- Dollar Plunges Despite Stoic Risk Trends, What was the Source of this Divergence and Will it Last?
- Euro Puts in for a Modest Advance as Dollar Selling Offsets Stumbling Confidence, Long-Term Troubles
- British Pound Exploits Excessive Inflation Reading Where it Can
- Japanese Yen Collapses after Finance Minister Noda Confirms the First Intervention in 6 Years
- Swiss Franc Finds Interest Rate Speculation to Compliment its Performance against the Dollar
- Australian Dollar Surges Above 0.94 against the Greenback, Can the Currency Sustain This Run?
Dollar Plunges Despite Stoic Risk Trends, What was the Source of this Divergence and Will it Last?
There are very few constants in the financial markets. As technology, governments, demographics and other underlying socioeconomic dynamics shift so do the capital markets that support them. It is with this reality in mind that we reflect on a remarkable divergence through Tuesday’s session: the parting of ways between underlying risk appetite and the US dollar. The greenback’s role as a safe haven is one of those dynamics that has held through market rallies and tumbles over the past months and years. And yet, today, the single currency would suffer a potentially trend-defining bearish plunge all while the backdrop for investor sentiment maintained a directionless and uninspired pace. Looking at the standard bearer for risk appetite, equities indexes, we see that sentiment was unchanged through Tuesday’s Asian, European and US trading sessions. For contrast, the trade-weighted Dollar Index tumbled another 0.8 percent to a fresh month low that has goes a long way to confirm a potential bear trend. Looking at the ‘major’ pairings, we would see the impact of this sharp move. EURUSD rallied above range resistance to 1.30. GBPUSD broke a resistance in a descending congestion pattern. USDJPY forced its way to a new 15-year low. And, AUDUSD would easily overtake a two year high. If this were a move that occurred when these liquid pairs were drifting in the middle of broad ranges, the surge would be construed as a temporary development. At the speculative fringes, this is a very different scenario.
It is essential for trading the dollar going forward to establish the greenback’s correlation to its underlying fundamental driver. There are arguments for and against the currency abandoning its role as a safe haven. The case for the dollar moving out of favor as a harbor for capital (and when we say it is a safe haven, we refer to its more liquid and stable assets: like Treasuries and money market assets) was thrust to the forefront with the prevailing headline today. Dominating financial websites and publications Tuesday was the concern that The Federal Reserve would expand its stimulus program soon – perhaps next week when the Board of Governors convenes on monetary policy. A few analysts were quoted as suggesting the central bank would increase its bond purchasing program to further supplement the recent effort to put a floor under the current stimulus regime that has been pegged by circulating principle payments on MBS holdings into Treasury purchases. The likelihood that the mixed group would take this effort is low. The possibility that they would do so as soon as next week is even lower. What should be noted is that the suggestion of further stimulus is not novel. When we consider the rationale for the dollar maintaining its key FX function, we are left with the same line of reasoning: it represents liquid markets; is backed by the largest economy; has a historical precedence and there are few alternatives. Furthermore, a true concern of stimulus influx would likely have had a significant impact on risk appetite. So then, why did the dollar suffer such an incredible move? Risk appetite in other assets has climbed slowly in other assets while the greenback has maintained its broad ranges. This could have very well been a speculative adjustment that was a long-time coming. We will find more clarity tomorrow.
And, while fundamental traders may have been preoccupied through the days; it is worth noting that small business sentiment and retail sales both improved in their contributions to the long-term economic outlook. Another potential driver for the dollar: intervention on the Japanese yen.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: A Dollar Plunge Stops Out my EURUSD, Does Little for AUDJPY
Euro Puts in for a Modest Advance as Dollar Selling Offsets Stumbling Confidence, Long-Term Troubles
It is difficult to separate the performance of the euro from the volatility of the US dollar. Considering EURUSD is the most liquid pair in the FX market (by a wide margin), a significant move in one of the currencies often generates an inverse move of a similar magnitude in the other as capital transfers from one to the other. That being said, there were perhaps a few points of cautious optimism to be found on the shared currency’s behalf. Keeping a close eye on the financial health of the region, we note that Greece was able to sell 1.17 billion euros of 26-week Treasury bills on the market. The 4.82 percent yield is still unsustainable; but the 4.5 coverage for the amount of debt sold placates those that don’t dig deeper. A similarly blissful view can be taken to the rise in current German investor sentiment and downtick in ECB liquidity injections.
British Pound Exploits Excessive Inflation Reading Where it Can
What is the possibility of a Bank of England rate decision through the foreseeable future? Technically, the market is showing debate of even a 25 bps hike within 12 months. However, there is still the outside belief that the policy authority will keep unusual monetary policy methods loose and hike rates to curb inflation. High price growth is proving itself to be a constant threat with the headline CPI reading holding at 3.1 percent.
Japanese Yen Collapses after Finance Minister Noda Confirms the First Intervention in 6 Years
For the first time since 2004, the Japanese government has intervened on behalf of its currency. Just a day after Prime Minister Kan maintained his position, policy makers decided to show their commitment to banishing deflation and helping the economy by selling yen on the open market. Will this have a lasting impact and turn the currency? That all depends on speculators. If they don’t want to fight the government, it will fall.
Swiss Franc Finds Interest Rate Speculation to Compliment its Performance against the Dollar
With the dollar in free-fall Tuesday, FX traders were scrambling for an alternative safe haven currency. Given the few alternatives there are to the greenback, it comes as little surprise that the Swiss franc would be catalyzed to impressive gains. However, there was more for Swissie traders. UBS and a few others have roused speculation that the SNB’s rate decision on Thursday could actually end with a hike.
Australian Dollar Surges Above 0.94 against the Greenback, Can the Currency Sustain This Run?
Prominent and explicit technical levels like 0.94 for AUDUSD are attractive targets to both sides of the market. Sellers have been known to overrun a big support or resistance that can trigger a wave of orders just to force an exhaustion reversal. We will see whether the Aussie dollar can rally maintain its impressive push if risk appetite trends are still absent. In the meantime, regular data will likely play little role in price action.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
AUD |
0:30 |
Westpac Consumer Confidence (SEP) |
5.4% |
Consumer confidence rose in August to a seven-month high. |
|
|
AUD |
0:30 |
Westpac Consumer Confidence Index (SEP) |
119.2 |
||
|
AUD |
1:00 |
DEWR Skilled Vacancies (MoM) (SEP) |
-0.3% |
Vacancies last increased in June. |
|
|
AUD |
1:30 |
Dwelling Starts (2Q) |
4.5% |
4.0% |
Starts rose in last three quarters. |
|
EUR |
8:00 |
Italian CPI (NIC incl. tobacco) (MoM) (AUG F) |
0.2% |
0.2% |
Italy’s inflation rate held at a 19-month high in August as oil prices eased in the month, containing cost increases. |
|
EUR |
8:00 |
Italian CPI (NIC incl. tobacco) (YoY) (AUG F) |
1.6% |
1.6% |
|
|
EUR |
8:00 |
Italian CPI – EU Harmonized (MoM) (AUG F) |
0.2% |
0.2% |
|
|
EUR |
8:00 |
Italian CPI – EU Harmonized (YoY) (AUG F) |
1.8% |
1.8% |
|
|
GBP |
8:30 |
Jobless Claims Change (AUG) |
-3.0K |
-3.8K |
U.K. jobless claims declined in July for a ninth consecutive month. |
|
GBP |
8:30 |
Claimant Count Rate (AUG) |
4.5% |
4.5% |
|
|
GBP |
8:30 |
Average Weekly Earnings inc Bonus (3MoY) (JUL) |
1.7% |
1.3% |
Earnings increased in the quarter through June for a 13th month. |
|
GBP |
8:30 |
Average Weekly Earnings ex Bonus (3MoY) (JUL) |
1.7% |
1.6% |
|
|
GBP |
8:30 |
ILO Unemployment Rate (3M) (JUL) |
7.8% |
7.8% |
Rate hasn’t been lower since 2009. |
|
CHF |
9:00 |
ZEW Survey (Expectations) (SEP) |
9.1 |
Well off of April’s 54.3 reading. |
|
|
EUR |
9:00 |
Euro-Zone Consumer Price Index (MoM) (AUG) |
0.2% |
-0.3% |
Euro-Zone consumer prices declined in July for only the second time this year. |
|
EUR |
9:00 |
Euro-Zone Consumer Price Index (YoY) (AUG F) |
1.6% |
1.6% |
|
|
EUR |
9:00 |
Euro-Zone CPI – Core (YoY) (AUG) |
0.9% |
1.0% |
|
|
EUR |
9:00 |
Euro-Zone Employment (QoQ) (2Q) |
0.0% |
Euro-Zone employment failed to rise in 1Q for a seventh straight quarter. |
|
|
EUR |
9:00 |
Euro-Zone Employment (YoY) (2Q) |
-1.2% |
||
|
USD |
11:00 |
MBA Mortgage Applications (SEP 10) |
-1.5% |
Declined following five-week rise. |
|
|
12:30 |
Manufacturing Shipments (MoM) (JUL) |
0.2% |
0.1% |
Sales increased in last 4 months. |
|
|
USD |
12:30 |
Import Price Index (MoM) (AUG) |
0.2% |
0.2% |
U.S. import prices rose less than forecast in July. |
|
USD |
12:30 |
Import Price Index (YoY) (AUG) |
3.8% |
4.9% |
|
|
USD |
12:30 |
Empire Manufacturing (SEP) |
8.0 |
7.1 |
Likely rose for 2nd month in August. |
|
USD |
13:15 |
Industrial Production (AUG) |
0.2% |
1.0% |
Industrial production increased in July for a fourth time in 5 months. |
|
USD |
13:15 |
Capacity Utilization (AUG) |
75.0% |
74.8% |
|
|
USD |
14:30 |
DOE U.S. Crude Oil Inventories (SEP 10) |
-2500K |
-1853K |
Crude oil inventories probably declined last week for a second consecutive week. |
|
USD |
14:30 |
DOE U.S. Gasoline Inventories(SEP 10) |
-750K |
-243K |
|
|
USD |
14:30 |
DOE U.S. Distillate Inventory(SEP 10) |
500K |
-388K |
|
|
NZD |
21:00 |
RBNZ Rate Decision |
3.00% |
3.00% |
Market implies 6% chance of hike. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
JPY |
0:00 |
BoJ’s Kiyohiko Nishimura Speaks in Tokyo |
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 |
1.3024 |
1.5574 |
83.09 |
0.9947 |
1.0240 |
0.9444 |
0.7371 |
108.22 |
129.40 |
0.8363 |
|
Support 1 |
1.2500 |
1.5300 |
83.00 |
0.9900 |
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 |
12.7970 |
1.4897 |
7.0658 |
7.7654 |
1.3317 |
Spot |
7.0500 |
5.7173 |
6.0323 |
|
Support 1 |
12.0500 |
1.4500 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
1.1650 |
5.3000 |
5.8000 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
7.0000 |
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 |
1.3165 |
1.5743 |
84.09 |
1.0143 |
1.0344 |
0.9549 |
0.7471 |
109.20 |
130.62 |
0.8418 |
|
Resistance 1 |
1.3095 |
1.5659 |
83.59 |
1.0045 |
1.0292 |
0.9497 |
0.7421 |
108.71 |
130.01 |
0.8391 |
|
Pivot |
1.2962 |
1.5503 |
83.26 |
0.9989 |
1.0254 |
0.9405 |
0.7345 |
107.74 |
128.83 |
0.8360 |
|
Support 1 |
1.2892 |
1.5419 |
82.76 |
0.9891 |
1.0202 |
0.9353 |
0.7295 |
107.25 |
128.22 |
0.8332 |
|
Support 2 |
1.2759 |
1.5263 |
82.43 |
0.9835 |
1.0164 |
0.9261 |
0.7219 |
106.28 |
127.04 |
0.8302 |
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 |
1.3182 |
1.5752 |
84.19 |
1.0067 |
1.0364 |
0.9572 |
0.7478 |
109.95 |
131.51 |
0.8448 |
|
Resistance 2 |
1.3143 |
1.5707 |
83.91 |
1.0037 |
1.0333 |
0.9540 |
0.7451 |
109.52 |
130.98 |
0.8427 |
|
Resistance 1 |
1.3103 |
1.5663 |
83.64 |
1.0007 |
1.0302 |
0.9508 |
0.7424 |
109.09 |
130.46 |
0.8405 |
|
Spot |
1.3024 |
1.5574 |
83.09 |
0.9947 |
1.0240 |
0.9444 |
0.7371 |
108.22 |
129.40 |
0.8363 |
|
Support 1 |
1.2945 |
1.5485 |
82.54 |
0.9887 |
1.0178 |
0.9380 |
0.7318 |
107.35 |
128.34 |
0.8321 |
|
Support 2 |
1.2905 |
1.5441 |
82.27 |
0.9857 |
1.0147 |
0.9348 |
0.7291 |
106.92 |
127.82 |
0.8300 |
|
Support 3 |
1.2866 |
1.5396 |
81.99 |
0.9827 |
1.0116 |
0.9316 |
0.7264 |
106.49 |
127.29 |
0.8278 |
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
