- Dollar Takes a Serious Step Towards Reversal as Risk Appetite Falters and FOMC Confidence Fades
- British Pound may Leverage its Own Volatility with BoE Minutes and Spending Assessment
- Euro Stability Undermined by Trichet’s Doubts Over EU Statistics, Selling Pressure the Dollar’s Responsibility
- Canadian Dollar Drops after BoC Holds Rates and Lowers Growth Forecasts
- New Zealand Dollar Takes in RBNZ Governor Bollard’s Comments in Context of Failing Risk Appetite
- Australian Dollar Can’t Find Growth Forecasts to Follow up on RBA Minutes, Curb Risk Aversion
Dollar Takes a Serious Step Towards Reversal as Risk Appetite Falters and FOMC Confidence Fades
There aren’t very many technical signs of reversal that are as clear as what the dollar put in for through Tuesday’s close. Following up on the two-day advance through Monday, the following session’s advance for the Dollar Index was the most aggressive buying effort the market has seen since August 11th. If fact, the reversal two months ago is remarkably similar to the greenback’s current development. After weeks of extraordinarily consistent selling, speculative fatigue finally encourages a relief rally for the dollar that easily clears an aggressive descending trend channel. The critical question for traders now is whether the historical comparison ends now or if it is destined to carry through to the same conclusion. Should this be an accurate representation of the past, the dollar will quickly lose momentum, churn water and eventually collapse into its next bearish phase without meaningfully recovering lost ground. The best means for establishing the currency’s path from here is to identify the fundamental influences behind the current correction and assess whether it carries enough weight to pull the dollar from its dive.
Looking at the dollar’s performance across the majors, we see the same general pattern of an early-stage reversal. However, when we broaden our analysis horizon, we see something very encouraging. The greenback’s rally is actually occurring simultaneously with a sharp drop in both equities and crude. This is an encouraging development as it suggests the revival of a very important and influential catalyst for the broader markets: the appetite for risk and safety. The effort to unwind risky exposure was set off early Tuesday by the news that the People’s Bank of China raised its benchmark lending and deposit rates for the first time in three years. Why is this move so influential? China represents one of the best performing economies and markets in the world. This policy change represents an effort to curb expansion and implicitly reflects concern over the region’s financial stability. Such a move effectively warns global investors that there is no ‘holy grail’ trade when worldwide activity is still struggling to gain momentum and capital flows are severely distorted (and propped up by government stimulus). Further messaging traders’ doubts heading into the US session, the earnings picture took a notable downturn. Though Apple reported record revenue Monday after the close; Goldman Sachs and Bank of America’s performance was far less impressive. Goldman was able to beat expectations only because they were revised significantly lower recently; and BoA reported a significant $7.3 billion loss through the third quarter. We will very likely continue to see positive numbers; but investors may be a little more attuned to performance founded on deferred losses, government liquidity and foreign sales (all factors that are not representative of a strong economy or high return environment).
Another factor of souring sentiment is that it reflects a diminished confidence in the effectiveness of further stimulus efforts by the Fed and government. That is interesting considering we had so much specific commentary from central bankers Tuesday. Dallas Fed President Fisher tried to hold up the hawkish regime by suggesting the first round of stimulus was ineffective. More influential given the trend in expectations though was Atlanta Fed President Lockhart’s suggestion of a stimulus pace: $100 billion per month. This is the first sign of size we seen.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Levels and Timing Important for Jumping in EURUSD, GPBUSD
British Pound may Leverage its Own Volatility with BoE Minutes and Spending Assessment
Like most other currencies that have a fundamental or yield imbalance with the US dollar, the British pound was seeing selling pressure spilling over from GBPUSD’s declines. It is an interesting comparison to draw between the sterling and greenback; because both are looking at uneven recoveries and have monetary policy authorities that are contemplating another expansionary push. Helping to push the argument for an increase in the BoE’s bond purchasing program in the near future, a CBI business optimism report dropped more sharply than expected and factory orders hit a six-month low. Tomorrow, we could see the pound generate fundamentals waves all on its own. Scheduled Wednesday are the minutes to the central bank’s last rate decision and a review of the government spending plans. A three-way split is expected once again from the MPC; but we will look for debate over the stimulus initiative. As for the fiscal review, the market is starting to see its chocking growth.
Euro Stability Undermined by Trichet’s Doubts Over EU Statistics, Selling Pressure the Dollar’s Responsibility
There have been serious doubts over the reliability of assurances and statistics from government officials in the various EU economies. Policy makers are certainly supposed to be cheerleaders for their economy; but suggesting understating debt (Greece), liquidity needs and financial stability is a different matter. That being said, ECB President Trichet’s suggestion that not all statistics are dependable is remarkable.
Canadian Dollar Drops after BoC Holds Rates and Lowers Growth Forecasts
Largely overshadowed by the aggressive shift in risk appetite and the US dollar, the Canadian dollar was actually put under significant pressure Tuesday following the Bank of Canada’s policy decision. It isn’t a surprise that the central bank held rates at 1.00 percent (though a small percentage of traders expected a hike). Truly interesting were the standoffish commentary on further hikes and the downgrade to growth.
New Zealand Dollar Takes in RBNZ Governor Bollard’s Comments in Context of Failing Risk Appetite
Reserve Bank of New Zealand Governor Alan Bollard weighed in with commentary early Wednesday morning; and his tone certainly maintained the dovish evaluation the market made of the policy authority after the last rate decision. In his remarks, Bollard said the market’s rate expectations were not unreasonable (approximately 55 bps over 12 months) and the economy recovery was stunted by a lack of credit demand.
Australian Dollar Can’t Find Growth Forecasts to Follow up on RBA Minutes, Curb Risk Aversion
The minutes from the last RBA meeting released 24 hours ago was meaningful speculative fodder. However, the consistently hawkish lean the central bank maintains isn’t as remarkable as the developments that have occurred since. Most influential was the drop in risk appetite which certainly hurts the high-yield currency. For a growth reading, the Westpac Leading Index marked its second negative reading in a year.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
AUD |
23:30 |
Westpac Leading Index (MoM) (AUG) |
0.3% |
Was up in July after being down in June |
|
|
AUD |
0:00 |
DEWR Skilled Vacancies (MoM) (OCT) |
0.7% |
Was negative in Sept for first time in a year |
|
|
JPY |
5:00 |
Coincident Index (AUG F) (AUG F) |
103.5 |
Sitting at highest Since Feb. 2008 |
|
|
JPY |
5:00 |
Leading Index (AUG F) (AUG F) |
99.1 |
Fell 3 times over last 4 months |
|
|
EUR |
6:00 |
German Producer Prices (MoM) (SEP) |
0.2% |
0.0% |
YoY figure overstates inflation. Prices fell 7.6% last yr at this time |
|
EUR |
6:00 |
German Producer Prices (YoY) (SEP) |
3.8% |
3.2% |
|
|
JPY |
7:00 |
Convenience Store Sales (YoY) (SEP) |
1.0% |
Was down 5.6% YoY last year at this time |
|
|
EUR |
8:00 |
Italian Industrial Orders s.a. (MoM) (AUG) |
3.5% |
3.0% |
A very volatile series. Was up 27% in May, 15% in June, 0.7% in July, and expected to be back up 10.4% in August |
|
EUR |
8:00 |
Italian Industrial Orders n.s.a. (YoY) (AUG) |
10.4% |
0.7% |
|
|
EUR |
8:00 |
Italian Industrial Sales s.a. (MoM) (AUG) |
2.7% |
||
|
EUR |
8:00 |
Italian Industrial Sales n.s.a. (YoY) (AUG) |
8.9% |
||
|
GBP |
8:30 |
Bank of England Minutes (OCT 20) |
Influences interest rate expectations |
||
|
GBP |
8:30 |
PSNB ex Interventions |
14.3B |
15.9B |
Austerity yet to have a major impact |
|
GBP |
8:30 |
Public Finances (PSNCR) (Pounds) (SEP) |
15.3B |
5.8B |
|
|
GBP |
8:30 |
Public Sector Net Borrowing (Pounds) (SEP) |
14.5B |
15.3B |
|
|
GBP |
8:30 |
M4 Money Supply (MoM) (SEP P) (SEP P) |
0.3% |
0.1% |
YoY figure is compared to extremely high rate of growth last yr |
|
GBP |
8:30 |
M4 Money Supply (YoY) (SEP P) (SEP P) |
1.5% |
1.9% |
|
|
USD |
11:00 |
MBA Mortgage Applications (OCT 15) |
14.6% |
Refinancings continue |
|
|
12:30 |
Wholesale Sales (MoM) (AUG) |
0.5% |
0.1% |
||
|
USD |
14:30 |
DOE U.S. Crude Oil Inventories (OCT 15) |
416K |
Bulls hoping that inventories continue to decline from multi-decade highs |
|
|
USD |
14:30 |
DOE U.S. Gasoline Inventories (OCT 15) |
1769K |
||
|
USD |
14:30 |
DOE U.S. Distillate Inventory (OCT 15) |
255K |
||
|
USD |
18:00 |
Fed’s Beige Book (OCT 20) |
Anecdotal insight on economy |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
23:00 |
Fed’s Elizabeth Duke Speaks on Economy |
|
JPY |
1:30 |
BoJ’s Deputy Governor Kiyohiko Nishimura to Speak in Hiroshima |
|
EUR |
6:30 |
ECB’s Vitor Constancio Speaks on Economy |
|
EUR |
10:00 |
ECB’s Juergen Stark Speaks on Economy |
|
USD |
20:00 |
Fed’s Jeffrey Lacker Speaks on Economic Outlook |
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 |
1.4500 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0100 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4000 |
1.6000 |
86.00 |
0.9950 |
1.0750 |
1.0000 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3733 |
1.5696 |
81.53 |
0.9706 |
1.0335 |
0.9686 |
0.7449 |
111.96 |
127.96 |
|
Support 1 |
1.3685 |
1.5500 |
80.00 |
0.9500 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3500 |
1.5300 |
75.00 |
0.9000 |
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 |
|
Resist 2 |
14.4500 |
1.6755 |
8.7915 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
13.8500 |
1.4865 |
8.3675 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.5400 |
6.1150 |
|
Spot |
12.5245 |
1.4377 |
6.9803 |
7.7607 |
1.3144 |
Spot |
6.8113 |
5.4311 |
5.9478 |
|
Support 1 |
12.0500 |
1.4070 |
6.6950 |
7.7490 |
1.2900 |
Support 1 |
6.4500 |
5.3000 |
5.7030 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
6.1250 |
5.1000 |
5.5200 |
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 |
1.4114 |
1.6089 |
81.73 |
0.9702 |
1.0292 |
1.0040 |
0.7659 |
114.93 |
131.03 |
|
Resist 1 |
1.4048 |
1.6009 |
81.46 |
0.9638 |
1.0219 |
0.9988 |
0.7623 |
114.22 |
130.19 |
|
Pivot |
1.3939 |
1.5923 |
81.23 |
0.9587 |
1.0156 |
0.9894 |
0.7562 |
113.32 |
129.44 |
|
Support 1 |
1.3873 |
1.5843 |
80.96 |
0.9523 |
1.0083 |
0.9842 |
0.7526 |
112.61 |
128.60 |
|
Support 2 |
1.3764 |
1.5757 |
80.73 |
0.9472 |
1.0020 |
0.9748 |
0.7465 |
111.71 |
127.85 |
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 |
1.3929 |
1.5884 |
82.55 |
0.9838 |
1.0472 |
0.9841 |
0.7568 |
113.64 |
129.87 |
|
Resist. 2 |
1.3880 |
1.5837 |
82.30 |
0.9805 |
1.0438 |
0.9802 |
0.7539 |
113.22 |
129.39 |
|
Resist. 1 |
1.3831 |
1.5790 |
82.04 |
0.9772 |
1.0404 |
0.9763 |
0.7509 |
112.80 |
128.91 |
|
Spot |
1.3733 |
1.5696 |
81.53 |
0.9706 |
1.0335 |
0.9686 |
0.7449 |
111.96 |
127.96 |
|
Support 1 |
1.3635 |
1.5602 |
81.02 |
0.9640 |
1.0266 |
0.9609 |
0.7389 |
111.12 |
127.01 |
|
Support 2 |
1.3586 |
1.5555 |
80.76 |
0.9607 |
1.0232 |
0.9570 |
0.7359 |
110.70 |
126.53 |
|
Support 3 |
1.3537 |
1.5508 |
80.51 |
0.9574 |
1.0198 |
0.9531 |
0.7330 |
110.28 |
126.05 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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