.3673

1.5979

83.55

0.9923

1.0168

0.9866

0.7787

114.23

133.51

Support 1

1.3580

1.5890

83.08

0.9861

1.0110

0.9792

0.7728

113.42

132.57

Support 2

1.3533

1.5845

82.85

0.9829

1.0081

0.9755

0.7698

113.02

132.10

Support 3

1.3486

1.5801

82.61

0.9798

1.0051

0.9718

0.7668

112.62

131.63

v

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

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