- Dollar Gains Ground on Slip in Investor Confidence, Euro’s Misfortune and Future Uncertainty
- Euro Tumbles as Financial Distress Offsets China’s Vow of Support and Greece’s Improved Deficit Forecast
- Australian Dollar May be Looking at Volatility following the RBA Rate Decision Regardless of the Outcome
- Japanese Yen Traders await the Bank of Japan’s Decision on Whether or not to Increase Stimulus
- British Pound Shows Improvement in Construction activity and Looks Ahead to Services
- New Zealand Dollar may have Found its Contrarian Indicator in Financial Ministers Capitulation
Dollar Gains Ground on Slip in Investor Confidence, Euro’s Misfortune and Future Uncertainty
The fundamental tide was going the dollar’s way through the opening 24 hours of the trading week; but this collective push was hardly the encouragement needed to produce a shift in the greenback’s prevailing bear trend trend. At this point, it is only reasonable to chalk up the currency’s gains to an indirect correction or pause in larger and more established economic matters. This scenario of a pause in larger trends fits what was seen across other asset classes Monday. For equities, we would see the congestion of the past two weeks hold while the VIX volatility index sustained congestion near its five-month low. At the same time, volume on the crude, gold and Treasury futures contracts all showed marked reductions from Friday’s trading levels. In the currency market, the breather from constant selling pressure has forestalled EURUSD’s push beyond the next significant technical level at 1.3800; temporarily prevented USDJPY’s break below 83; maintained GBPUSD’s congestion; and curbed AUDUSD’s gains before it hits fresh 27-year highs. How was this allowance made – through fundamental developments of course.
There are a few primary concerns when it comes to trading today; and one of those foundation precepts in play Monday was the need for safety amongst market participants. In the past weeks and months, the dollar has suffered for its safe haven appeal as risk appetite has actually recovered somewhat and basis risk in dollar-denominated assets has increased. However, if the winds of risk aversion increase significantly and revive correlations across the different speculative markets, the greenback will readily step back into its role as a harbor for those seeking shelter from uncertain market conditions. We would get a small taste of risk aversion Monday with equities falling back, speculative commodities slipping and high-yielding (and fundamentally-risky) currencies retrace. It is this latter concern that would prove an additional prop for the dollar. As the primary counterpart to nearly every currency in the FX market; where there is selling in one market, at least a portion of that capital finds its way into the boarders of the US market. One of the most remarkable rebalancing capital flows was through EURUSD, which was battered by its own fundamental troubles. Yet, with these considerations (risk aversion and cross currency flows) taken into account; the dollar’s ultimate performance still resides in speculation surrounding the possibility that the Federal Reserve will expand its stimulus effort in the near future. Have these two developments materially altered the probability that the central bank will increase its bond purchases and therefore increase the number of dollar’s floating around the market? No. At the same time, what is a fair value for the greenback under the presumption that the Fed will actually increase stimulus sometime later down the line? This is a debatable point that may slow further dollar depreciation. At this point, there is a significant portion of this outcome priced in already; and the probability of a one-off increase is actually low.
At this point, scheduled event risk provides something more tangible to benchmark expectations for stimulus. With each indicator that points to a struggling US economy, the more likely it is that the central bank will be forced to actually provide support. That being said, today’s event risk carried little influence. Factory orders and pending home sales are secondary figures for their sectors. Tomorrow’s ISM service reading isn’t.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURJPY and AUDUSD Ahead of the BoJ and RBA Rate Decisions
Euro Tumbles as Financial Distress Offsets China’s Vow of Support and Greece’s Improved Deficit Forecast
The euro was hit hard on Monday; and considering the sheer volume of fundamental updates through the session, it should come as little surprise. That being said, the developments that we would see come over the wires generally offset each other. From the positive column, we would see a marked-improvement in the Eurozone’s Sentix investor confidence survey for October (an important indicator when you depend on Europeans to buy up debt issued by regional banks and governments). Far more interesting though was China’s promise to hold and further invest in European, and more specifically Greece’s, government debt. Even Greece itself would raise the bar by reducing its deficit-to-GDP expectations. That being said, there were also negative developments. The ECB reported it increased its bond purchases significantly (1.38 billion euros last week), Ireland’s central bank lowered its 2010 and 2011 growth forecasts, and liquidity has been drained from the system.
Australian Dollar May be Looking at Volatility following the RBA Rate Decision Regardless of the Outcome
Big event risk is due soon for the Australian dollar: the RBA rate decision. The market is already pricing in a 25 bps rate hike to a 4.75 percent benchmark. Therefore, we have a point of reference to project the market’s reaction to the actual outcome. A rate hike alone will not significantly boost the Aussie’s trend, we would need to see the possibility of future hikes. And, if they do not hike at all; a reversal may result.
Japanese Yen Traders await the Bank of Japan’s Decision on Whether or not to Increase Stimulus
Typically, the Bank of Japan’s rate decisions are events of purely academic interest. That being said, this policy gathering may actually generate significant price action. There is significant speculation surrounding the possibility that the policy authority will actually expand stimulus by increasing its 30 trillion lending facility or increasing the length of the existing program. If policy is kept as is – the yen could extend its run.
British Pound Shows Improvement in Construction activity and Looks Ahead to Services
Event risk from the British newswires was encouraging for an economy that is trying to balancing its recovery with its headlong effort to cut fiscal deficits. Alongside suggestions that welfare programs would be significantly altered by Chancellor Osbourne, a troubled economic sector showed a notable uptick in activity through the construction PMI reading. We’ll see if the service-sector report offers similar improvement.
New Zealand Dollar may have Found its Contrarian Indicator in Financial Ministers Capitulation
What happens when the officials that are supposed to have control over fiscal and monetary policy capitulate to a market’s control over a currency? That is what is happening with the kiwi dollar after New Zealand Financial Minister English said he believes the national currency would advance regardless of the a deceleration in growth and interest rate expansion. If you are a contrarian, this is a strong signal.
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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 |
|
AUD |
22:30 |
AiG Performance of Service Index (SEP) |
47.5 |
Index rose slightly in August. |
|
|
JPY |
Bank of Japan Interest Rate Decision |
0.10% |
0.10% |
Market implies no chance of hike. |
|
|
AUD |
0:30 |
Retail Sales s.a. (MoM) (AUG) |
0.4% |
0.7% |
July rise led by restaurant sales. |
|
AUD |
0:30 |
Trade Balance (Australian dollar) (AUG) |
2300M |
1888M |
July surplus narrowed on exports. |
|
AUD |
0:30 |
ANZ Job Advertisements (MoM) (SEP) |
2.6% |
Ads increased in last four months. |
|
|
CNY |
2:30 |
HSBC China Purchasing Managers Index Services (SEP) |
57.6 |
Rose to 4-month high in August. |
|
|
AUD |
3:30 |
Reserve Bank of Australia Interest Rate Decision |
4.75% |
4.50% |
Market implies 74% chance of hike. |
|
CHF |
7:15 |
Consumer Price Index (MoM) (SEP) |
0.0% |
0.0% |
Swiss inflation slowed for a fourth straight month in August. |
|
CHF |
7:15 |
Consumer Price Index (YoY) (SEP) |
0.3% |
0.3% |
|
|
EUR |
7:45 |
Italian PMI Services (SEP) |
50.5 |
51.4 |
Growth in Europe’s services and manufacturing industries weakened more than forecast in September, as the composite index fell from 56.2 to 53.8, its lowest reading since February. |
|
EUR |
7:50 |
French PMI Services (SEP F) |
58.8 |
60.4 |
|
|
EUR |
7:55 |
German PMI Services (SEP F) |
54.6 |
54.6 |
|
|
EUR |
8:00 |
Euro-Zone PMI Services (SEP F) |
53.6 |
53.6 |
|
|
EUR |
8:00 |
Euro-Zone PMI Composite (SEP F) |
53.8 |
53.8 |
|
|
GBP |
8:30 |
Purchasing Manager Index Services (SEP) |
51.0 |
51.3 |
|
|
GBP |
8:30 |
Official Reserves (Changes) (SEP) |
$754M |
Rose to 9-month high in August. |
|
|
EUR |
9:00 |
Euro-Zone Retail Sales (MoM) (AUG) |
0.2% |
0.1% |
Retail sales increased less than expected in July. |
|
EUR |
9:00 |
Euro-Zone Retail Sales (YoY) (AUG) |
1.3% |
1.1% |
|
|
USD |
14:00 |
ISM Non-Manufacturing Composite (SEP) |
52.0 |
51.5 |
Sits at lowest reading since Jan. |
|
USD |
21:00 |
ABC Consumer Confidence (OCT 3) |
-45 |
Held above -50 in last 8 weeks. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
23:30 |
Fed Chairman Ben Bernanke Speaks on Fiscal Sustainability |
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 |
1.3900 |
1.5965 |
86.00 |
0.9950 |
1.0750 |
0.9850 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3688 |
1.5832 |
83.37 |
0.9725 |
1.0228 |
0.9672 |
0.7414 |
114.12 |
131.99 |
|
Support 1 |
1.3300 |
1.5500 |
83.00 |
0.9650 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2500 |
1.5300 |
80.00 |
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 |
1.8025 |
8.7915 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
13.8500 |
1.6755 |
8.3675 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.5400 |
6.1150 |
|
Spot |
12.5799 |
1.4543 |
6.9958 |
7.7572 |
1.3146 |
Spot |
6.7645 |
5.4458 |
5.8713 |
|
Support 1 |
12.0500 |
1.4500 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
6.6150 |
5.3000 |
5.8000 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
6.4440 |
5.1000 |
5.6000 |
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 |
1.3861 |
1.5938 |
84.16 |
0.9825 |
1.0281 |
0.9765 |
0.7472 |
115.93 |
133.08 |
|
Resist 1 |
1.3774 |
1.5885 |
83.76 |
0.9775 |
1.0255 |
0.9718 |
0.7443 |
115.02 |
132.53 |
|
Pivot |
1.3721 |
1.5817 |
83.48 |
0.9740 |
1.0217 |
0.9686 |
0.7419 |
114.39 |
131.86 |
|
Support 1 |
1.3634 |
1.5764 |
83.08 |
0.9690 |
1.0191 |
0.9639 |
0.7390 |
113.48 |
131.31 |
|
Support 2 |
1.3581 |
1.5696 |
82.80 |
0.9655 |
1.0153 |
0.9607 |
0.7366 |
112.85 |
130.64 |
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 |
1.3867 |
1.6012 |
84.35 |
0.9850 |
1.0352 |
0.9812 |
0.7525 |
115.87 |
134.06 |
|
Resist. 2 |
1.3822 |
1.5967 |
84.10 |
0.9818 |
1.0321 |
0.9777 |
0.7497 |
115.43 |
133.54 |
|
Resist. 1 |
1.3778 |
1.5922 |
83.86 |
0.9787 |
1.0290 |
0.9742 |
0.7470 |
115.00 |
133.02 |
|
Spot |
1.3688 |
1.5832 |
83.37 |
0.9725 |
1.0228 |
0.9672 |
0.7414 |
114.12 |
131.99 |
|
Support 1 |
1.3598 |
1.5742 |
82.88 |
0.9663 |
1.0166 |
0.9602 |
0.7358 |
113.24 |
130.96 |
|
Support 2 |
1.3554 |
1.5697 |
82.64 |
0.9632 |
1.0135 |
0.9567 |
0.7331 |
112.81 |
130.44 |
|
Support 3 |
1.3509 |
1.5652 |
82.39 |
0.9600 |
1.0104 |
0.9532 |
0.7303 |
112.37 |
129.92 |
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
