- Dollar Rallies Sharply as the Risk Drift Stalls, Euro Tumbles
- Euro Has Lost its Interest Rate Prop, Outlook Gloomy
- British Pound: Sometimes it Pays to be Quiet and Mysterious
- Canadian Dollar Ready for Volatile Reaction to Jobs Data
- Australian Stumbles after Employment Data, Opportunities on Some Crosses
- Swiss Franc Doesn’t Appreciate after Euro Exits the Rate Game
- Gold: Another Aggressive Swing to Cement Lack of Direction
Dollar Rallies Sharply as the Risk Drift Stalls, Euro Tumbles
This past session’s price action is a good reflection on how the US dollar doesn’t simply garner direction through scheduled event risk. The greenback is tied into larger fundamental themes. As such, talk from Fed Chairman Bernanke about the possibility of (need for?) stimulus, another shock in jobless claims and rapidly deteriorating consumer sentiment wouldn’t sway the currency from its market-wide advance. For the most headline-friendly pair – EURUSD – the dollar’s performance was well support. A tangible shift in the ECB’s policy approach removed another layer of support for the shared currency, driving the most liquid currency pair below the contested 1.4000 level to its lowest daily close since mid-March. The move from this particular behemoth along with the retracement in the S&P 500 (our favored sentiment gauge) translates the right kind of mix for the Dow Jones FXCM Dollar Index (ticker = USDollar) to fully retrace Wednesday’s losses and return to two-month highs.
The argument that a currency is attractive because its alternatives are even worse off is a valid driver in a market where everything is relative. However, it also has its limitations. With EURUSD and the USDollar on the verge of catalyzing major trends; we need to start considering what kind of consistency the market’s can sustain through capital flows. It is hard to reconcile a scenario where the dollar consistently draws capital – that requires higher rates or the possibility of higher rates. Clearly, that is not the dollar’s forte. In fact, Bernanke reminded the market earlier today that the possibility of further monetary easing is high. Repeating some of his comments from the Jackson Hole speech, the policy official said that the Fed has a “range of tools” available to support stimulus and the economy was facing “greater downside risks”. What stands out from this particular speech was the warning that substantial fiscal tightening could hurt the economic recovery and that financial conditions in the US could possibly “spiral out of control”. These are the phrases of someone trying to justify or telegraph a dovish move.
Aside from the looming threat of the Fed’s policy decision the week after next, a more immediate roadblock to a sustainable dollar run from here is the lack of conviction behind the markets. Looking back to the S&P 500, we note that futures volume on the index hit its lowest level in seven trading days heading into the final 24 hours of trade this week. More importantly, there is a question market surrounding what will be discussed and accomplished at a G7 meeting in Marseille, France Friday and Saturday. While coordinated efforts at stimulus / intervention / manipulation are very rare; we cannot rule out the possibility given troubles facing the global economy and financial markets.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: EURUSD Clears 1.40 after the ECB Decision but is this a Solid Trend?
Euro Has Lost its Interest Rate Prop, Outlook Gloomy
The euro took a hit across the board Thursday after the ECB made a tangible, dovish shift in its approach to monetary policy. While it was unlikely that the ECB would take an immediate turn on its previously hawish bearing; the fundamentals have steadily built up against a tightening stance and have further overwhelmed the argument for a steady approach. There were many highlights from the statement and President Trichet’s press conference (including a heated response to a question about the Deutsche mark); but the comments we should focus on should be the themes that will usher in a possible cut in the future. For this meeting, the suggestion that inflation risks are no longer to the upside along with the downgrades in both the CPI and GDP forecasts are most appropriate. Moving forward, we will see speculation of rate cuts rise; but we should also closely monitor the financial situation. The EU/ECB/IMF (Troika) is scheduled to return to Greece next week to review the budget.
British Pound: Sometimes it Pays to be Quiet and Mysterious
How can a currency benefit when monetary policy officials don’t offer any guidance – bullish or bearish, hawkish or dovish? Well with the BoE’s primary counterpart takes a dovish turn, it makes the UK central bank look better on relative terms. That is why we saw GBPUSD end the session virtually unchanged while EURGBP marked a sharp decline. Going forward, the MPC is still very likely to follow the global trend towards easing the reins on policy; but for now, it offers a higher relative yield than safe haven pairs and no immediate threat of cuts.
Canadian Dollar Ready for Volatile Reaction to Jobs Data
The Canadian dollar weathered significant event risk through the previous 24 hours (including the July trade report and housing price figures); but the real impact comes Friday. The August employment figures don’t have the burden of competing with the US NFPs this time around; and when a country is seen to be standing apart from the rest of the globe (Canada avoiding trouble), it makes it highly exposed to disappointment.
Australian Stumbles after Employment Data, Opportunities on Some Crosses
On a long string of fundamental event risk, the Australian dollar finally came across a disappointment. The August employment figures reported a 9,700 job loss with an unexpected two-tick rise in the jobless rate to 5.3 percent. Yet, we have to ask: does this justify the dovish forecast from the market (still pricing in more than 125 bps of cuts over 12 months). Certainly not. It’s a balance: risk trends versus an unrealistic rate outlook.
Swiss Franc Doesn’t Appreciate after Euro Exits the Rate Game
Thursday’s event risk was a remarkable test of the Swiss franc’s new ceiling. If the SNB’s 1.20 floor on EURCHF weren’t in place, the news that the ECB had taken a dovish left turn would have sent the pair tumbling (like EURUSD and EURGBP). Yet, this pair actually rose. The floor is a clear burden to speculators – who are clearly driven by the rate forecast. But those seeking safety aren’t necessarily concerned.
Gold: Another Aggressive Swing to Cement Lack of Direction
It was another extremely volatile day for gold. The precious metal rallied sharply to nearly retrace all its losses from the previous session. These are remarkably daily moves; but when we look at the bigger picture; we can see we are otherwise well anchored in broader congestion. Gold is waiting to the G7, the Troika’s review of Greece and the Fed’s decision on stimulus.
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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
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
2:00 |
CNY |
Industrial Production YTD (YoY) (AUG) |
14.2% |
14.3% |
Chinese economic data could show slowing, but will likely reduce additional pressures on the PBoC to increase tightening measures |
|
2:00 |
CNY |
Industrial Production (YoY) (AUG) |
13.7% |
14.0% |
|
|
2:00 |
CNY |
Fixed Assets Inv Excl. Rural YTD (YoY) (AUG) |
25.2% |
25.4% |
|
|
2:00 |
CNY |
Retail Sales YTD (YoY) (AUG) |
16.9% |
18.0% |
|
|
2:00 |
CNY |
Retail Sales (YoY) (AUG) |
17.0% |
17.6% |
|
|
2:00 |
CNY |
CPI (YoY) (AUG) |
6.2% |
6.5% |
|
|
2:00 |
CNY |
PPI (YoY) (AUG) |
7.2% |
7.5% |
|
|
5:00 |
JPY |
Consumer Confidence (AUG) |
37 |
Confidence could fall as recovery slows |
|
|
6:00 |
EUR |
German Wholesale Price Index MoM (AUG) |
-0.6% |
Wholesale prices not expected to have large effect on future ECB rate decisions |
|
|
6:00 |
EUR |
German Wholesale Price Index YoY (AUG) |
8.2% |
||
|
6:00 |
EUR |
German CPI (MoM) (AUG F) |
-0.1% |
-0.1% |
Expected stagnant German inflation could sap hawkish expectations of the ECB, may further weaken Euro |
|
6:00 |
EUR |
German CPI (YoY) (AUG F) |
2.3% |
2.3% |
|
|
6:00 |
EUR |
German CPI – EU Harmonised (MoM) (AUG F) |
-0.1% |
-0.1% |
|
|
6:00 |
EUR |
German CPI – EU Harmonised (YoY) (AUG F) |
2.4% |
2.4% |
|
|
6:45 |
EUR |
French Central Government Balance (euros) (JUL) |
-87.7B |
-61.3B |
Deficit may widen on social spending |
|
6:45 |
EUR |
French Industrial Production (MoM) (JUL) |
0.4% |
-1.6% |
French manufacturing and industries expected to show slight month-to-month improvement, though still weaker in long term |
|
6:45 |
EUR |
French Industrial Production (YoY) (JUL) |
2.0% |
2.3% |
|
|
6:45 |
EUR |
French Manufacturing Production (MoM) (JUL) |
0.6% |
-1.9% |
|
|
6:45 |
EUR |
French Manufacturing Production (YoY) (JUL) |
2.4% |
3.3% |
|
|
8:00 |
EUR |
Italian GDP s.a. and w.d.a. (QoQ) (Q2 F) |
0.3% |
0.3% |
Final revision of Italian productivity not expected to move markets |
|
8:00 |
EUR |
Italian GDP s.a. and w.d.a. (YoY) (Q2 F) |
0.8% |
0.8% |
|
|
8:30 |
GBP |
PPI Input n.s.a. (MoM) (AUG) |
-1.5% |
0.6% |
Weaker producer-paid prices will dampen calls for the Bank of England to start tightening, possibly driving the pound even lower |
|
8:30 |
GBP |
PPI Input n.s.a. (YoY) (AUG) |
16.8% |
18.5% |
|
|
8:30 |
GBP |
PPI Output n.s.a. (MoM) (AUG) |
0.1% |
0.2% |
|
|
8:30 |
GBP |
PPI Output n.s.a. (YoY) (AUG) |
5.9% |
5.9% |
|
|
8:30 |
GBP |
PPI Output Core n.s.a. (MoM) (AUG) |
0.1% |
0.3% |
|
|
8:30 |
GBP |
PPI Output Core n.s.a. (YoY) (AUG) |
3.4% |
3.3% |
|
|
11:00 |
Unemployment Rate (AUG) |
7.2% |
7.2% |
Canadian labor markets expected to improve on stronger domestic economy |
|
|
11:00 |
CAD |
Net Change in Employment (AUG) |
21.5K |
7.1K |
|
|
11:00 |
CAD |
Full Time Employment Change (AUG) |
25.5K |
||
|
11:00 |
CAD |
Part Time Employment Change (AUG) |
-18.4K |
||
|
11:00 |
CAD |
Participation Rate (AUG) |
66.8% |
||
|
12:15 |
CAD |
Housing Starts (AUG) |
200.0K |
205.1K |
Housing starts may not move market |
|
12:30 |
CAD |
Labor Productivity (QoQ) (Q2) |
-0.7% |
0.4% |
Labor conditions continue to weaken |
|
14:00 |
USD |
Wholesale Inventories (JUL) |
0.8% |
0.6% |
Increase may point to more investment spending |
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 |
1.5160 |
1.6745 |
86.00 |
0.9050 |
1.0275 |
1.0750 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6600 |
81.50 |
0.8840 |
1.0000 |
1.0800 |
0.8750 |
113.50 |
140.00 |
|
Spot |
1.3887 |
1.5968 |
77.45 |
0.8750 |
0.9893 |
1.0573 |
0.8321 |
107.56 |
123.67 |
|
Support 1 |
1.3850 |
1.5935 |
76.35 |
0.7800 |
0.9425 |
1.0350 |
0.7745 |
106.00 |
123.25 |
|
Support 2 |
1.3700 |
1.5750 |
75.50 |
0.7500 |
0.9055 |
0.9925 |
0.6850 |
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 |
13.8500 |
1.8235 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.8000 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
12.5201 |
1.7670 |
7.1890 |
7.7931 |
1.2159 |
Spot |
6.4438 |
5.3626 |
5.4239 |
|
Support 1 |
11.5200 |
1.6500 |
6.5575 |
7.7490 |
1.2000 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.5725 |
6.4295 |
7.7450 |
1.1800 |
Support 2 |
5.8085 |
4.9115 |
4.9410 |
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 |
1.4178 |
1.6158 |
77.86 |
0.8894 |
0.9939 |
1.0692 |
0.8412 |
109.52 |
124.98 |
|
Resist 1 |
1.4033 |
1.6063 |
77.65 |
0.8822 |
0.9916 |
1.0633 |
0.8366 |
108.54 |
124.33 |
|
Pivot |
1.3954 |
1.5988 |
77.40 |
0.8698 |
0.9873 |
1.0602 |
0.8339 |
108.05 |
123.74 |
|
Support 1 |
1.3809 |
1.5893 |
77.19 |
0.8626 |
0.9850 |
1.0543 |
0.8293 |
107.07 |
123.08 |
|
Support 2 |
1.3730 |
1.5818 |
76.94 |
0.8502 |
0.9807 |
1.0512 |
0.8266 |
106.58 |
122.50 |
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 |
1.4103 |
1.6171 |
78.33 |
0.8894 |
1.0007 |
1.0739 |
0.8461 |
109.37 |
125.44 |
|
Resist. 2 |
1.4049 |
1.6120 |
78.11 |
0.8858 |
0.9979 |
1.0698 |
0.8426 |
108.92 |
124.99 |
|
Resist. 1 |
1.3995 |
1.6069 |
77.89 |
0.8822 |
0.9950 |
1.0656 |
0.8391 |
108.46 |
124.55 |
|
Spot |
1.3887 |
1.5968 |
77.45 |
0.8750 |
0.9893 |
1.0573 |
0.8321 |
107.56 |
123.67 |
|
Support 1 |
1.3779 |
1.5867 |
77.01 |
0.8678 |
0.9836 |
1.0490 |
0.8251 |
106.66 |
122.79 |
|
Support 2 |
1.3725 |
1.5816 |
76.79 |
0.8642 |
0.9807 |
1.0448 |
0.8216 |
106.20 |
122.35 |
|
Support 3 |
1.3671 |
1.5765 |
76.57 |
0.8606 |
0.9779 |
1.0407 |
0.8181 |
105.75 |
121.91 |
v
Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
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