- Dollar Finds Traction but Momentum Requires Risk Trends, G20 Surprises or Euro Weakness
- Euro Top Fundamental Trade Friday as German and Greek 3Q GDP Numbers Hit the Wires
- British Pound Staggers after Osborne Rejects IMF Backup Proposal, Consumer Confidence Drops
- Japanese Yen Losses Extend Despite Risk Balance as GDP Release Approaches
- Australian Dollar Drops below Parity against Greenback as Interest Rate Expectations Soften
- New Zealand Dollar Closer to Intervention Debate as Government Voices Support for RBNZ Activity
Dollar Finds Traction but Momentum Requires Risk Trends, G20 Surprises or Euro Weakness
The world’s most liquid currency firmed up Thursday after putting in for a trend check the previous session. The technical and fundamental appeal for the dollar is growing wider and wider into the end of the week. Having advanced four of the past five active sessions, the greenback has found itself either pushing or at the cusp of technical resistance. On the other hand, fundamentals haven’t taken a meaningful shift in the currency’s favor over this period. Yet, meriting constant reiteration, this is a market where value is relative. There doesn’t need to be a particular development to boost the appeal of the dollar. A rally can be borne from the deterioration of its peers – or even just one of its major counterparts. As such, we see that on a quiet economic docket, EURUSD has managed to drop below a familiar support in 1.37 and on to a one-month low; while AUDUSD has taken the prominent step of easing below parity. That gives us comparison of economic and yield-based counterparts. That said, fundamental traders should ask themselves the elementary question: can this tentative break truly develop into a profitable trend?
Breakouts are not generally rare events in the FX market. Depending on what time frame charts you are looking at, multiple instances can occur within a single day. Alternatively, meaningful trends or follow through (where the bulk of a successful trade’s profit is reaped) is far less common. Therefore, we should analyze the tentative and alluring breakout the dollar has put in for with a skeptical eye. Knowing that we are heading into the close of the trading week, it is first worthwhile to note that there was no scheduled event risk through Thursday’s session. The National Association of Realtors (NAR) released statistics that showed house prices had fallen in nearly a half of the nation through the third quarter – not a surprise given the growing troubles with foreclosures. That said, the risk implications this concern would have on investor sentiment was modest considering the modest change in benchmark equities indexes. Confidence must be relatively stable considering there was very little overall response to news that China had raised its reserve ratio twice on some banks and drained $4.533 billion from money markets last month.
Perhaps sentiment reactions would have been a little more volatile were there not larger fundamental catalysts scheduled for release through the final 24 hours. The consensus on the G20 meeting holds a very high level of influence over the markets; but the probability of a meaningful change is very low. Rather than seeing outright collaboration or an escalation of the currency war, we will probably see token statement of unity. The most likely accelerant for the dollar and its peers is a meaningful development in risk appetite trends. The most immediate threat to tame emotions is the European GDP figures which will be particularly interesting given the backdrop of financial strain in the region. In the absence of a meaningful sentiment move, the market would read the University of Michigan figure as anticlimactic. What’s more, greenback traders will soon be reminded of the negative influence of the Feds stimulus regime as purchases under the new program are scheduled to begin Friday.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Holding Back on EURUSD, AUDUSD Despite Breaks
Euro Top Fundamental Trade Friday as German and Greek 3Q GDP Numbers Hit the Wires
The euro was on the defensive Thursday – and for good reason. Financial troubles continue to escalate in the region. The premium demanded to hold Irish and Portuguese government debt ballooned to a record high yet again as concern grew that these struggling economies would not be able to bear their severe austerity measures and sustain a meaningful recovery. Feeding the fire, investors were chewing on comments from Bank of Ireland Governor Honohan that the nation’s bank bailout bill could top 85 billion euros and a turn from French Finance Minister Lagarde to support Germany in a call for bond holds to bear a portion of the cost in possible bond restructuring events.
A more tangible threat to the shared currency into the end of the week is the wave of forthcoming growth numbers. Spain already reported a disappointing stall in the 3Q. Tomorrow, we will have the bulk of the data. In this, the performance of top-performing Germany doesn’t really matter. The comparison to periphery economies like Portugal and Greece is the real interest given the preoccupation with financial troubles.
British Pound Staggers after Osborne Rejects IMF Backup Proposal, Consumer Confidence Drops
The sterling may seem to be performing well against otherwise weak currencies (like the euro and yen); but in isolation, the positive sentiment surrounding the stimulus downshift from the BoE inflation report is wearing off. To counter this fading trend, we were met with Chancellor Osborne’s rejection of the IMF’s calls for a contingency plan should the economy falter and a 19-month low in consumer confidence.
Japanese Yen Losses Extend Despite Risk Balance as GDP Release Approaches
The health of the Japanese yen is best measured in USDJPY. For other pairs, the risk-appetite influence it too sensitive for an underlying assessment. It is notable that with the tempering of risk trends, the dollar is actually gaining ground on the recently-favored yen. Is the market coming to understand these economies face a similar future or perhaps this is an effort to prepare for Sunday evening’s 3Q GDP figures?
Australian Dollar Drops below Parity against Greenback as Interest Rate Expectations Soften
Even in a scenario where global growth softens and investors withdrawal capital from the stimulus otherwise risky investments, the Australian dollar is well placed. Growth derived from domestic and external forces has deep roots, not to mention there is a high yield to offset risk. That said, there is always a level of balance in exchange rates. And, perhaps China’s efforts to cool its explosive growth is lowering that bar.
New Zealand Dollar Closer to Intervention Debate as Government Voices Support for RBNZ Activity
There are many different brands of currency manipulation out there: China adjusts for a consistent ‘undervaluation,’ the US dollar is seeing its currency lower through an extremely expansive monetary policy and Japan is going for outright intervention. New Zealand has actually acted a few times on behalf of the kiwi; but it has failed miserably. Nevertheless, the government seems to be encouraging further RBNZ efforts.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
GBP |
0:01 |
Nationwide Consumer Confidence (OCT) |
53 |
53 |
At lowest reading in 18 months. |
|
NZD |
2:00 |
Non Resident Bond Holdings (OCT) |
64.0% |
Over 64% for fourth month this year. |
|
|
EUR |
6:30 |
French Gross Domestic Product (QoQ) (3Q P) |
0.5% |
0.7% |
2Q growth was revised higher on consumer spending and investment. |
|
EUR |
6:30 |
French Gross Domestic Product (YoY) (3Q P) |
1.9% |
1.7% |
|
|
EUR |
7:00 |
German GDP s.a. (QoQ) (3Q P) |
0.8% |
2.2% |
Germany’s economy grew in 2Q at the fastest rate in two decades as exports surged. |
|
EUR |
7:00 |
German GDP n.s.a. (YoY) (3Q P) |
3.7% |
4.1% |
|
|
EUR |
7:00 |
German GDP w.d.a. (YoY) (3Q P) |
3.7% |
3.7% |
|
|
EUR |
9:00 |
Italian GDP s.a. and w.d.a. (QoQ) (3Q P) |
0.4% |
0.5% |
The Italian economy expanded in each quarter of 2010. |
|
EUR |
9:00 |
Italian GDP s.a. and w.d.a. (YoY) (3Q P) |
1.2% |
1.3% |
|
|
EUR |
10:00 |
Euro-Zone GDP s.a. (QoQ) (3Q A) |
0.5% |
1.0% |
The Euro-Zone economy grew in 2Q for a fourth consecutive quarter. |
|
EUR |
10:00 |
Euro-Zone GDP s.a. (YoY) (3Q A) |
1.9% |
1.9% |
|
|
EUR |
10:00 |
EZ Industrial Production s.a. (MoM) (SEP) |
0.2% |
1.1% |
Industrial production grew in August by the most in three months. |
|
EUR |
10:00 |
EZ Industrial Production w.d.a. (YoY) (SEP) |
7.1% |
8.4% |
|
|
USD |
14:55 |
U. of Michigan Confidence (NOV P) |
69.0 |
67.7 |
Likely rose to highest since June. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
23:00 |
Fed’s Dennis Lockhart Speaks on U.S. Economic Outlook |
|
ALL |
G20 Summit Held in Seoul, South Korea |
|
|
USD |
13:35 |
Fed’s Daniel Tarullo Speaks on Financial Reform |
|
EUR |
19:00 |
ECB’s Jose Manuel Gonzalez-Paramo Speaks on Economy |
|
USD |
21:35 |
Fed’s Sarah Bloom Raskin Speaks on Mortgage Servicing |
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 |
1.4800 |
1.6715 |
89.00 |
1.0460 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4450 |
1.6420 |
86.00 |
0.9950 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3667 |
1.6123 |
82.49 |
0.9752 |
1.0033 |
0.9979 |
0.7803 |
112.73 |
132.99 |
|
Support 1 |
1.3700 |
1.5650 |
80.00 |
0.9500 |
0.9950 |
0.9640 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3500 |
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 |
12.2602 |
1.4162 |
6.9380 |
7.7510 |
1.2893 |
Spot |
6.8346 |
5.4533 |
5.9304 |
|
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 |
1.3892 |
1.6225 |
82.95 |
0.9853 |
1.0123 |
1.0142 |
0.7918 |
113.95 |
133.84 |
|
Resist 1 |
1.3779 |
1.6174 |
82.72 |
0.9802 |
1.0078 |
1.0061 |
0.7860 |
113.34 |
133.41 |
|
Pivot |
1.3709 |
1.6128 |
82.38 |
0.9737 |
1.0028 |
1.0008 |
0.7817 |
112.93 |
132.84 |
|
Support 1 |
1.3596 |
1.6077 |
82.15 |
0.9686 |
0.9983 |
0.9927 |
0.7759 |
112.32 |
132.41 |
|
Support 2 |
1.3526 |
1.6031 |
81.81 |
0.9621 |
0.9933 |
0.9874 |
0.7716 |
111.91 |
131.84 |
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 |
1.3868 |
1.6317 |
83.45 |
0.9885 |
1.0152 |
1.0134 |
0.7926 |
114.39 |
134.98 |
|
Resist. 2 |
1.3817 |
1.6268 |
83.21 |
0.9851 |
1.0122 |
1.0095 |
0.7896 |
113.97 |
134.48 |
|
Resist. 1 |
1.3767 |
1.6220 |
82.97 |
0.9818 |
1.0093 |
1.0056 |
0.7865 |
113.56 |
133.98 |
|
Spot |
1.3667 |
1.6123 |
82.49 |
0.9752 |
1.0033 |
0.9979 |
0.7803 |
112.73 |
132.99 |
|
Support 1 |
1.3567 |
1.6026 |
82.01 |
0.9686 |
0.9973 |
0.9902 |
0.7741 |
111.90 |
132.00 |
|
Support 2 |
1.3517 |
1.5978 |
81.77 |
0.9653 |
0.9944 |
0.9863 |
0.7710 |
111.49 |
131.50 |
|
Support 3 |
1.3466 |
1.5929 |
81.53 |
0.9619 |
0.9914 |
0.9824 |
0.7680 |
111.07 |
131.00 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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