- Dollar Backtracks on Gains as Sentiment Stabilizes, True Trend Still Undefined
- Euro: Ireland Warms to EU Aid and Greece Vows Further Budget Restraint
- British Pound Rallies in Sympathy to Euro while Deficit Trends, Retail Sales Data Improve
- Canadian Dollar Strength Measured Despite the Positive Turn on Leading Indicators
- Japanese Yen Slowly Succumbing to Reality as OECD Projects Steady Decline in Growth
- Swiss Franc Plunges Thursday as Perceived Rescue for Ireland Curbs Euro Outflows
Dollar Backtracks on Gains as Sentiment Stabilizes, True Trend Still Undefined
A hold over from the previous session, the capital markets were once again absent a clear fundamental driver Thursday. Subsequently, risk appetite would further steady itself in the wake of the market-wide, two-week deleveraging effort that led so many benchmarks to produce meaningful technical breaks and rouse speculation of genuine trend reversals. For the dollar, the lack of a definitive catalyst for investor fear would lead the safe haven currency to its largest single-day decline since November 4th – itself a decline that represents the exhaustion of a two-month bear trend that set the low for the year. Across the majors, we see the same correction playing out. EURUSD is pulling back towards October’s range low of 1.37, GBPUSD has recuperated nearly half of the losses posted this month and AUDUSD has climbed back above 0.98. However, it is important to note that this is not necessarily a dollar move but rather a sentiment inspired move. We can verify this via the hearty advances for both USDJPY and USDCHF over the same period. We can further see the influence of sentiment trends in the S&P 500’s biggest rally in two weeks and an uptick in corporate bonds indexes.
With this general correction in risk appetite and capital markets, it should not be assumed that we have immediately jumped to a new trend. Rather, the pullback of the past 48 hours should stand as evidence that we are still in a transition period. The rise in investor confidence from the beginning of September (or the beginning of July depending on your definition of the trend) still carries a lot of weight. Trends represent the cumulative conviction of the crowd. So, while we have seen notable technical events in channel and trendline breaks this week; there are still many investors that will consider this merely an opportunity to enter at a ‘cheap’ level. On the other hand, should these opportunists be outweighed by those market participants that want to unwind existing positions for fear of further depreciation, then a meaningful bear trend will gain traction. Such is the ebb and flow of capital markets under risk appetite. For traders, the tides can be measured and projected by the fundamental themes that drive them. Right now, with the Irish financial crisis in the wind, investors are hesitant to commit to a direction. This particular threat is far from resolved; but the possibility of an EU bailout and the impact that would have for markets across the European Union gives reason for pause. As for the influence China’s efforts to curb inflation, emerging market economies adoption of capital controls and a burgeoning housing crisis for the US have over risk trends – they are still too vague or distant to unify investors under one flag.
Looking ahead to the final 24 hours of trade this week, there will be a natural tendency for risk appetite trends and the dollar to stabilize in the absence of a clear catalyst from one of the market’s dominant themes. In the meantime, we should not ignore fundamental developments that can define the greenback’s appeal later down the line. Though Thursday’s scheduled indicators are generally considered second tier – their mutual improvement would contribute to a generally bullish assessment for the US economy. The Leading Indicators index (a measure of growth three to six months in the future) grew for a fourth month, initial jobless claims dropped to the lowest level in two years and the Philadelphia regional manufacturing report reported its biggest improvement in recent history. On the other hand, the OECD would lowered its 2010 growth assessment from 3.2 to 2.7 percent; and the Fed has indicated it would run another stress test on the TARP banks. There is always a balance.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: A Lull in Risk Appetite Trends Carries Risk for EURUSD, GBPUSD
Euro: Ireland Warms to EU Aid and Greece Vows Further Budget Restraint
It seems that Ireland is coming closer to receiving financial aid from the European Union and IMF. Officials from both groups and the ECB arrived in Dublin Thursday to run through the books of the nation’s financial institutions. Irish Finance Minister softened his tone for a potential bailout in commenting that he would welcome a “substantial contingency” to support the economy’s banks. Assistance is indeed likely; but the terms of any aid and the market’s reaction (relief or realization that the region is growing dependent on finite stimulus) is still up in the air. Similarly dubious is the Greece’s 2011 budget. Aiming to cut the deficit to 7.4 percent of GDP, the country is still suffering a severe recession.
British Pound Rallies in Sympathy to Euro while Deficit Trends, Retail Sales Data Improve
The British pound rallied through Thursday’s session; and it would be easy to simply attribute this strength to the improvement in scheduled data. Retail sales grew more than expected at 0.3 percent, public deficit figures are slowly trending lower and the CBI factory orders figure jumped from an August 2008 low. However, the real catalyst for strength likely comes from a shared solution to Ireland’s predicament.
Canadian Dollar Strength Measured Despite the Positive Turn on Leading Indicators
With risk appetite trends improving, the Canadian dollar would take up its regular line as a commodity currency and appreciate as well. However, this correlation is growing increasingly suspect with the OECD calling on the nation to cut deficits and economists lamenting the BoC’s decision to raise rates earlier this year. In the meantime, the Leading Indicators turned positive and capital inflows unexpectedly picked up.
Japanese Yen Slowly Succumbing to Reality as OECD Projects Steady Decline in Growth
The Japanese economy is one of the few major performers to be staring at a steady deterioration in health over the coming years. While the US, European Union and China are all seen recovering from their near-term “soft spots,” the OECD has projected that Japanese growth will slow from 3.7 percent this year to 1.7 percent next year and 1.3 percent in 2012. The bigger problem though may be the outlook for lasting deflation.
Swiss Franc Plunges Thursday as Perceived Rescue for Ireland Curbs Euro Outflows
Looking across the market, we note that the Swiss franc was one of the worst performers for the day. Simply attributing this to a bounce in risk appetite doesn’t get to the root of the move – or explain the franc’s depreciation against the dollar (another safe haven). This relative performance can more appropriately be traced back to the fact that Europe’s troubles are the key driver and EURCHF flows are more pravelent.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
2:00 |
Credit Card Spending s.a. (MoM) (OCT) |
0.9% |
Credit card spending rose annually in September for an eleventh month. |
|
|
NZD |
2:00 |
Credit Card Spending (YoY) (OCT) |
4.1% |
||
|
JPY |
4:30 |
All Industry Activity Index (MoM) (SEP) |
-0.6% |
-0.4% |
Likely fell for second month in Sept. |
|
EUR |
7:00 |
German Producer Prices (MoM) (OCT) |
0.3% |
0.3% |
Producer prices rose in September, led by heating oil and fuels. |
|
EUR |
7:00 |
German Producer Prices (YoY) (OCT) |
4.1% |
3.9% |
|
|
EUR |
9:00 |
Italian Industrial Orders s.a. (MoM) (SEP) |
-2.0% |
7.3% |
Industrial orders rose in the year ended in August, as electrical equipment orders rose 77% and computer orders rose 48%. |
|
EUR |
9:00 |
Italian Industrial Orders n.s.a. (YoY) (SEP) |
17.0% |
32.4% |
|
|
EUR |
9:00 |
Italian Industrial Sales s.a. (MoM) (SEP) |
2.8% |
||
|
EUR |
9:00 |
Italian Industrial Sales n.s.a. (YoY) (SEP) |
13.5% |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
JPY |
23:50 |
Bank of Japan Meetings Minutes |
|
JPY |
Cabinet Office Monthly Economic Report |
|
|
3:45 |
BoC’s Jean Boivin Speaks on Financial Markets |
|
|
EUR |
7:45 |
ECB’s Stark, Constancio Speak on Monetary Policy |
|
EUR |
8:00 |
ECB’s Jose Manuel Gonzalez-Paramo Speaks on European Economy |
|
USD |
10:15 |
Fed Chairman Bernanke Speaks at ECB Conference – Frankfurt |
|
EUR |
10:15 |
ECB’s Trichet, IMF’s Strauss-Kahn, PBoC’s Zhou Speak on Policy |
|
EUR |
12:30 |
ECB’s Trichet, Weber, Speak at European Banking Conference |
|
GBP |
12:45 |
BoE’s Paul Tucker Speaks at European Banking Conference |
|
EUR |
13:45 |
ECB’s Constancio, Tumpel-Gugerell Speak on Monetary Policy |
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 |
1.4450 |
1.6715 |
89.00 |
1.0460 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3840 |
1.6420 |
86.00 |
1.0000 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3624 |
1.6037 |
83.52 |
0.9971 |
1.0220 |
0.9880 |
0.7775 |
113.79 |
133.93 |
|
Support 1 |
1.3465 |
1.5650 |
80.00 |
0.9500 |
0.9950 |
0.9640 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3310 |
1.5500 |
75.00 |
0.9000 |
0.9700 |
0.9375 |
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 |
12.2992 |
1.4461 |
6.9807 |
7.7541 |
1.2960 |
Spot |
6.8758 |
5.4721 |
5.9956 |
|
Support 1 |
12.0500 |
1.3665 |
6.6950 |
7.7490 |
1.2750 |
Support 1 |
6.4500 |
5.2625 |
5.7030 |
|
Support 2 |
11.7200 |
1.3475 |
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 |
1.3749 |
1.6161 |
84.16 |
1.0084 |
1.0301 |
0.9975 |
0.7842 |
115.04 |
135.46 |
|
Resist 1 |
1.3686 |
1.6099 |
83.84 |
1.0027 |
1.0260 |
0.9928 |
0.7808 |
114.41 |
134.69 |
|
Pivot |
1.3606 |
1.5994 |
83.47 |
0.9942 |
1.0208 |
0.9857 |
0.7752 |
113.47 |
133.47 |
|
Support 1 |
1.3543 |
1.5932 |
83.15 |
0.9885 |
1.0167 |
0.9810 |
0.7718 |
112.84 |
132.70 |
|
Support 2 |
1.3463 |
1.5827 |
82.78 |
0.9800 |
1.0115 |
0.9739 |
0.7662 |
111.90 |
131.48 |
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 |
1.3813 |
1.6220 |
84.47 |
1.0099 |
1.0339 |
1.0033 |
0.7897 |
115.41 |
135.84 |
|
Resist. 2 |
1.3766 |
1.6174 |
84.23 |
1.0067 |
1.0309 |
0.9995 |
0.7867 |
115.01 |
135.36 |
|
Resist. 1 |
1.3719 |
1.6129 |
83.99 |
1.0035 |
1.0279 |
0.9957 |
0.7836 |
114.60 |
134.88 |
|
Spot |
1.3624 |
1.6037 |
83.52 |
0.9971 |
1.0220 |
0.9880 |
0.7775 |
113.79 |
133.93 |
|
Support 1 |
1.3529 |
1.5945 |
83.05 |
0.9907 |
1.0161 |
0.9803 |
0.7714 |
112.98 |
132.98 |
|
Support 2 |
1.3482 |
1.5900 |
82.81 |
0.9875 |
1.0131 |
0.9765 |
0.7683 |
112.57 |
132.50 |
|
Support 3 |
1.3435 |
1.5854 |
82.57 |
0.9843 |
1.0101 |
0.9727 |
0.7653 |
112.17 |
132.02 |
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
