- Dollar Recovery on Euro Selling and Mild Risk Aversion Stalled as Market Awaits Definitive Trend
- Euro Shaken by Spanish Sovereign Downgrade and Sharp Increase in Irish Bailout Costs
- British Pound Finds Limited Confidence on BoE Posen’s Flexibility with His Stimulus Vote
- Japanese Yen Loaded with Event Risk but Traders Will be Preoccupied with Intervention’s Ineffectiveness
- Canadian Dollar Suffers High Volatility as the Economy Contracts, the BoC Pushes Back Rates
- Australian Dollar Recovers from an Intraday Stumble on Risk Trends with RBA’s Positive Assessment
Dollar Recovery on Euro Selling and Mild Risk Aversion Stalled as Market Awaits Definitive Trend
It was a wild ride for the US dollar Thursday; and at one point, many traders would be drawn into the speculative belief that a larger reversal was at hand. However, the ground that the greenback would recover through the session fell well short of crossing the necessary technical thresholds to trigger meaningful retracements, much less encourage an underlying trend shift. Volatility was certainly warranted for the fundamentally-pocked session; but the necessary, critical elements needed for a shift in confidence in capital markets and the US dollar itself were notably absent. Nonetheless, it is worth noting that with today’s intraday swings, the existence of overly-defined trends is now drawn in stark relief to an otherwise divergent fundamental backdrop. For the dollar itself, we can best identify the consistent and aggressive selling pressure against the most appealing high-yield currency (the Australian dollar) and the unit that is posting the largest fundamental valuation recovery (the euro). A look at EURUSD and AUDUSD reveal exceptionally steady and assertive trend channels that have maintained their bearings for three and five weeks respectively. It is prudent to follow the rising ‘floor’ of these critical pairs; and we see 1.35 for EURUSD and 0.96 for AUDUSD make for levels that technical and fundamental traders alike can identify.
From a fundamental perspective, it is worth noting that risk appetite itself was put under significant pressure through the New York trading hours. The benchmark Dow Jones Industrial Average led the way with a sharp reversal shortly after the open. Just as remarkable is the consistent rising trendline that defines a higher series of daily lows going back to the beginning of the month. This is certainly not a coincidence; but how much does the speculative influence that is reflected in this equities benchmark translate into today’s greenback price action? Though the correlation between risk trends and the dollar has weakened significantly recently; the divergence is likely the result of a stalled sentiment backdrop while other unique fundamental drivers enter into the picture to undermine the greenback’s long-term appeal through a global economic lull and beyond. That being said, in the scenario where fundamentally-troubled assets and currencies collapse and the market clamors for refuge; the dollar will almost certainly step back into the role of safe haven.
In the meantime, the benchmark currency would enjoy an unusual association to event risk through the past 24 hours. The scheduled data would hold little overall influence on speculative interests because it lacked market-moving potential and the markets were preoccupied with other concerns (like the stability of the European financial system). At the same time, the collective update was enough to support a conclusion of economic stability; which subsequently curbs concerns that the Fed will be driven to expand its stimulus program in order to prevent the nation’s recovery from turning into a double dip recession. For event risk, the third reading of second quarter growth indicator met a modest upgrade in performance with the annualized GDP measure accelerating to a 1.7 percent clip and personal consumption stepping up to 2.2 percent. Also noteworthy was the better than expected reading in the Chicago Purchasing Managers Index which has revived debate over the health of the manufacturing as a backbone to recovery and tomorrow’s ISM factory activity gauge in particular.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Both EURUSD and AUDUSD Present Clear Levels for Reversals
Euro Shaken by Spanish Sovereign Downgrade and Sharp Increase in Irish Bailout Costs
It would seem that the euro is unflappable in its bullish course; but the fundamental foundation continues to crumble. All that is needed is for confidence in government intervention and support to evaporate to send the euro reeling back to the difficult reality that faces the region later down the line. With a natural bullish bias, euro traders would pick up on the drop in the unemployment rate (to its lowest level in over 18 years) and the fact that the regional banks only drew another 29.4 billion euros in 6-day funds to compliment the 104 billion euros drawn yesterday on from three-month the three-month facility (overall less than the 220 billion euros that expired). That being said, we would still seas Spain downgraded by Moody’s (expected or not, it is dovish), while Ireland’s stress test put the cost of bailing the banking sector up to 50 billion euros.
British Pound Finds Limited Confidence on BoE Posen’s Flexibility with His Stimulus Vote
The sterling was highly sensitive to cross-market sentiment trends Thursday; but the developments from within its borders were actually encouraging. The most remarkable development was BoE member Posen’s suggest that he could be persuaded to change his opinion that the economy needs more stimulus. However, we should also note that the BoE Quarterly Credit Conditions report to impressive results.
Japanese Yen Loaded with Event Risk but Traders Will be Preoccupied with Intervention’s Ineffectiveness
There was a lot of event risk on the Japanese docket Thursday, heading into Friday; but is something far more interesting for FX trades to contemplate. According to the Ministry of Finance, Japan sold 2.125 trillion yen ($25 billion) in the market between August 28th and September 28th. Matching up this figure to the impact it has ultimately had on price action, traders can see the lack of influence the government actually has.
Canadian Dollar Suffers High Volatility as the Economy Contracts, the BoC Pushes Back Rates
Despite disappointing turns in growth and interest rate expectations, the Canadian dollar was able to hold up exceptionally well against the US currency. The July GDP reading contracted (as expected) 0.1 percent for the first slip in 11 months. Not fully anticipated was BoC Governor Carney’s remarks that ‘caution’ was required in future rate decisions, inflation was lower than they liked and consumption was restrained.
Australian Dollar Recovers from an Intraday Stumble on Risk Trends with RBA’s Positive Assessment
Event risk was relatively dense for the Australian dollar over the past 24 hours. A drop in building approvals hints at housing troubles, weak private sector credit suggests rates are curbing output and a drop in manufacturing cut into engine of the country’s growth. However, the RBA’s assessment that the country’s four largest banks showed a 15 percent increase in revenue bolsters the currency’s speculative appeal.
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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 |
23:30 |
AiG Performance of Manufacturing Index (SEP) |
51.7 |
Sits at lowest level since March. |
|
|
JPY |
23:30 |
Jobless Rate (AUG) |
5.1% |
5.2% |
Japan’s jobless rate likely declined in July for a second month. |
|
JPY |
23:30 |
Job-To-Applicant Ratio (AUG) |
0.54 |
0.53 |
|
|
JPY |
23:30 |
Household Spending (YoY) (AUG) |
1.4% |
1.1% |
Increased in the last two months. |
|
JPY |
23:30 |
Tokyo Consumer Price Index (YoY) (SEP) |
-0.9% |
-1.0% |
Japan’s consumer prices fell for a seventeenth consecutive month in August as economic growth cooled and the yen’s advance lowered import costs. |
|
JPY |
23:30 |
Tokyo CPI Ex-Fresh Food (YoY) (SEP) |
-1.0% |
-1.1% |
|
|
JPY |
23:30 |
Tokyo CPI Ex Food, Energy (YoY) (SEP) |
-1.4% |
-1.4% |
|
|
JPY |
23:30 |
National Consumer Price Index (YoY) (AUG) |
-0.9% |
-0.9% |
|
|
JPY |
23:30 |
National CPI Ex-Fresh Food (YoY) (AUG) |
-1.0% |
-1.1% |
|
|
JPY |
23:30 |
National CPI Ex Food, Energy (YoY) (AUG) |
-1.5% |
-1.5% |
|
|
CNY |
1:00 |
China PMI Manufacturing (SEP) |
52.5 |
51.7 |
Likely rose for 2nd month in Sept. |
|
JPY |
5:00 |
Vehicle Sales (YoY) (SEP) |
46.7% |
Increased in last thirteen months. |
|
|
EUR |
6:00 |
German Retail Sales (MoM) (AUG) |
0.4% |
-0.1% |
German retail sales fell in July for the first time in four months. |
|
EUR |
6:00 |
German Retail Sales (YoY) (AUG) |
3.4% |
0.8% |
|
|
AUD |
6:30 |
RBA Commodity Price Index (SEP) |
99.1 |
RBA commodity index rose annually in the last six months. |
|
|
AUD |
6:30 |
RBA Commodity Index SDR (YoY) (SEP) |
52.5% |
||
|
CHF |
7:15 |
Retail Sales (Real) (YoY) (AUG) |
4.7% |
Rose annually in last eight months. |
|
|
CHF |
7:30 |
SVME-Purchasing Managers Index (SEP) |
60.7 |
61.4 |
Sits at lowest level since February. |
|
EUR |
7:45 |
Italian PMI Manufacturing (SEP) |
– – |
52.8 |
Europe’s manufacturing industry weakened more than economists forecast in September as the global economy cools. |
|
EUR |
7:50 |
French PMI Manufacturing (SEP F) |
55.4 |
55.4 |
|
|
EUR |
7:55 |
German PMI Manufacturing (SEP F) |
55.3 |
55.3 |
|
|
EUR |
8:00 |
Euro-Zone PMI Manufacturing (SEP F) |
53.6 |
53.6 |
|
|
EUR |
8:00 |
Italian Unemployment Rate s.a. (AUG) |
8.5% |
8.4% |
Sits at lowest level since February. |
|
GBP |
8:30 |
BoE Housing Equity Withdrawal (Pounds) (2Q) |
-2.9B |
-3.2B |
Negative reading in last 8 months. |
|
GBP |
8:30 |
Purchasing Manager Index Manufacturing (SEP) |
53.8 |
54.3 |
Likely fell for fourth month in Sept. |
|
EUR |
9:00 |
Euro-Zone Unemployment Rate (AUG) |
10.0% |
10.0% |
Has held at 10% in last five months. |
|
USD |
12:30 |
Personal Income (AUG) |
0.3% |
0.2% |
Consumer spending in the U.S. rose more than forecast in July, while incomes increased at a rate smaller than forecast. |
|
USD |
12:30 |
Personal Spending (AUG) |
0.3% |
0.4% |
|
|
USD |
12:30 |
PCE Deflator (YoY) (AUG) |
1.5% |
1.5% |
|
|
USD |
12:30 |
PCE Core (MoM) (AUG) |
0.1% |
0.1% |
|
|
USD |
12:30 |
PCE Core (YoY) (AUG) |
1.4% |
1.4% |
|
|
USD |
13:55 |
U. of Michigan Confidence (SEP F) |
67.0 |
66.6 |
Has held under 70 in last 3 months. |
|
USD |
14:00 |
ISM Manufacturing (SEP) |
54.5 |
56.3 |
Manufacturing likely fell in Sept. to lowest reading since 2009. |
|
USD |
14:00 |
ISM Prices Paid (SEP) |
59 |
61.5 |
|
|
USD |
14:00 |
Construction Spending (MoM) (AUG) |
-0.4% |
-1.0% |
Spending fell in the last 3 months. |
|
USD |
21:00 |
Domestic Vehicle Sales (SEP) |
8.70M |
8.66M |
Domestic vehicle sales was below 9 million in the last three months. |
|
USD |
21:00 |
Total Vehicle Sales (SEP) |
11.50M |
11.46M |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
12:30 |
Fed’s William Dudley Speaks in New York City |
|
USD |
19:15 |
Fed’s Richard Fisher Speaks in Vancouver, Canada |
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 |
1.3815 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0000 |
0.7635 |
127.60 |
146.05 |
|
Resist 1 |
1.3690 |
1.5965 |
86.00 |
0.9950 |
1.0750 |
0.9850 |
0.7440 |
120.00 |
140.00 |
|
Spot |
1.3634 |
1.5709 |
83.44 |
0.9823 |
1.0283 |
0.9666 |
0.7346 |
113.75 |
131.08 |
|
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 |
12.5971 |
1.4488 |
6.9783 |
7.7592 |
1.3151 |
Spot |
6.7388 |
5.4664 |
5.8772 |
|
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 |
1.3749 |
1.6020 |
84.13 |
0.9922 |
1.0402 |
0.9784 |
0.7457 |
114.90 |
133.45 |
|
Resist 1 |
1.3691 |
1.5865 |
83.78 |
0.9872 |
1.0342 |
0.9725 |
0.7401 |
114.33 |
132.26 |
|
Pivot |
1.3626 |
1.5767 |
83.48 |
0.9791 |
1.0287 |
0.9675 |
0.7354 |
113.65 |
131.57 |
|
Support 1 |
1.3568 |
1.5612 |
83.13 |
0.9741 |
1.0227 |
0.9616 |
0.7298 |
113.08 |
130.38 |
|
Support 2 |
1.3503 |
1.5514 |
82.83 |
0.9660 |
1.0172 |
0.9566 |
0.7251 |
112.40 |
129.69 |
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 |
1.3812 |
1.5889 |
84.44 |
0.9949 |
1.0409 |
0.9809 |
0.7460 |
115.59 |
133.21 |
|
Resist. 2 |
1.3768 |
1.5844 |
84.19 |
0.9917 |
1.0377 |
0.9773 |
0.7432 |
115.13 |
132.68 |
|
Resist. 1 |
1.3723 |
1.5799 |
83.94 |
0.9886 |
1.0346 |
0.9737 |
0.7403 |
114.67 |
132.15 |
|
Spot |
1.3634 |
1.5709 |
83.44 |
0.9823 |
1.0283 |
0.9666 |
0.7346 |
113.75 |
131.08 |
|
Support 1 |
1.3545 |
1.5619 |
82.94 |
0.9760 |
1.0220 |
0.9595 |
0.7289 |
112.83 |
130.01 |
|
Support 2 |
1.3500 |
1.5574 |
82.69 |
0.9729 |
1.0189 |
0.9559 |
0.7260 |
112.37 |
129.48 |
|
Support 3 |
1.3456 |
1.5529 |
82.44 |
0.9697 |
1.0157 |
0.9523 |
0.7232 |
111.91 |
128.95 |
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
