- Dollar Hesitant to React to FOMC Minutes that Essentially Pave the Way for Additional Stimulus
- British Pound Collapses after BoE Member Miles Voices a Dovish Outlook and CPI Data Remains Pressurized
- Euro Rallies on Strong Commentary by ECB’s Weber and a Greenback Stumble
- Japanese Yen Ignores Finance Minister’s Direct Warning of Intervention
- New Zealand Dollar Heads into a Distinct Wave of Spending, Housing and Business Activity Data
- Australian Dollar Finds Another Boost of Support from Strong Consumer Sentiment
Dollar Hesitant to React to FOMC Minutes that Essentially Pave the Way for Additional Stimulus
The dollar made an aborted attempt to jumpstart a recovery Tuesday with the most aggressive intraday advance the battered currency has been able to muster in over the week. Yet, despite this early effort at a reversal and the promise of the first consecutive daily advances since this bear wave began a month ago; the greenback would ultimately find itself pitched back into the read through the close. Putting this past session’s activity into perspective, it would be easy to say this development extends the larger bear trend. In reality, this daily decline still fits within the congestion that has developed over the past week. We can see this is the case amongst the most liquid majors. The most remarkable examples of this sideways price action includes: EURUSD’s lack of progress below 1.40; USDJPY has maintained a three-day floor at a 15-year low around 81.70; and AUDUSD is still below the closely watched 0.99 handle (with an eye towards parity). In itself, today’s price action would not seem that remarkable. However, the dollar limited slide is significant when we consider the fundamental developments for the day.
Few fundamental dollar traders would argue that the primary driver for the benchmark currency is speculation surrounding the possibility of stimulus expansion by the Federal Reserve. In fact, the 11 percent tumble the dollar has suffered over the past month (against the euro) aligns itself nicely to the rise in public debate surrounding the possibility of increase asset purchases by the central bank; and the FOMC rate decision on the 21st of September forced a break to multi-month lows (by surpassing the swing low in early August). Yet, to up until this week, all the discussion surrounding the possibility of another expansionary move by the central bank was unsubstantiated conjecture. And, while speculation was fed by discouraging economic data and the dovish views of certain Board of Governors members, it was still speculation. In the minutes for the FOMC’s September meeting, we would receive a more reliable provision for expecting a Fed stimulus hike than the disappointing NFPs reading released this past Friday. In the statement, the central bank noted that “many participants” believed that it would be “appropriate to provide additional monetary policy accommodation” should the recovery fail to meaningfully reduce the jobless rate or inflation deviate from its target. This could be argued to be similar to what we have seen in previous statements; but the additional suggestions that the Fed could act “before long,” that officials were contemplating means for better “communicating any additional steps to provide such stimulus,” and that much of the meeting was centered on what was the best means to provide stimulus all suggest the group is simply fine-tuning its approach.
What astute traders should ask themselves given this bolstered case for an increase in stimulus come November 3rd is why would the dollar and risk appetite (which typically rallies on expansionary policy efforts) didn’t show a more dramatic reaction to today’s minutes. This is most likely a sign that the market has essentially priced in the possibility of an increase in Fed bond purchases. What is still unclear in pricing is how the policy group will answer the need for additional stimulus. A one-time promise of another $1 trillion in liquidity seems unlikely given the discussion over how to intervene. A more flexible and time-released approach seems more likely; but in this scenario, it may be difficult for speculators to benchmark how much support they will draw from the deep government pockets.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: A EURUSD Short is Triggered and GBPUSD Pending Despite the Fed
British Pound Collapses after BoE Member Miles Voices a Dovish Outlook and CPI Data Remains Pressurized
Aside from the US dollar, the most fundamentally-active major Tuesday was the British pound. Through the session, the market would find updates on the economic forecast, the potential for stimulus and the trouble with interest rates. For economic activity (itself a defining feature of monetary and fiscal policy), we had the weaker retail sales and RICS house price readings from the early Asian session. In addition, we see very early in Wednesday’s session that the Nationwide Consumer Confidence survey hit an 18-month low. This adds to the dovish commentary to come from BoE member David Miles who said that stimulus may need to be used in the near future. That being said, how do we reconcile an increase in the bond program with inflation that was above the 3 percent tolerance limit for a seventh month? Stimulus and hikes?
Euro Rallies on Strong Commentary by ECB’s Weber and a Greenback Stumble
The euro had everything go its way Tuesday; and yet the currency’s advance was relatively tame. Trying to advance the perceived financial health of the region, Greece was oversubscribed on a 26-week bill sale that raised 1.17 billion euros and drew a lower rate of 4.54 percent. Far more interesting though was ECB member Weber’s call to phase out the central banks unorthodox stimulus efforts “now.”
Japanese Yen Ignores Finance Minister’s Direct Warning of Intervention
Japanese officials have lost the mystique of intervention. Instead of allowing the speculators to devolve into their own doubt over how aggressive and effective actual currency operations by policy officials could be; we see Finance Minister Noda make another empty vow to “take decisive” action on behalf of the exchange rate. Considering the last effort took two weeks to unwind and wasn’t consistently fed, the market is balking.
New Zealand Dollar Heads into a Distinct Wave of Spending, Housing and Business Activity Data
Looking ahead, the New Zealand dollar is facing a wave of event risk. And, though the currency has a history of ignoring its own fundamental health in favor of risk appetite trends that pick up on the currency’s high yield; investor optimism is otherwise sidelined at the moment. This could leave the kiwi open to interest rate forecasts in the face of retail sales, home sales and business activity figures.
Australian Dollar Finds Another Boost of Support from Strong Consumer Sentiment
Overnight index swaps show that the market is pricing in a near 50 percent probability of a rate hike by the RBA at its next monetary policy decision. This morning’s event risk certainly furthers this hawkish lean with a notable 3.3 percent advance in the Westpac consumer sentiment report. If consumers are weathering higher rates, policy officials will more readily act to curb a perceived inflation threat.
For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
21:45 |
Food Prices (MoM) (SEP) |
-0.1% |
Fell in August after two-month rise. |
|
|
GBP |
23:01 |
Nationwide Consumer Confidence (SEP) |
59 |
61 |
Rose in August from 15-month low. |
|
JPY |
23:50 |
Japan Money Stock M2+CD (YoY) (SEP) |
2.8% |
2.8% |
M2 money stock rose by at least 2% in every month since Jan 2009. |
|
JPY |
23:50 |
Japan Money Stock M3 (YoY) (SEP) |
2.1% |
2.1% |
|
|
JPY |
23:50 |
Bank Lending Banks Adjustments (YoY) (SEP) |
-1.7% |
Japanese bank lending inc trusts fell annually in August for a ninth consecutive month. |
|
|
JPY |
23:50 |
Bank Lending Banks ex Trust (SEP) |
-2.0% |
||
|
JPY |
23:50 |
Bank Lending Banks inc Trusts (YoY) (SEP) |
-1.9% |
||
|
JPY |
23:50 |
Machine Orders (MoM) (AUG) |
-3.9% |
8.8% |
Machine orders likely fell in August for the first time since May. |
|
JPY |
23:50 |
Machine Orders (YoY) (AUG) |
8.7% |
15.9% |
|
|
CNY |
Trade Balance (USD) (SEP) |
$17.75B |
$20.03B |
China posted a third straight trade surplus of more than $20 billion in August even as imports increased. |
|
|
CNY |
Exports (YoY) (SEP) |
26.0% |
34.4% |
||
|
CNY |
Imports (YoY) (SEP) |
25.0% |
35.2% |
||
|
AUD |
0:30 |
Westpac Consumer Confidence (OCT) |
-5.0% |
Confidence declined in September for the first time in three months. |
|
|
AUD |
0:30 |
Westpac Consumer Confidence Index (OCT) |
113.2 |
||
|
CNY |
2:00 |
Business Climate Index (3Q) |
135.9 |
China’s business climate index rose to a two-year high in 2Q 2010. |
|
|
CNY |
2:00 |
Entrepreneur Confidence Index (3Q) |
133.0 |
||
|
NZD |
2:00 |
Non Resident Bond Holdings (SEP) |
62.7% |
August reading lowest since 2004. |
|
|
EUR |
5:30 |
French Consumer Price Index (MoM) (SEP) |
0.2% |
0.2% |
France’s inflation rate declined in August, thanks to lower costs for petroleum products and a seasonal drop in fresh-fruit prices. |
|
EUR |
5:30 |
French Consumer Price Index (YoY) (SEP) |
1.7% |
1.4% |
|
|
EUR |
5:30 |
French CPI – EU Harmonised (MoM) (SEP) |
0.2% |
0.2% |
|
|
EUR |
5:30 |
French CPI – EU Harmonised (YoY) (SEP) |
1.8% |
1.6% |
|
|
EUR |
5:30 |
French CPI Ex Tobacco Index (SEP) |
119.92 |
119.97 |
|
|
CHF |
7:15 |
Producer & Import Prices (MoM) (SEP) |
0.1% |
0.1% |
Swiss producer prices rose in August after a two-month decline. |
|
CHF |
7:15 |
Producer & Import Prices (YoY) (SEP) |
0.4% |
0.5% |
|
|
GBP |
8:30 |
Jobless Claims Change (SEP) |
4.5K |
2.3K |
U.K. jobless claims unexpectedly increased in August for the first time in seven months. |
|
GBP |
8:30 |
Claimant Count Rate (SEP) |
4.5% |
4.5% |
|
|
GBP |
8:30 |
ILO Unemployment Rate (3M) (AUG) |
7.8% |
7.8% |
|
|
GBP |
8:30 |
Avg Weekly Earnings inc Bonus (3MoY) (AUG) |
1.6% |
1.5% |
Average weekly earnings rose in the last fourteen months. |
|
GBP |
8:30 |
Average Weekly Earnings ex Bonus (3MoY) (AUG) |
2.2% |
1.8% |
|
|
EUR |
9:00 |
Euro-Zone Industrial Production (MoM) (AUG) |
0.8% |
0.1% |
European industrial production fell short of expectations in July. |
|
EUR |
9:00 |
Euro-Zone Industrial Production (YoY) (AUG) |
7.4% |
7.2% |
|
|
USD |
11:00 |
MBA Mortgage Applications (OCT 8) |
-0.2% |
Apps fell fifth week on refinancing. |
|
|
12:30 |
New Housing Price Index (MoM) (AUG) |
-0.1% |
-0.1% |
Posted first decline in 13 months. |
|
|
USD |
12:30 |
Import Price Index (MoM) (SEP) |
-0.2% |
0.6% |
Import prices probably fell in September following two-month rise. |
|
USD |
12:30 |
Import Price Index (YoY) (SEP) |
3.8% |
4.1% |
|
|
NZD |
21:00 |
REINZ House Sales (YoY) (SEP) |
-27.1% |
August home sales in New Zealand posted the largest drop since January 2009. |
|
|
NZD |
21:00 |
REINZ Housing Price Index (MoM) (SEP) |
0.3% |
||
|
NZD |
21:00 |
REINZ Housing Price Index (SEP) |
3201.7 |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
8:10 |
Fed Chairman Ben Bernanke Speaks on Business Innovation |
|
GBP |
17:40 |
BoE’s Andrew Sentance Speaks on Economy |
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 |
1.4200 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0000 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4000 |
1.5965 |
86.00 |
0.9950 |
1.0750 |
0.9900 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3908 |
1.5777 |
81.89 |
0.9577 |
1.0111 |
0.9857 |
0.7547 |
113.88 |
129.19 |
|
Support 1 |
1.3500 |
1.5500 |
80.00 |
0.9550 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3335 |
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 |
12.4144 |
1.4136 |
6.8525 |
7.7581 |
1.3057 |
Spot |
6.6588 |
5.3612 |
5.8564 |
|
Support 1 |
12.0500 |
1.4070 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
6.6150 |
5.3000 |
5.7030 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
6.4440 |
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 |
1.4033 |
1.5978 |
82.66 |
0.9794 |
1.0220 |
0.9944 |
0.7606 |
114.96 |
131.42 |
|
Resist 1 |
1.3970 |
1.5878 |
82.28 |
0.9685 |
1.0166 |
0.9900 |
0.7577 |
114.42 |
130.31 |
|
Pivot |
1.3873 |
1.5816 |
81.97 |
0.9621 |
1.0129 |
0.9834 |
0.7528 |
113.64 |
129.64 |
|
Support 1 |
1.3810 |
1.5716 |
81.59 |
0.9512 |
1.0075 |
0.9790 |
0.7499 |
113.10 |
128.53 |
|
Support 2 |
1.3713 |
1.5654 |
81.28 |
0.9448 |
1.0038 |
0.9724 |
0.7450 |
112.32 |
127.86 |
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 |
1.4100 |
1.5961 |
82.95 |
0.9704 |
1.0242 |
1.0006 |
0.7662 |
115.61 |
131.15 |
|
Resist. 2 |
1.4052 |
1.5915 |
82.68 |
0.9672 |
1.0209 |
0.9969 |
0.7633 |
115.18 |
130.66 |
|
Resist. 1 |
1.4004 |
1.5869 |
82.42 |
0.9640 |
1.0176 |
0.9931 |
0.7605 |
114.74 |
130.17 |
|
Spot |
1.3908 |
1.5777 |
81.89 |
0.9577 |
1.0111 |
0.9857 |
0.7547 |
113.88 |
129.19 |
|
Support 1 |
1.3812 |
1.5685 |
81.36 |
0.9514 |
1.0046 |
0.9783 |
0.7489 |
113.02 |
128.21 |
|
Support 2 |
1.3764 |
1.5639 |
81.10 |
0.9482 |
1.0013 |
0.9745 |
0.7461 |
112.58 |
127.72 |
|
Support 3 |
1.3716 |
1.5593 |
80.83 |
0.9450 |
0.9980 |
0.9708 |
0.7432 |
112.15 |
127.23 |
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
