• Dollar the Worst Performer into the Weekend as Risk Perks Up but Fails to Curb Stimulus Fears
  • Euro’s Climb Unimpeded by High Unemployment as Traders Turn to Next Week’s ECB Decision
  • British Pound Steady Despite Economic Data and Promise of Long-Term Liquidity Withdrawal
  • Australian Dollar Most at Risk for Volatility Early Next Week with the Market Banking on a RBA Hike
  • Canadian Dollar Firms without the Help of Scheduled Data, Employment Data Due Next Week
  • Japanese Yen Showing Less and Less Interest in Promises of Action, It is Time for the BoJ to Act

Dollar the Worst Performer into the Weekend as Risk Perks Up but Fails to Curb Stimulus Fears

Friday was another unremarkable day for underlying risk appetite trends; and yet, the dollar was once again leading way for volatility with yet another stark plunge. The trade-weighted index fell another 0.6 percent to a fresh eight-month low. And, to ensure that we don’t get lost in the day to day changes or even short-term term volatility, we should put the currency’s performance into perspective. In the past three weeks (15 active trading days), the currency posted a lower close on 10 of the sessions. In this same period, we the Dollar Index has dropped 5.6 percent. What’s more, the series of weekly declines represents the most aggressive tumble since March of last year (though the consistency of this recent bear wave is still well short of the declines between June and early August. What does all of this tell us about the benchmark currency? Losses are certainly exaggerated over the short-term; but from a purely speculative position, the bear wave can subsist until it unwinds all of the November to June gains and beyond. That is unless fundamentals change the currency’s course.

For event risk Friday, there were both scheduled and unscheduled developments to digest. Looking to the docket first, market participants and officials were focused on two particular indicators: the ISM manufacturing number for September as well as the personal income/spending data for August. It was an interesting mix to take in for a dollar that is torn between its safe haven role and fear of an expansionary turn from the Federal Reserve. The factory activity report was a particular disappointment (as was to be expected after the poor showings at the regional level). The headline sector reading dropped to a 10-month low 54.4, while orders and production components slumped to levels last seen in June of last year. This is a considerable blow to the recovery effort because manufacturing has been one of the bright spots in an otherwise drab recovery. That being said, equities wouldn’t slip too far on the news; and therefore the greenback would draw the benefit of risk aversion flows. On the other hand, this would still factor into the ongoing Fed stimulus debate as traders see it as yet another piece of evidence in the ‘near-term increase’ column. But, what about the positive showings for income and spending? Income rose at the fastest pace this year (0.5 percent) and spending would hold off from contracting (at 0.4 percent) for an 11 month. Well, economists say income was bolstered by the extension of jobless benefits; and consumption is still severely restrained by confidence and unemployment. This hardly holds the same influence as the factory report. And, just in case there was confusion as to how the dollar would respond for the day, Fed member Dudley noted in prepared notes that he foresaw a need to expand stimulus going forward.

Next week, the debate over whether the central bank will increase its purchasing program or not will keep the reins. In fact, it will likely intensify. Catering directly to the heavy speculative debate, we have a slew of scheduled Fed speeches that includes remarks from Chairman Bernanke, Fisher, Hoenig and Tarullo. If that isn’t enough to get the boat rocking, we have the September nonfarm payrolls (NFPs) report due on Friday. Though its influence has fluctuated in recent months, the scrutiny on growth as a gauge for stimulus will likely leverage its impact.

Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Both EURUSD and AUDUSD Present Clear Levels for Reversals

Euro’s Climb Unimpeded by High Unemployment as Traders Turn to Next Week’s ECB Decision

The euro soared Friday against the dollar, British pound, Swiss franc and Japanese yen. It is important to mention all of these counterparties because they all follow very different considerations. For EURUSD, anti-dollar flows are all that is needed to put the euro into a rally. In contrast, the British pound is trying to work its own fundamental recovery while the Japanese yen has stubbornly held onto risk trends. EURCHF is unique as it is almost uniformly responsive to the positive or negative forecasts for the European economy. What was so encouraging through the session? The region’s unemployment rate held at a 12 year high and German retail sales unexpectedly contracted (0.2 percent). That being said, the focus is on the stabilization of the region’s finances. That being said this weekend’s discussion of diminishing the role of sovereign credit ratings will certainly prevent doubt from seeping in. Now, we need to see if the ECB will remain mum and let speculation keep its bearings.

British Pound Steady Despite Economic Data and Promise of Long-Term Liquidity Withdrawal

There was little that would encourage from the pound’s fundamental backdrop Friday. For data, the 6.2 billion sterling drop in home equity withdrawal in the second quarter reflected deteriorating value and a drop in potential spending; while a manufacturing PMI reading dropped to a 10-month low. A growth versus financial stability argument can be made on the BoE’s promise to let its lending facility expire in early 2012.

Australian Dollar Most at Risk for Volatility Early Next Week with the Market Banking on a RBA Hike

While the Australian dollar was putting up a positive performance against its US counterpart, we can see from the crosses that its health was a little shaky to end the week. Perhaps traders are taking heed of the currency’s dangerous heights the major event risk coming up early next week. An RBA is expected to hike early Tuesday morning. Yet, since that is priced in, if they hold or take a dovish tone, the Aussie could plunge.

Canadian Dollar Firms without the Help of Scheduled Data, Employment Data Due Next Week

There was nothing in the way of meaningful event risk to help the Canadian dollar out at the end of this past week; but traders were happy to enjoy the counterflows from the US dollar and the climb in key export commodity prices (oil and gold). Next week, fundamental response will likely be decidedly more transparent with the Ivey PMI business activity indicator and September employment change figures due.

Japanese Yen Showing Less and Less Interest in Promises of Action, It is Time for the BoJ to Act

Early Friday morning, Finance Minister Kan raised few heads when he vowed to take decisive action to halt the yen’s rapid appreciation and to help end deflation. The market is all too familiar with promises and the lack of progress that they bring. However, taking the BoJ to task reminds us that there is a rate decision next week. This may be the opportunity for the central bank to respond to the fight with its own measures.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

JPY

23:50

Loans & Discounts Corp (YoY) (AUG)

-4.2%

Japanese monetary base rose annually in the last 24 months.

JPY

23:50

Monetary Base (YoY) (SEP)

5.4%

NZD

NZIER Business Opinion Survey (3Q)

18

Fell in 2Q to lowest level in a year.

AUD

0:30

TD Securities Inflation (MoM) (SEP)

0.2%

Australian prices rose in August for a tenth consecutive month.

AUD

0:30

TD Securities Inflation (YoY) (SEP)

3.0%

JPY

1:30

Labor Cash Earnings (YoY) (AUG)

0.7%

1.4%

Increased annually in last 5 months.

NZD

2:00

ANZ Commodity Price (SEP)

-1.4%

Prices declined in last 3 months.

EUR

8:00

Italian Deficit to GDP (YTD) (2Q)

8.7%

1Q reading was highest in a year.

EUR

8:30

Euro-Zone Sentix Investor Confidence (OCT)

8.0

7.6

Rose to a 2-year high in August.

GBP

8:30

Purchasing Manager Index Construction (SEP)

51.4

52.1

Fell to 6-month low in August.

EUR

9:00

Euro-Zone Producer Price Index (MoM) (AUG)

0.2%

0.2%

European producer prices rose in July for a tenth month.

EUR

9:00

Euro-Zone Producer Price Index (YoY) (AUG)

3.6%

4.0%

USD

14:00

Pending Home Sales (MoM) (AUG)

2.8%

5.2%

Pending home sales unexpectedly climbed in July from a record low.

USD

14:00

Pending Home Sales (YoY) (AUG)

-20.1%

USD

14:00

Factory Orders (AUG)

-0.4%

0.1%

Rose less than forecast in July.

Currency

GMT

Upcoming Events & Speeches

JPY

4:00

Bank of Japan Meeting Minutes

GBP

10:25

BoE’s Paul Tucker Speaks on Financial System

USD

15:30

Fed’s Brian Sack Speaks on Fixed Income Management

USD

19:00

Fed Chairman Ben Bernanke Holds Q&A Session

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

1.4200

1.6375

89.00

1.0460

1.0922

1.0000

0.8230

127.60

146.05

Resist 1

1.3900

1.5965

86.00

0.9950

1.0750

0.9850

0.7650

120.00

140.00

Spot

1.3779

1.5832

83.29

0.9750

1.0201

0.9728

0.7443

114.77

131.87

Support 1

1.3300

1.5500

83.00

0.9650

0.9950

0.9100

0.6850

103.80

125.00

Support 2

1.2500

1.5300

80.00

0.9500

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

1.8025

8.7915

7.8165

1.4945

Resist 2

7.7500

5.7800

6.2750

Resist 1

13.8500

1.6755

8.3675

7.8075

1.4655

Resist 1

7.5800

5.5400

6.1150

Spot

12.5316

1.4443

6.9348

7.7588

1.3117

Spot

6.7126

5.4088

5.8286

Support 1

12.0500

1.4500

6.6950

7.7490

1.3000

Support 1

6.6150

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

Resist 2

1.3892

1.5972

83.76

0.9877

1.0360

0.9819

0.7546

115.58

132.67

Resist 1

1.3836

1.5902

83.53

0.9814

1.0281

0.9774

0.7494

115.17

132.27

Pivot

1.3727

1.5803

83.34

0.9781

1.0234

0.9705

0.7412

114.47

131.70

Support 1

1.3671

1.5733

83.11

0.9718

1.0155

0.9660

0.7360

114.06

131.30

Support 2

1.3562

1.5634

82.92

0.9685

1.0108

0.9591

0.7278

113.36

130.73

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

1.3959

1.6012

84.26

0.9874

1.0325

0.9869

0.7555

116.56

133.94

Resist. 2

1.3914

1.5967

84.02

0.9843

1.0294

0.9834

0.7527

116.11

133.42

Resist. 1

1.3869

1.5922

83.78

0.9812

1.0263

0.9798

0.7499

115.66

132.90

Spot

1.3779

1.5832

83.29

0.9750

1.0201

0.9728

0.7443

114.77

131.87

Support 1

1.3689

1.5742

82.80

0.9688

1.0139

0.9658

0.7387

113.88

130.84

Support 2

1.3644

1.5697

82.56

0.9657

1.0108

0.9622

0.7359

113.43

130.32

Support 3

1.3599

1.5652

82.32

0.9626

1.0077

0.9587

0.7331

112.98

129.80

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

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