- Dollar Reaction to NFPs Mixed, Next Week’s Fundamental Interest Will Focus on Fed Speeches
- Euro Holds back from Overtaking 1.40 as Juncker Starts Laments the Currency’s Heights
- British Pound Rallies Despite Osborne’s Support for further BoE Stimulus, NIESR 3Q GDP Reading
- Canadian Dollar Climbs Despite Employment Miss with Help from Lending and Sales Forecasts
- Japanese Yen: Kan Passes Stimulus Plan onto Parliament while Noda Downgrades Intervention Talk
- Australian Dollar Climbs after RBA Deputy Governor Says Further Rate Hikes Necessary
Dollar Reaction to NFPs Mixed, Next Week’s Fundamental Interest Will Focus on Fed Speeches
The dollar was put on the defensive into the end of the week following a disappointing outcome for the September labor data – but not for the reason that most uninitiated fundamental traders would assume. A disappointing outlook for the US economy isn’t the direct burden on the currency that it once was. Nowadays, the fundamental line of reasoning is more complicated than that. To appreciate the unusual cause and effect behind fundamentals today, we need only look at the correlations between the various markets. After the disappointing economic data, the S&P 500 stumbled for a moment and then proceeded to climb through the rest of the session. At the same time, the favored safe haven asset, gold, followed the exact same intraday path. And, then there is the US dollar. On a trade weight-basis, the currency immediately dropped after the report – though it is worth noting that the losses were limited. That being said, the progress wasn’t as important as the general levels: EURUSD sits just off of eight-month highs at 1.40; GBPUSD marked its highest close in two months just below a critical overhead at 1.60; and USDJPY extended its slide to fresh 15-year lows.
The session’s top event risk wasn’t difficult to identify. All we had to do to ascertain what was important to the markets was look at the most searched financial term or see what was topping the financial media sites. The nonfarm payrolls report has been a historical market-mover for the US markets and dollar for years as it is considered a straight-forward and timely measure of economic health. However, the feeble recovery in employment is well documented and generally accepted at this point. Therefore, instead of looking for a moderate improvement within a trend of broader malaise, traders see a greater short-term effect from this report from a general disappointment. The logic here is that a weak reading will further the case for the Federal Reserve will have to act on a deteriorating economic picture by boosting stimulus. And, with that influx of capital, savvy traders will see an opportunity to front run while speculators will be rewarded with a bigger safety net. Through the net 95,000 jobs lost last month, investors would see a glaring signal to the central bank to act sooner rather than later. Trying to glean a positive angle on this data through a hold in the unemployment rate at 9.6 percent alongside a steady 64,000 increase in private payrolls (government jobs dropped by 159,000), we can find additional concern in the underemployment rate jumping from 16.7 percent to 17.1 percent and the negative 366,000 net revision to collective NFPs for the year through March 2010. With speculators already exceptionally receptive to disappointing updates to further their forecasts, this data would be well received – so much so, that the St. Louis Fed President Bullard’s suggestions that further stimulus was not likely needed could be conveniently ignored.
Going forward, stimulus speculation will maintain its status as the primary catalyst for the risk appetite in general and the dollar in particular. For incentive, data will probably take a back seat (most of next week’s market movers are on Friday). Instead, the masses will be following the many speeches scheduled by policy officials throughout the week. Another topic to keep our eyes on: discussion of a growing “currency war.”
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURGBP the Last Trade on the Books, Looking Ahead to EURUSD
Euro Holds back from Overtaking 1.40 as Juncker Starts Laments the Currency’s Heights
The dollar would end up losing far more ground against the sterling and Japanese yen than it would the euro. This was because the shared currency was under pressure of its own Friday. The most prominent concern through the session was Euro group President Jean-Claude Juncker’s remark that he was not happy with EURUSD 1.40. Is this necessarily threatening to euro bulls as a sign of imminent intervention? No. But, it is so unusual to see European officials attempt to talk down the currency that such comments can actually have a short-term impact. Far more influential on a lasting basis was Standard & Poor’s decision to downgrade Allied Irish Bank. Considering this bank is essentially owned by the government, this is effectively a downgrade for the government. At this point, the institution has little hope of recovery on its own; and now even the government will struggle to support it. This will little problem will almost certainly require further assistance from the EU.
British Pound Rallies Despite Osborne’s Support for further BoE Stimulus, NIESR 3Q GDP Reading
When it comes to the pound, fundamental guidance is nearly as oblique as it is with the US dollar. For updates Friday, the NIESR reported its own 3Q GDP reading with an anemic 0.5 percent pace (from 1.2 percent previously), the PPI output figure cooled to a 4.4 percent clip and Chancellor Osborne said he would support a BoE request to expand stimulus. But, here, traders still see hope hikes and a cap on stimulus.
Canadian Dollar Climbs Despite Employment Miss with Help from Lending and Sales Forecasts
Though it may have been overshadowed by the US dollar, the Canadian currency was carrying the heaviest load of scheduled event risk of any of its counterparts. The employment change for September would disappoint with a 6,600 net contraction; but full-time jobs grew by 37,100 positions and the jobless rate held at 8.0 percent. Furthermore, 3Q readings of lending activity and sales forecasts would both improve modestly.
Japanese Yen: Kan Passes Stimulus Plan onto Parliament while Noda Downgrades Intervention Talk
If we were looking at just USDJPY, it would seem that Japanese policy officials’ efforts to depress their currency are failing miserably. However, for most of the crosses, the yen has actually been falling back. Today, the endeavor was pushed in both directions with the Prime Minister approving a 5.1 trillion stimulus plan while the Finance Minister said they would return to large-scale and long-term intervention.
Australian Dollar Climbs after RBA Deputy Governor Says Further Rate Hikes Necessary
Yield is perhaps not as critical to traders nowadays as capital appreciation potential; but the Aussie dollar nevertheless stands is a good position on both fronts. Early Friday, the RBA’s Deputy Governor suggested that the economy was already near capacity after 20 years of continuous growth and that further rate hikes would likely be needed “at some point.” This helps to justify the 58 percent chance of a rate hike next month.
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**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 |
Card Spending (MoM) (SEP) |
-0.2% |
Declined in the last two months. |
|
|
AUD |
1:30 |
Home Loans (MoM) (AUG) |
1.7% |
Rose in July following 9-month slide. |
|
|
EUR |
6:45 |
French Industrial Production (MoM) (AUG) |
0.9% |
Production increased in July for just the second time in four months. |
|
|
EUR |
6:45 |
French Industrial Production (YoY) (AUG) |
5.5% |
||
|
EUR |
6:45 |
French Manufacturing Production (MoM) (AUG) |
1.4% |
Manufacturing improved in July for a sixth time in seven months. |
|
|
EUR |
6:45 |
French Manufacturing Production (YoY) (AUG) |
5.5% |
||
|
EUR |
8:00 |
Italian Industrial Production s.a. (MoM) (AUG) |
-0.3% |
0.1% |
Italian industrial production probably fell in August for the first time since 2009. |
|
EUR |
8:00 |
Italian Industrial Production w.d.a. (YoY) (AUG) |
4.8% |
||
|
EUR |
8:00 |
Italian Industrial Production n.s.a. (YoY) (AUG) |
1.7% |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
18:45 |
Fed’s Yellen Speaks on Regulation and the 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 |
0.9850 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3930 |
1.5943 |
82.07 |
0.9641 |
1.0104 |
0.9858 |
0.7551 |
114.34 |
130.85 |
|
Support 1 |
1.3500 |
1.5500 |
80.00 |
0.9600 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3335 |
1.5300 |
75.00 |
0.9500 |
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 |
12.4070 |
1.4117 |
6.8333 |
7.7576 |
1.3070 |
Spot |
6.6564 |
5.3527 |
5.8237 |
|
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 |
1.4066 |
1.6053 |
82.96 |
0.9750 |
1.0282 |
0.9977 |
0.7634 |
115.60 |
131.70 |
|
Resist 1 |
1.3998 |
1.5998 |
82.52 |
0.9695 |
1.0193 |
0.9918 |
0.7592 |
114.97 |
131.28 |
|
Pivot |
1.3916 |
1.5911 |
82.12 |
0.9644 |
1.0145 |
0.9813 |
0.7511 |
114.32 |
130.68 |
|
Support 1 |
1.3848 |
1.5856 |
81.68 |
0.9589 |
1.0056 |
0.9754 |
0.7469 |
113.69 |
130.26 |
|
Support 2 |
1.3766 |
1.5769 |
81.28 |
0.9538 |
1.0008 |
0.9649 |
0.7388 |
113.04 |
129.66 |
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 |
1.4126 |
1.6131 |
83.14 |
0.9771 |
1.0236 |
1.0015 |
0.7674 |
116.10 |
132.89 |
|
Resist. 2 |
1.4077 |
1.6084 |
82.87 |
0.9739 |
1.0203 |
0.9976 |
0.7643 |
115.66 |
132.38 |
|
Resist. 1 |
1.4028 |
1.6037 |
82.61 |
0.9706 |
1.0170 |
0.9936 |
0.7612 |
115.22 |
131.87 |
|
Spot |
1.3930 |
1.5943 |
82.07 |
0.9641 |
1.0104 |
0.9858 |
0.7551 |
114.34 |
130.85 |
|
Support 1 |
1.3832 |
1.5849 |
81.53 |
0.9576 |
1.0038 |
0.9780 |
0.7490 |
113.46 |
129.83 |
|
Support 2 |
1.3783 |
1.5802 |
81.27 |
0.9543 |
1.0005 |
0.9740 |
0.7459 |
113.02 |
129.32 |
|
Support 3 |
1.3734 |
1.5755 |
81.00 |
0.9511 |
0.9972 |
0.9701 |
0.7428 |
112.58 |
128.81 |
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
