- Dollar Suffers Volatility but Not a True Trend on Sentiment Wave, Disappointing Data
- Euro the Focus of the Media’s Ire as Headlines Recount Well-Known Uncertainties
- British Pound Traders Look Ahead to Financial and Interest Rate Confirmations Next Week
- Canadian Dollar Once Again Takes the Top Billing for Scheduled Event Risk Next Week
- New Zealand Dollar Seeing its Fundamental World Crashing Down Around It
- Japanese Yen: When Will Investors Start to Question Official’s Conviction, Firepower
Dollar Suffers Volatility but Not a True Trend on Sentiment Wave, Disappointing Data
The dollar had traders’ pulses racing Friday with a tumble to a fresh month-low early in the trading day. And yet, the attempt at forcing a week-end breakout would be quickly snuffed out by a risk aversion swell that would keep the greenback on the same general track that risk appetite itself has trudged through most of this past week: congestion. Taking stock of the false breakout, we first note that the trade-weighted dollar index had briefly dipped below 81 through the Asian trading hours to plunge lows not seen since August 11th before abruptly reversing tack when European liquidity filled out. On the other hand, the push didn’t seem nearly as tense across the majors. Instead of trying to catalyze a breakout from congestion, EURUSD would instead curb a steady rally with the first negative close in six days. GBPUSD would put in for a similar abrupt reversal after decelerating series of gains through the week. From there, USDJPY carved out its smallest range in weeks and held just off the high reached post BoJ intervention; while USDCHF actually slid 60 points as the market tried to work out its link to sentiment trends. In the end, it was AUDUSD that most closely mirrored the Dollar Index with a surge above 0.94 before quickly retreating back to the psychological level.
The take away from this mix is that the individual dollar-based pairs are following different paths while the currency itself seems to actually be anchored to congestion. This fits into the scenario where the greenback is still playing the role of the FX safe haven; but a lack of a meaningful trend in investor sentiment itself has allowed ancillary fundamental drivers to encourage temporary breaks in correlation across the different dollar-based pairs and asset classes. Temporarily unifying the markets today, the speculative ranks were distracted by a round of financial headlines that distinctly raised financial risks going forward. At the very beginning of the new trading day, the focus was on the Chinese central bank’s (PBoC) financial stability report. The semi-annual report assessed a growing risk of an asset bubble and inflation that feeds many investors’ concerns that the next catalyst for a global meltdown could come from the same economy that is still considered one of the best performers in the world. It wasn’t until the European headlines started to publish that fear really started rolling. Articles that touted an imminent bailout for Ireland followed by a quick rescue for Portugal fed traders hungry for activity on an otherwise quiet day. The only trouble was that these stories wouldn’t recount any fresh news, merely fresh speculation. The implications of today’s scheduled event risk would run a little deeper. The 1.1 percent pace of annual growth in consumer prices merely cements expectations for the Fed to hold rates for the foreseeable future. On the other hand, the one-year low in the University of Michigan consumer sentiment survey weighs risk appetite and thereby bolstered the value of safe haven assets including the dollar (even if the data is based in the US, the big-ticket data from the world’s largest economy can alter the mood of market participants across the globe). An 18 month low in the expectations figure gives us the trouble ahead.
Ultimately, we find the dollar has ended the week mired in fundamental congestion even if the opening move was for a bearish technical breakout. Looking ahead to next week, it is important to keep a constant vigilance for meaningful changes in the winds of sentiment. At the same time, we may see the greenback definitively unseated from its risk role should the Fed decided to significantly expand its stimulus effort.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Volatility Knocks out AUDUSD, EURUSD Setup for Monday
Euro the Focus of the Media’s Ire as Headlines Recount Well-Known Uncertainties
A quick rundown of the most frequented financial media sites Friday tells us that the European economy was the favored topic for the day. Interest initially developed around speculation that Ireland was on the verge of pleading for a bailout from the EU and IMF funds created in the second quarter. The source of this information was a forecast by Barclay’s that suggested the nation may have to seek outside support if its finances were any further taxed by troubles including the running tally to stabilize the Anglo Irish situation. Of course, this is hardly breaking news; and many banks have maintained similar forecasts. However, when speculators are looking for direction, they will find it. Under these conditions, pieces about the IMF’s hint that it could expand stimulus to Greece and former ministers expect Portugal to falter look threatening.
British Pound Traders Look Ahead to Financial and Interest Rate Confirmations Next Week
The sterling drew a dramatic end to its steady advance against the US dollar this past week. To remind us of the palpable troubles lying ahead of the UK, BoE Monetary Policy Committee member Adam Posen stated that the policy authority could target cuts to rates in specific areas of the economy if the bond purchasing program fell flat. We will see what the BoE consensus is next week with the BoE minutes.
Canadian Dollar Once Again Takes the Top Billing for Scheduled Event Risk Next Week
The economic docket was empty for the Canadian dollar Friday; but next week, it certainly fills out. Starting off next week, traders will establish investors’ confidence in the nation’s assets with the securities transactions figure. Far more interesting to speculators that were caught off guard by the BoC’s hold on rates is Tuesday’s CPI numbers. Along similar lines, retail sales and the leading indicators data will update growth.
New Zealand Dollar Seeing its Fundamental World Crashing Down Around It
RBNZ Governor Alan Bollard’s dovish turn at the bank’s policy announcement this past week was a significant blow to what is essentially an investment currency. Going forward, the task for establishing the kiwi’s strength is determining the conviction of a dovish policy regime. On this point, the 2Q GDP numbers will be particularly influential. Growth robust enough to absorb the earthquake impact would be an accomplishment.
Japanese Yen: When Will Investors Start to Question Official’s Conviction, Firepower
The Bank of Japan released its Flow of Funds report Friday with statistics that revealed households increased their currency and deposit holdings to a record 806.5 trillion yen in the second quarter. This is another break in the necessary flow of capital that can support the Japanese economy. It is this uncertainty and vows of long-term expansionary stimulus that officials should rely on for meaningful yen depreciation.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
22:30 |
Performance Services Index (AUG) |
50.5 |
Sits at lowest level since October. |
|
|
GBP |
23:01 |
Rightmove House Prices (MoM) (SEP) |
-1.7% |
U.K. home prices dropped in August for a second month. |
|
|
GBP |
23:01 |
Rightmove House Prices (YoY) (SEP) |
4.3% |
||
|
NZD |
3:00 |
ANZ Consumer Confidence Index (SEP) |
116.3 |
Ticked slightly higher in August. |
|
|
EUR |
8:00 |
Italian Trade Balance (Total) (euros) (JUL) |
1000 |
-3058 |
Likely posted a surplus in July for the first time since 2009. |
|
EUR |
8:00 |
Italian Trade Balance Eu (euros) (JUL) |
-1994 |
||
|
GBP |
8:30 |
Major Banks Mortgage Approvals (AUG) |
46K |
47K |
Approvals likely fell for third month. |
|
GBP |
8:30 |
M4 Money Supply (MoM) (AUG P) |
0.2% |
0.4% |
Money supply rose in July for a third time in the past four months. |
|
GBP |
8:30 |
M4 Money Supply (YoY) (AUG P) |
2.3% |
||
|
12:30 |
International Securities Transactions (C$) (JUL) |
8.000B |
5.389B |
Foreigners bought record in May. |
|
|
CAD |
12:30 |
Wholesale Sales (MoM) (JUL) |
0.1% |
-0.3% |
Sales fell in 2 of past 3 months. |
|
USD |
14:00 |
NAHB Housing Market Index (SEP) |
14 |
13 |
Sits at lowest level since March ’09. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
CHF |
9:30 |
KOF Institute Economic Forecast (SEP) |
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 |
1.3045 |
1.5624 |
85.80 |
1.0104 |
1.0310 |
0.9377 |
0.7268 |
111.93 |
134.05 |
0.8349 |
|
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 |
12.7704 |
1.4934 |
7.1395 |
7.7642 |
1.3368 |
Spot |
7.0479 |
5.7086 |
6.1000 |
|
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 |
1.3214 |
1.5783 |
86.11 |
1.0233 |
1.0427 |
0.9517 |
0.7374 |
113.55 |
135.64 |
0.8403 |
|
Resistance 1 |
1.3129 |
1.5704 |
85.95 |
1.0168 |
1.0368 |
0.9447 |
0.7321 |
112.74 |
134.85 |
0.8376 |
|
Pivot |
1.3075 |
1.5649 |
85.78 |
1.0119 |
1.0293 |
0.9399 |
0.7280 |
112.17 |
134.26 |
0.8353 |
|
Support 1 |
1.2990 |
1.5570 |
85.62 |
1.0054 |
1.0234 |
0.9329 |
0.7227 |
111.36 |
133.47 |
0.8326 |
|
Support 2 |
1.2936 |
1.5515 |
85.45 |
1.0005 |
1.0159 |
0.9281 |
0.7186 |
110.79 |
132.88 |
0.8303 |
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 |
1.3204 |
1.5800 |
86.81 |
1.0225 |
1.0436 |
0.9509 |
0.7378 |
113.60 |
136.10 |
0.8434 |
|
Resistance 2 |
1.3164 |
1.5756 |
86.56 |
1.0194 |
1.0405 |
0.9476 |
0.7350 |
113.18 |
135.59 |
0.8413 |
|
Resistance 1 |
1.3124 |
1.5712 |
86.31 |
1.0164 |
1.0373 |
0.9443 |
0.7323 |
112.76 |
135.07 |
0.8392 |
|
Spot |
1.3045 |
1.5624 |
85.80 |
1.0104 |
1.0310 |
0.9377 |
0.7268 |
111.93 |
134.05 |
0.8349 |
|
Support 1 |
1.2966 |
1.5536 |
85.29 |
1.0044 |
1.0247 |
0.9311 |
0.7213 |
111.10 |
133.03 |
0.8306 |
|
Support 2 |
1.2926 |
1.5492 |
85.04 |
1.0014 |
1.0215 |
0.9278 |
0.7186 |
110.68 |
132.51 |
0.8284 |
|
Support 3 |
1.2886 |
1.5448 |
84.79 |
0.9983 |
1.0184 |
0.9245 |
0.7158 |
110.26 |
132.00 |
0.8263 |
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
