- Dollar Still Caught in the Wake of Fed Stimulus Speculation, Treasury Sales and Intervention
- Euro Traders Exploit a Silver Lining in Today’s Financial Assessment with a Low LTRO Bid
- British Pound Slides as Mortgages Approvals and Consumer Confidence Drop
- Japanese Yen: How Would Stimulus Expansion Affect the Japanese Economy and Currency?
- Australian Dollar: A Closer Look at the Region’s Growth Engine May Expose Flaws in Speculation
- Canadian Dollar Finds Limited Strength on Flaherty’s Outlook, July GDP Reading More Objective
Dollar Still Caught in the Wake of Fed Stimulus Speculation, Treasury Sales and Intervention
Since we are coming to the end of the month, it is worthwhile to look at the dollar not only in terms of its daily performance but its general trend as well. Wednesday’s session ended in the red; but selling momentum was markedly curbed. This is both remarkable given the developments in Treasury auctions and European finances; and at the same time, it is exactly in line with the lack of underlying speculative investment and the lack of tangible event risk. Yet, when all is said and done, performance is a function of the market’s concerns and forecasts. In these regards, we can see the stain of fear quite clearly. In the past 13 active trading days, the Dollar Index has declined nine times. More importantly, the pace to this bearish move accelerating as it crosses technical boundaries. In fact, if we were to stamp the week at Wednesday’s close, we would be looking at the biggest decline on this higher time frame since May of last year. At this point, technical momentum is finding its greatest support from the remarkable rallies for EURUSD (the most liquid currency pair in the market) and AUDUSD. Additional drive could be encouraged should GBPUSD, USDCAD and USDJPY forge their own trend-bearing breakouts. Yet, considering many of these pairs are already at or near multi-month or -year highs; we need to consider how feasible it is to maintain aggressive selling without obvious ‘excess value’ to unwind.
If we were looking to indentify the primary fundamental current behind the greenbacks’ descent through the past 24 hours, we would come up with the same catalyst that has maintained selling pressure through the past two weeks: speculation of stimulus expansion by the Federal Reserve. How far can mere conjecture of a fundamental event extend without hard evidence that it will occur? As long as the fundamental backdrop is conducive to these specific concerns and the dollar keeps breakout through support levels, the self-sustained move can last for a longer time than many investors’ fundamental convictions can hold out. Through Wednesday’s session, there were no significant risk trends to interrupt the dollar’s debasement with questions of safe haven status. Furthermore, we are reminded of the fragile situation the US finds itself in when we consider that in between Fed Treasury purchases, the Treasury itself is still selling debt at a remarkable clip. A $29 billion issue of seven-year notes today drew a record low yield and the highest bid-to-cover since the maturity was revived. Low yields are helpful from an economic perspective as they reduce lending costs for consumers and investors in a bid to maintain the recovery. That being said, the natural reaction to increased supply of Treasuries is reduced face value and increased demand for return (higher yields). The Fed’s purchases are encouraging speculators to ‘front-run’ the stimulus effort which backs international demand for US safe haven assets. Realistically, this is not a long-term solution. The cracks are already showing through. It was rumored in the Asian session that the central banks of Singapore, South Korea, Thailand and Indonesia all intervened on behalf of the dollar. This mix of stimulus, intervention and speculation can’t hold forever.
Expanding our focus from the dollar specifically to the markets in general, all traders should take note of the marked change in activity and associations. We have already noted deterioration in correlations; but the transformation runs deeper than that. Recently, brokers have reported steep declines in trade revenue, major hedge funds have shuttered and flash crashes are becoming more frequent. Seismic changes.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPAUD and GBPCHF Fill the Gap before EURUSD can be Shorted?
Euro Traders Exploit a Silver Lining in Today’s Financial Assessment with a Low LTRO Bid
In a torrent of otherwise disappointing event risk, euro traders would once again look for the silver lining to support the currency’s already impressive trend. In the positive column, a reading of Eurozone confidence for September rose to its highest level since January 2008; but the real interest was in the level of demand for the ECB’s long-term refinancing operation to replace the 225 billion euros of loans that matured (and therefore required repayment by the banks) today. The 104 billion euros worth of three-month debt bid was a significant step down; but we have to remember there is an auction for shorter-tenor loans tomorrow, this drains liquidity from the system and there are less transparent ways to tap capital. In the meantime, Ireland’s debt guarantees are set to expire, Italy drew higher yields and a EU stability report was unmistakably bearish.
British Pound Slides as Mortgages Approvals and Consumer Confidence Drop
The market is hesitant to push the British pound one way or the other. Unlike the dollar or euro, the fundamental outlook for the sterling is still difficult to benchmark as the pace of recovery, fiscal austerity progress and monetary policy present a mixed picture. For an economy assessment Wednesday, mortgage approvals hit a six month low while consumer confidence unexpectedly contracted as the recovery sputters.
Japanese Yen: How Would Stimulus Expansion Affect the Japanese Economy and Currency?
Between the Fed, Bank of England and Bank of Japan, the latter arguably sees the greatest potential for expanding its stimulus efforts. However, what impact would this have on the yen? If we consider the impact that similar speculation is leveraging on the dollar, we would assume it would send the yen reeling. However, this currency is stationary in the face of risk appetite, intervention and policy threats.
Australian Dollar: A Closer Look at the Region’s Growth Engine May Expose Flaws in Speculation
The Australian dollar was presented with a number of economic updates over the past 24 hours. Perhaps the most influential reading was the Chinese manufacturing activity reading’s indirect influence on the export economy; but we should also note that private sector credit cooled and building permits dropped. Fitch has said it plans to stress test the country’s housing sector in response to growing fear. What will they find?
Canadian Dollar Finds Limited Strength on Flaherty’s Outlook, July GDP Reading More Objective
Canadian Finance Minister Flaherty made an effort to fortify confidence in his already robust currency Wednesday before the release of the July GDP reading. The monthly growth report is expected to print its first contract since August of last year. If this contraction is realized, it would go a long way to confirming the loonie is in the same boat as its larger counterparts and doesn’t necessarily deserve it honorary high-yield title.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
21:45 |
Building Permits (MoM) (AUG) |
-3.5% |
3.1% |
Permits rose in the past 2 months. |
|
GBP |
23:01 |
GfK Consumer Confidence Survey (SEP) |
-19 |
-18 |
Sits at highest level since May. |
|
JPY |
23:15 |
Nomura/JMMA Manufacturing Purchasing Manager Index (SEP) |
50.1 |
Declined in the past three months. |
|
|
JPY |
23:50 |
Industrial Production (MoM) (AUG P) |
1.1% |
-0.2% |
Japan’s production fell in July, well off expectations. |
|
JPY |
23:50 |
Industrial Production (YoY) (AUG P) |
16.9% |
14.2% |
|
|
JPY |
23:50 |
Retail Trade s.a. (MoM) (AUG) |
1.9% |
0.7% |
Japanese retail trade increased in five of the past six months. |
|
JPY |
23:50 |
Retail Trade (YoY) (AUG) |
4.7% |
3.8% |
|
|
JPY |
23:50 |
Large Retailers’ Sales (AUG) |
-1.9% |
-1.3% |
Likely fell for 28th straight month. |
|
AUD |
1:30 |
Building Approvals (MoM) (AUG) |
0.0% |
2.3% |
Approvals unexpectedly rose in July for the first time in four months. |
|
AUD |
1:30 |
Building Approvals (YoY) (AUG) |
10.8% |
11.0% |
|
|
AUD |
1:30 |
Private Sector Credit (MoM) (AUG) |
0.3% |
0.1% |
Private sector credit rose in July for a ninth consecutive month. |
|
AUD |
1:30 |
Private Sector Credit (YoY) (AUG) |
2.9% |
2.8% |
|
|
NZD |
2:00 |
NBNZ Business Activity Outlook (SEP) |
25.7 |
Business confidence fell in August to the lowest level in 14 months. |
|
|
NZD |
2:00 |
NBNZ Business Confidence (SEP) |
16.4 |
||
|
JPY |
4:00 |
Vehicle Production (YoY) (AUG) |
16.8% |
Increased annually in last 9 months. |
|
|
JPY |
5:00 |
Housing Starts (YoY) (AUG) |
10.2% |
4.3% |
Japanese housing starts probably rose annually in August for a third consecutive month. |
|
JPY |
5:00 |
Annualized Housing Starts (AUG) |
0.759M |
0.772M |
|
|
JPY |
5:00 |
Construction Orders (YoY) (AUG) |
-0.7% |
||
|
GBP |
6:00 |
Nationwide House Prices s.a. (MoM) (SEP) |
-0.3% |
-0.9% |
U.K. house prices fell the most in six months in August. |
|
GBP |
6:00 |
Nationwide House Prices n.s.a. (YoY) (SEP) |
2.6% |
3.9% |
|
|
EUR |
6:45 |
French Producer Prices (MoM) (AUG) |
0.3% |
0.0% |
French producer prices were unchanged in May and June. |
|
EUR |
6:45 |
French Producer Prices (YoY) (AUG) |
3.5% |
3.5% |
|
|
EUR |
7:55 |
German Unemployment Change (SEP) |
-20K |
-17K |
German unemployment will drop to 9-year low next year, IAB says. |
|
EUR |
7:55 |
German Unemployment Rate s.a. (SEP) |
7.6% |
7.6% |
|
|
EUR |
9:00 |
Euro-Zone CPI Estimate (YoY) (SEP) |
1.8% |
1.6% |
Rose annually in last 10 months. |
|
CAD |
12:30 |
Gross Domestic Product (MoM) (JUL) |
-0.1% |
0.2% |
Increased in 9 of last 10 months. |
|
USD |
12:30 |
Gross Domestic Product (Annualized) (2Q T) |
1.6% |
1.6% |
The economic recovery in the U.S. weakened in 2Q more than previously estimated, showing the risks of slackening in growth. |
|
USD |
12:30 |
Personal Consumption (2Q T) |
2.0% |
2.0% |
|
|
USD |
12:30 |
Gross Domestic Product Price Index (2Q T) |
1.9% |
1.9% |
|
|
USD |
12:30 |
Core PCE (QoQ) (2Q T) |
1.1% |
1.1% |
|
|
USD |
12:30 |
Initial Jobless Claims (SEP 25) |
460K |
465K |
Jobless claims rose last week to the highest levels this month. |
|
USD |
12:30 |
Continuing Claims (SEP 18) |
4470K |
4489K |
|
|
USD |
13:45 |
Chicago Purchasing Manager (SEP) |
55.7 |
56.7 |
Likely fell for second straight month. |
|
USD |
14:00 |
NAPM-Milwaukee (SEP) |
58 |
59 |
Fell in August from 66 July reading. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
17:15 |
Fed’s Eric Rosengren Speaks in New York City |
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 |
|
Resistance 2 |
1.3815 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0000 |
0.7635 |
127.60 |
146.05 |
|
Resistance 1 |
1.3690 |
1.5965 |
86.00 |
0.9950 |
1.0750 |
0.9850 |
0.7440 |
120.00 |
140.00 |
|
Spot |
1.3628 |
1.5789 |
83.66 |
0.9763 |
1.0333 |
0.9685 |
0.7367 |
114.01 |
132.09 |
|
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 |
|
Resistance 2 |
14.4500 |
1.8025 |
8.7915 |
7.8165 |
1.4945 |
Resistance 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resistance 1 |
13.8500 |
1.6755 |
8.3675 |
7.8075 |
1.4655 |
Resistance 1 |
7.5800 |
5.5400 |
6.1150 |
|
Spot |
12.5424 |
1.4526 |
6.9588 |
7.7586 |
1.3162 |
Spot |
6.7182 |
5.4677 |
5.8530 |
|
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 |
|
Resistance 2 |
1.3695 |
1.5920 |
84.34 |
0.9852 |
1.0406 |
0.9763 |
0.7427 |
114.60 |
133.40 |
|
Resistance 1 |
1.3661 |
1.5855 |
84.00 |
0.9807 |
1.0370 |
0.9724 |
0.7397 |
114.30 |
132.75 |
|
Pivot |
1.3614 |
1.5808 |
83.75 |
0.9771 |
1.0305 |
0.9691 |
0.7377 |
113.90 |
132.29 |
|
Support 1 |
1.3580 |
1.5743 |
83.41 |
0.9726 |
1.0269 |
0.9652 |
0.7347 |
113.60 |
131.64 |
|
Support 2 |
1.3533 |
1.5696 |
83.16 |
0.9690 |
1.0204 |
0.9619 |
0.7327 |
113.20 |
131.18 |
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 |
|
Resistance 3 |
1.3807 |
1.5972 |
84.66 |
0.9889 |
1.0460 |
0.9833 |
0.7485 |
115.86 |
134.26 |
|
Resistance 2 |
1.3762 |
1.5926 |
84.41 |
0.9858 |
1.0428 |
0.9796 |
0.7455 |
115.40 |
133.72 |
|
Resistance 1 |
1.3718 |
1.5881 |
84.16 |
0.9826 |
1.0396 |
0.9759 |
0.7426 |
114.94 |
133.18 |
|
Spot |
1.3628 |
1.5789 |
83.66 |
0.9763 |
1.0333 |
0.9685 |
0.7367 |
114.01 |
132.09 |
|
Support 1 |
1.3538 |
1.5697 |
83.16 |
0.9700 |
1.0270 |
0.9611 |
0.7308 |
113.08 |
131.00 |
|
Support 2 |
1.3494 |
1.5652 |
82.91 |
0.9668 |
1.0238 |
0.9574 |
0.7279 |
112.62 |
130.46 |
|
Support 3 |
1.3449 |
1.5606 |
82.66 |
0.9637 |
1.0206 |
0.9537 |
0.7249 |
112.16 |
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
