- Dollar Crosses a Fundamental Hurdle in GDP to Focus all its Attention on Next Week’s FOMC
- Japanese Yen May Soon Respond to its Own Fundamentals as the BoJ Amplifies its Stimulus Effort
- Canadian Dollar Struggles for Gains Despite Favorable GDP, Focus on Dollar and Jobs Next Week
- British Pound Teeters on the Verge of Trend as the BoE is Faced with a Stimulus Opportunity
- Australian Dollar one of the Few Currencies with an Encouraging Future ahead of RBA Decision
- Euro to take its Bearings from the Dollar Rather than ECB Next Week
Dollar Crosses a Fundamental Hurdle in GDP to Focus all its Attention on Next Week’s FOMC
With Friday’s outcome, the dollar has committed itself to a specific fundamental path going forward – one that is far more prone to volatility and wide open to meaningful trend development. The greenback had the opportunity to offset some of the heady event risk associated with next week’s Federal Open Market Committee (FOMC) rate decision. All that was needed was a strong move for the dollar to end the week that pushed the currency into the beginnings of a new trend before liquidity was swallowed up by the weekend. This was not a wholly unrealistic expectation given the event risk for the day. Nevertheless, the growth, stimulus and risk implications that the advanced third quarter GDP reading held would prove a dud for market movement. Looking for true fundamental momentum, the best opportunity for a dollar rally would come via a move in equities and other risk-sensitive markets. That said, the S&P 500 would ultimately bide its time with a narrow range and reduced level of volume. As long as this benchmark for investor sentiment is held to its steady, two-month rising trend channel; the greenback will be under pressure. That said, even this risk-positive, dollar-negative drive has lost its impetus recently. Altogether, this makes for the perfect scenario for next week’s event risk.
Looking at the scenario’s for Friday’s GDP release, there were two general potential outcomes (completely unrelated to the actual performance of the data): either the market would decide to ignore the indicator or use the report’s clout to leverage risk trend and perhaps stimulus speculation. In the latter scenario traders would take advantage of the greenback’s tumble over the past few months in reference to expectations for a second round of asset purchases to either fuel continuation or a reversal of the prominent trend. However, it seems the masses would rather wait for proper confirmation before committing themselves to greater exposure. That said, the growth data is not simply a write off. Annualized growth through the third quarter of 2.0 percent represents a relatively stable – if muted – pace of recovery. In reality, a measured pace of expansion is preferable at this stage of the game as it is far more sustainable. Looking into the component data, it is encouraging to see personal consumption (which accounts for approximately three-quarters of economic activity) growth 2.6 percent – the best clip since the fourth quarter of 2006. At the same time, the 1.44 percentage points added by the $115.5 billion in inventory buildup, the 2.0 percentage points subtracted by trade and sharp contraction in construction gives enough reason to question the United States’ future.
Turning our focus to the future, we should actually interpret the influence of Friday’s GDP reading on next week’s top event risk: the Fed’s rate decision. Skepticism over the sustainability of expansion would build the argument of a larger stimulus package; but this data was relatively stable – so the outcome for this event is still wide open to interpretation. Heading into the release, the popular consensus is a $100 billion injection per month for five or six months. Yet, there has been rumor that some of the Primary Dealers the central bank polled for expectations of size and time frame of the eventual program were voting $1 trillion. If the Fed’s intentions are not to disappoint, the dollar may be in trouble.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Watching for a True Dollar Trend, Focus on EURUSD and USDJPY
Japanese Yen May Soon Respond to its Own Fundamentals as the BoJ Amplifies its Stimulus Effort
It is difficult to pontificate the virtues of the Japanese yen. Pushing record or multi-year highs (depending on which pair we are looking at), it is difficult to justify the currency’s sustained advance given its anemic yields, structural growth problems, long-lasting credit troubles and the increasingly aggressive effort by the government and central bank to stem the yen’s advance. That said, when a speculative trend is in place, it can sometimes be difficult to curb the steady influx of capital that is directed by the herd. The coming week has a unique opportunity to finally break this speculative drive. First, the FOMC rate decision could open the doors back up to investment capital that has been consistently rerouted to Japan as an alternative. Furthermore, the Bank of Japan will likely do its part with a follow up rate decision (moved up three weeks) that is scheduled coincidently just after the Fed’s meeting. This unusual meeting will bring clarity to stimulus efforts and maybe a larger package.
Canadian Dollar Struggles for Gains Despite Favorable GDP, Focus on Dollar and Jobs Next Week
Given the economic ties between the US and Canadian economies, it shouldn’t come as a surprise that the loonie was looking at the performance of the US 3Q GDP reading (and the greenback’s reaction to it) rather than the August growth reading from Canada. That said, the 0.3 percent pick up was nonetheless impressive. Next week, the dollar will lead again; but Friday’s employment figures will weigh in.
British Pound Teeters on the Verge of Trend as the BoE is Faced with a Stimulus Opportunity
There was a general improvement across the board in second tier indicators for the UK Friday. Consumer confidence, net credit, mortgage approvals and money supply (as a measure of inflation) all rose. For next week, the pound could prove the sleeper currency of the week. The BoE rate decision has been written off after the UK’s 3Q GDP reading; but there is still the possibility that stimulus expansion is in the cards.
Australian Dollar one of the Few Currencies with an Encouraging Future ahead of RBA Decision
For most of the major policy authorities out there, the optimistic option is to hold while the realistic choice is to loosen the monetary reins to support growth. This isn’t the case with the Aussie dollar and RBA. Next week’s RBA rate decision comes with a 22 percent probability of a 25 bps hike. That said, should the rest of the central bank’s take a dovish lean, this will be a defacto boost for the Aussie dollar.
Euro to take its Bearings from the Dollar Rather than ECB Next Week
Not to be left out of the fundamental mix, the euro has its own central bank rate decision to contend with next week. The only problem is that the ECB has been the most consistently neutral group out there. Instead, the euro is likely to find its direction and pace through the performance of the US dollar. As EURUSD is the most liquid currency pair in the world, a move by the greenback will lead to the opposite drive for the euro.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
Tokyo Average Office Vacancies (OCT) |
9.01 |
Currently at lowest level since May. |
||
|
NZD |
22:00 |
AON 1-Year Inflation Expect (OCT) |
5.0% |
Has held at 5.0% since July. |
|
|
AUD |
22:30 |
AiG Performance of Manufacturing Index (OCT) |
47.3 |
September reading lowest since ’09. |
|
|
AUD |
23:30 |
TD Securities Inflation (MoM) (OCT) |
0.1% |
Annual inflation surpassed the top of the RBA’s target range last month. |
|
|
AUD |
23:30 |
TD Securities Inflation (YoY) (OCT) |
3.2% |
||
|
GBP |
0:01 |
Hometrack Housing Survey (MoM) (OCT) |
-0.4% |
U.K. home values dropped by the most in 18 months in September. |
|
|
GBP |
0:01 |
Hometrack Housing Survey (YoY) (OCT) |
1.0% |
||
|
AUD |
0:30 |
House Price Index (QoQ) (3Q) |
0.0% |
3.1% |
Australian home prices rose QoQ in each of the past five quarters. |
|
AUD |
0:30 |
House Price Index (YoY) (3Q) |
13.4% |
18.4% |
|
|
CNY |
1:00 |
China PMI Manufacturing (OCT) |
53.8 |
53.8 |
Sits at highest level since May. |
|
JPY |
1:30 |
Labor Cash Earnings (YoY) (SEP) |
0.5% |
0.4% |
Rose annually in last six months. |
|
NZD |
2:00 |
ANZ Commodity Price (OCT) |
2.9% |
Rose last month after 3-month drop. |
|
|
CNY |
2:30 |
HSBC PMI Manufacturing (OCT) |
52.9 |
Increased for second month in Sept. |
|
|
JPY |
5:00 |
Vehicle Sales (YoY) (OCT) |
-4.1% |
Fell in Sept. following 13-month rise. |
|
|
AUD |
5:30 |
RBA Commodity Price Index (OCT) |
97.2 |
Commodity prices rose annually in the last seven months. |
|
|
AUD |
5:30 |
RBA Commodity Price Index SDR (YoY) (OCT) |
52.4% |
||
|
CHF |
8:30 |
SVME-Purchasing Managers Index (OCT) |
59.3 |
59.7 |
Slowed more than forecast in Sept. |
|
GBP |
9:30 |
Purchasing Manager Index Manufacturing (OCT) |
53.0 |
53.4 |
Likely fell for fifth month in October. |
|
USD |
12:30 |
Personal Income (SEP) |
0.2% |
0.5% |
Consumer spending in the U.S. rose more than forecast in August as incomes climbed, rising 0.4% for a second month. The rise in spending bolstered growth forecasts. |
|
USD |
12:30 |
Personal Spending (SEP) |
0.4% |
0.4% |
|
|
USD |
12:30 |
PCE Deflator (YoY) (SEP) |
1.4% |
1.5% |
|
|
USD |
12:30 |
PCE Core (MoM) (SEP) |
0.1% |
0.1% |
|
|
USD |
12:30 |
PCE Core (YoY) (SEP) |
1.3% |
1.4% |
|
|
USD |
14:00 |
ISM Manufacturing (OCT) |
54.0 |
54.4 |
Manufacturing likely fell for a second month in October. |
|
USD |
14:00 |
ISM Prices Paid (OCT) |
70.5 |
70.5 |
|
|
USD |
14:00 |
Construction Spending (MoM) (SEP) |
-0.5% |
0.4% |
Unexpectedly rose in August. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
JPY |
15:00 |
Bank of Japan Meetings Minutes |
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 |
1.4500 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0100 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4000 |
1.6100 |
86.00 |
0.9950 |
1.0750 |
1.0000 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3898 |
1.6022 |
80.51 |
0.9855 |
1.0201 |
0.9797 |
0.7616 |
111.89 |
128.99 |
|
Support 1 |
1.3685 |
1.5500 |
80.00 |
0.9500 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3500 |
1.5300 |
75.00 |
0.9000 |
0.9700 |
0.8100 |
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 |
12.3725 |
1.4337 |
7.0073 |
7.7520 |
1.2948 |
Spot |
6.6983 |
5.3660 |
5.8694 |
|
Support 1 |
12.0500 |
1.4070 |
6.6950 |
7.7490 |
1.2900 |
Support 1 |
6.4500 |
5.3000 |
5.7030 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
6.1250 |
5.1000 |
5.5200 |
I
NTRA-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 |
1.4031 |
1.6137 |
81.30 |
0.9949 |
1.0285 |
0.9909 |
0.7731 |
113.58 |
130.08 |
|
Resist 1 |
1.3964 |
1.6079 |
80.91 |
0.9902 |
1.0243 |
0.9853 |
0.7674 |
112.74 |
129.54 |
|
Pivot |
1.3886 |
1.5979 |
80.68 |
0.9864 |
1.0206 |
0.9766 |
0.7593 |
112.13 |
128.76 |
|
Support 1 |
1.3819 |
1.5921 |
80.29 |
0.9817 |
1.0164 |
0.9710 |
0.7536 |
111.29 |
128.22 |
|
Support 2 |
1.3741 |
1.5821 |
80.06 |
0.9779 |
1.0127 |
0.9623 |
0.7455 |
110.68 |
127.44 |
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 |
1.4099 |
1.6220 |
81.52 |
0.9991 |
1.0329 |
0.9954 |
0.7737 |
113.54 |
130.92 |
|
Resist. 2 |
1.4049 |
1.6171 |
81.27 |
0.9957 |
1.0297 |
0.9914 |
0.7707 |
113.13 |
130.44 |
|
Resist. 1 |
1.3998 |
1.6121 |
81.01 |
0.9923 |
1.0265 |
0.9875 |
0.7676 |
112.71 |
129.96 |
|
Spot |
1.3898 |
1.6022 |
80.51 |
0.9855 |
1.0201 |
0.9797 |
0.7616 |
111.89 |
128.99 |
|
Support 1 |
1.3798 |
1.5923 |
80.01 |
0.9787 |
1.0137 |
0.9719 |
0.7556 |
111.07 |
128.02 |
|
Support 2 |
1.3747 |
1.5873 |
79.75 |
0.9753 |
1.0105 |
0.9680 |
0.7525 |
110.65 |
127.54 |
|
Support 3 |
1.3697 |
1.5824 |
79.50 |
0.9719 |
1.0073 |
0.9640 |
0.7495 |
110.24 |
127.06 |
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
