- Dollar Claws Back a Modest Recovery as Risk Correlations Show a Tentative Return
- Euro Traders Reminded that European Economy on the Same Path as the US
- British Pound Little Changes Following Unexpected Drop in Mortgages
- Japanese Yen: The Economic Implications of Political
- New Zealand Dollar Stalled by GDP Numbers and its Implications for Rates
- Australian Dollar’s Pace Needs all the Support it can Find Including a 60 Percent Chance of a Hike
Dollar Claws Back a Modest Recovery as Risk Correlations Show a Tentative Return
The US recovery is slowing. In fact, the global recovery is slowing. Neither of these realities is particularly shocking; but the influence this news has on the markets completely depends on what perspective investors tend to have at any given time. Since the beginning of September, there has been a positive bias on growth and speculative-dependent assets that has seemed to run under its own power. And, just when that strength seems to have pushed the markets to meaningful highs, we can see evidence that traders are reevaluating their positions and taking a more objective view of the future. We can qualify this scenario through Thursday’s close with two remarkable market developments: a correction from some of the more risk-susceptible securities and a revival of underlying, cross-market correlations. First things first, the stain of uncertain can be marked in the third consecutive and most aggressive decline in two-and-a-half weeks for the benchmark S&P 500 Index. More important than the severity of the decline though is the fact that the market has slipped back below a level that stood as meaningful resistance for the better part of four months at 1,130 until recently. A failure to catalyze a breakout (bullish or bearish) is oftentimes a good sign of a filed trend. What’s more, it seems that the change in speculative appetites is once again unifying the traders’ objectives across different assets classes. With the slide in equities, we once again see a pick up from the dollar along with a drop in the euro and high-yield currencies. But is this a lasting link?
In sourcing the negative sentiment that developed Thursday, it is easy to point out specific indicators and events that would get the ball rolling; but it is important to remember that the market itself is the reflection of a collective forecast. When optimism is engrained in the traders’ consciousness, disconcerting data is often played down while encouraging reports are paid more attention. The opposite is also true. To establish a meaningful outlook for the markets, it is essential to determine both the bearing and intensity of this overall market bias. It is too early to say that we have shifted from a bullish drift these past three weeks to a bearish one. That being said, we would have very clear catalysts for sentiment through the session. When analyzing the dollar it is important to remember that the currency is a disputed safe haven for the global trading community; and therefore, the health of the regions outside the US have just as much influence on the greenback through risk channels as internal factors. Hence, the early strength from the currency through the European session after Italian 2Q GDP figure and Eurozone PMI readings lowered the economic outlook. US-based event risk would have a more direct; but perhaps nuanced reaction. In a time when relative growth is an important factor to currency performance, the stronger-than-expected readings of both August existing home sales and the Leading Indicators index tempered the argument that the world’s largest economy is pacing a slum in the global recovery. On the other hand, we have to consider that home sales rose from a record low, with investors slipping modestly from a 1999 high while distressed sales notched 34 percent of the total. At the same time, the index used to forecast growth extended a bounce from a 15-month low. Hardly remarkable readings.
Looking ahead to the final 24 hours of trading this week, there is significant event risk on tap; but pace of the market is still reliant on underlying currency. That being said, the durable goods ordersand new home sales data will provide a good benchmark for economic activity.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPCHF Range Trade on, Watching AUDUSD for Possible Reversal
Euro Traders Reminded that European Economy on the Same Path as the US
Bad data seems to have finally caught up to the euro. Through this week, the shared currency has put in for a solid run; but the region’s own fundamentals have hardly furnished the necessary confidence to leverage this kind of strength. On one point of ill-deserved optimism, investors were skeptical of sovereign debt auctions. After poor showings on Greek, Irish, Spanish and Portuguese sales, Ireland issued another 400 million euros worth of debt that came under the upper threshold the government was hoping for. Keeping the focus on this particular country, the 2Q GDP numbers crossed the wires with a surprisingly steep 1.2 percent contraction in the economy. The core economies are still a long way from suffering the same fate; but the seven-month low in the Eurozone composite PMI certainly undermines the outlook.
British Pound Little Changes Following Unexpected Drop in Mortgages
The sterling was little moved Thursday which can be considered a promising sign given its counterpart, the euro, was down significantly on the day. The only indicator on deck for the session was the BBA mortgage application figures for August. The number of home loans dropped to a 16-month low 31,767while the value of those loans hit a 15-month low of 4.7 billion pounds. Another notch in the UK’s economic outlook.
Japanese Yen: The Economic Implications of Political
The Japanese markets were quiet Thursday for the Autumn Equinox; but the yen was still active. Without new, loud threats of intervention by officials (and certainly no actual operations), the yen would easily find itself back in the role of anti-risk currency (it is debatable that the yen is actually a safe haven). In the meantime, a political spat between Japan and China is building tension. How far will these trade partners go?
New Zealand Dollar Stalled by GDP Numbers and its Implications for Rates
It seems the second quarter GDP numbers had a profound effect on the New Zealand dollar. Released early Thursday morning, the data played an important role in holding NZDUSD back from a meaningful break of resistance. However, the implications of the data run deeper than that. This downshift in growth and a long interim before we come to the 3Q numbers will offer the RBNZ enough evidence to hold rates.
Australian Dollar’s Pace Needs all the Support it can Find Including a 60 Percent Chance of a Hike
In direct contrast to the New Zealand dollar, the Aussie currency is running on a high (relatively) level of rate speculation. Looking to overnight index swaps from Credit Suisse, we see a 60 percent probability of a 25 bps hike priced in for the next meeting. This is exceptionally hawkish when the global forecast is so precious. Yet, aggressive expectations match the aggressive bearing on the currency.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
EUR |
5:30 |
French Gross Domestic Product (QoQ) (2Q F) |
0.6% |
0.6% |
French GDP rose in 2Q as export demand boosted manufacturing. |
|
EUR |
5:30 |
French Gross Domestic Product (YoY) (2Q F) |
1.7% |
1.7% |
|
|
EUR |
5:30 |
French Wages (QoQ) (2Q F) |
0.7% |
Rose in first two quarters of 2010. |
|
|
EUR |
6:00 |
German Import Price Index (MoM) (AUG) |
0.3% |
-0.2% |
German import prices increased annually in the last seven months. |
|
EUR |
6:00 |
German Import Price Index (YoY) (AUG) |
8.7% |
9.9% |
|
|
EUR |
8:00 |
German IFO – Expectations (SEP) |
104 |
105.2 |
German business confidence unexpectedly rose to a three-year high in August. |
|
EUR |
8:00 |
German IFO – Business Climate (SEP) |
106.4 |
106.7 |
|
|
EUR |
8:00 |
German IFO – Current Assessment (SEP) |
108.7 |
108.2 |
|
|
EUR |
8:00 |
Italian Retail Sales s.a. (MoM) (JUL) |
-0.2% |
0.3% |
Italian retail sales increased in June following a two-month decline. |
|
EUR |
8:00 |
Italian Retail Sales (YoY) (JUL) |
0.0% |
0.5% |
|
|
USD |
12:30 |
Durable Goods Orders (AUG) |
-1.0% |
0.4% |
U.S. durable goods orders rose in July, ending a two-month decline. |
|
USD |
12:30 |
Durables Ex Transportation (AUG) |
1.0% |
-3.7% |
|
|
USD |
12:30 |
Capital Good Orders Non-Defense ex Air (AUG) |
3.0% |
-8.0% |
Capital goods orders fell in July by the most since January 2009. |
|
USD |
12:30 |
Capital Good Shipment Non-Defense ex Air (AUG) |
-1.5% |
||
|
USD |
14:00 |
New Home Sales (AUG) |
295K |
276K |
U.S. new home sales dropped in July to the lowest level on record. |
|
USD |
14:00 |
New Home Sales (MoM) (AUG) |
6.9% |
-12.4% |
|
|
EUR |
16:00 |
French Total Jobseekers Change (AUG) |
-5.0 |
-14.4 |
French total jobseekers probably declined for a third month in August. |
|
EUR |
16:00 |
French Total Jobseekers (AUG) |
2676.6 |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
13:00 |
Fed’s Elizabeth Duke Speaks in Washington D.C. |
|
USD |
13:15 |
Fed’s Christine Cumming Speaks at Chicago Fed Conference |
|
USD |
17:00 |
Fed’s Jeffrey Lacker Speaks in Frankfort, Kentucky |
|
USD |
20:30 |
Fed Chairman Bernanke Speaks at Princeton University, New Jersey |
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 |
EUR/GBP |
|
Resistance 2 |
1.3815 |
1.6375 |
95.05 |
1.0600 |
1.0922 |
0.9850 |
0.7635 |
127.60 |
146.05 |
0.8725 |
|
Resistance 1 |
1.3500 |
1.5965 |
89.00 |
1.0460 |
1.0750 |
0.9665 |
0.7440 |
120.00 |
140.00 |
0.8600 |
|
Spot |
1.3319 |
1.5682 |
84.34 |
0.9854 |
1.0336 |
0.9498 |
0.7302 |
112.34 |
132.26 |
0.8493 |
|
Support 1 |
1.2500 |
1.5300 |
83.00 |
0.9800 |
0.9950 |
0.8100 |
0.6850 |
103.80 |
125.00 |
0.8065 |
|
Support 2 |
1.2150 |
1.5125 |
80.00 |
0.9650 |
0.9700 |
0.7835 |
0.6585 |
100.00 |
119.00 |
0.7780 |
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 |
12.6493 |
1.4862 |
7.0665 |
7.7594 |
1.3288 |
Spot |
6.9109 |
5.5938 |
5.9539 |
|
Support 1 |
12.0500 |
1.4500 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
6.7600 |
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 |
EUR/GBP |
|
Resistance 2 |
1.3456 |
1.5809 |
84.83 |
0.9948 |
1.0429 |
0.9621 |
0.7447 |
113.91 |
133.27 |
0.8603 |
|
Resistance 1 |
1.3387 |
1.5745 |
84.59 |
0.9901 |
1.0382 |
0.9559 |
0.7375 |
113.12 |
132.76 |
0.8548 |
|
Pivot |
1.3346 |
1.5679 |
84.42 |
0.9853 |
1.0334 |
0.9514 |
0.7319 |
112.65 |
132.30 |
0.8510 |
|
Support 1 |
1.3277 |
1.5615 |
84.18 |
0.9806 |
1.0287 |
0.9452 |
0.7247 |
111.86 |
131.79 |
0.8455 |
|
Support 2 |
1.3236 |
1.5549 |
84.01 |
0.9758 |
1.0239 |
0.9407 |
0.7191 |
111.39 |
131.33 |
0.8417 |
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 |
EUR/GBP |
|
Resistance 3 |
1.3489 |
1.5866 |
85.35 |
0.9979 |
1.0463 |
0.9638 |
0.7417 |
114.10 |
134.37 |
0.8583 |
|
Resistance 2 |
1.3447 |
1.5820 |
85.10 |
0.9947 |
1.0431 |
0.9603 |
0.7388 |
113.66 |
133.85 |
0.8561 |
|
Resistance 1 |
1.3404 |
1.5774 |
84.84 |
0.9916 |
1.0400 |
0.9568 |
0.7359 |
113.22 |
133.32 |
0.8538 |
|
Spot |
1.3319 |
1.5682 |
84.34 |
0.9854 |
1.0336 |
0.9498 |
0.7302 |
112.34 |
132.26 |
0.8493 |
|
Support 1 |
1.3234 |
1.5590 |
83.84 |
0.9792 |
1.0272 |
0.9428 |
0.7245 |
111.46 |
131.20 |
0.8448 |
|
Support 2 |
1.3191 |
1.5544 |
83.58 |
0.9761 |
1.0241 |
0.9393 |
0.7216 |
111.02 |
130.67 |
0.8425 |
|
Support 3 |
1.3149 |
1.5498 |
83.33 |
0.9729 |
1.0209 |
0.9358 |
0.7187 |
110.58 |
130.15 |
0.8402 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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http://www.dailyfx.com/calendar
