- Dollar Burns off Liquidity Momentum, Fed Officials Take a Dovish View on the Future
- Euro Troubled by Unmitigated Portuguese Speculations, Rescued by Japan?
- British Pound Avoids a Correction of Last Week’s Run with a Hawkish Vote from Cameron
- Australian Dollar Stumbles First on Chinese Trade Data then its Own Trade Figures
- Canadian Dollar: The Short and Long Term Implications of Weak Sales and Lending Surveys
- Japanese Yen Respond to Interest in Ireland Debt but not BoJ’s Monetization Concerns
Dollar Burns off Liquidity Momentum, Fed Officials Take a Dovish View on the Future
It seemed last week that the dollar was just starting to settle into a strong bullish trend that would define the opening position by the FX market heading into 2011. Yet, was this a genuine fundamental trend or merely a consequence of the unusual liquidity conditions related to the new trading year? The latter scenario is far more probable at this point; but determining which one picture is the correct one is vital to gauging the greenback’s next move. In gauging the dollar’s performance; the first picture to paint is the performance of complimentary markets. Looking at interest rates (a critical factor in valuing exchange rates), we see that the dollar’s rally was actually coming during a period when the benchmark 10-year Treasury note was advancing (yields were therefore falling). Looking to our benchmarks for equities, we see convictions in capital flows were still markedly absent with a steady and advancing S&P 500 Index. And, even the performance of other currencies would give a mixed view as the Japanese yen and Swiss franc (fellow safe haven currencies) depreciated. Traditional and fundamentally-sound correlations where therefore notably missing.
Behind these conventional correlations that seem to have diverged recently, we have fundamental affairs that sync the flow of capital from one side of the market to another. For the dollar, the temporary absence of a few critical catalysts is actually permitting a seemingly contradictory and unsubstantiated. The most influential void at this point is a meaningful consensus on risk appetite trends. The steady advance in the S&P 500 and Dow, as well as the stubborn buoyancy of the Nikkei 225 and FTSE 100 is more a trend of convenience and habit than an actual reflection of conviction. On this front, the market is waiting for something that will revive the overwhelming shifts in capital that tend to harmonize these different markets and assets so nicely. Perhaps an early concern for speculators, the Fed is expected to begin its updated review of 19 US banks to establish whether they are financially healthy enough to engage in buy backs and follow through on dividends issuance. A critical drawback of this important assessment though is that the central bank is not expected to share the details of its findings – though the market will be able to assess the situation when earnings season comes around. Perhaps more immediate threats to investor sentiment exist outside the boarders of the US. An intensified focus on the Euro Zone’s financial health, Chinese asset inflation troubles and Japanese credit issues are all active threats. And, it is important to note that the risks are heavily stacked to the downside, it would be hard to really impress at this point.
While we wait for a big fundamental theme to reestablish itself; it is important to keep track of the dollar’s own health and even its standings in the risk spectrum. There weren’t any notable economic indicators on the docket Monday; but there was interesting Fed commentary. The Fed’s Lockhart noted ongoing headwinds heading into 2011 despite positive growth that seemed to echo Bernanke and support his belief in maintaining the stimulus program. Far more interesting was Janet Yellen’s suggestion that it may take 7 years to get the Fed balance sheet back to ‘normal.’ On a related note, Treasury holdings by the 18 primary dealers saw its biggest monthly drop in over six years – $79 billion.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Looking for a Short-Term GBPJPY Break while Waiting for GBPUSD
Euro Troubled by Unmitigated Portuguese Speculations, Rescued by Japan?
Interest in Europe’s financial woes immediately picked up on Monday’s open and quickly intensified as the day wore on. Clouding headlines, Reuters quoted an unnamed but senior Euro Zone official who suggested Germany and France among others have been pressuring Portugal to seek financial assistance from the EU and IMF before the government’s funding situation grew critical. Officials from Germany, France and Spain all denied that their fellow member was in such straights and that they were pushing assistance. This should seem familiar as it was the same general storyline we followed with Greece and then Ireland. With Portugal set to auction debt on Wednesday; even the ECB’s reported buying will not material help. What would help? How about another major source of demand from outside Europe? In a surprising twist, Japanese Finance Minister Noda said the nation was planning on buying as much as 20 percent of the Euro Zone’s bond issuance…
British Pound Avoids a Correction of Last Week’s Run with a Hawkish Vote from Cameron
Where there was a natural pull to correct last week’s momentum-based trends, the sterling held off from retracing its gains thanks to Prime Minister Cameron. Extolling the dangers of inflation and his confidence in the BoE comes off as a tacit support for rate hikes should the policy group go that rate. Later, early in the Asian trading session Tuesday, the BRC survey reported the first drop in retail sales in 8 months.
Australian Dollar Stumbles First on Chinese Trade Data then its Own Trade Figures
The Australian dollar was hammered on two separate occasions. First, early Monday, an unexpectedly sharp drop in the Chinese trade balance for December shook one of its largest commodity providers (Australia). And, though the retail sales figures were the big numbers through the open 36 hours, it was this morning’s trade balance miss that would deliver another jolt to the Aussie currency and sharp drop.
Canadian Dollar: The Short and Long Term Implications of Weak Sales and Lending Surveys
The short-term impact of Monday’s BoC Senior Loan Officer and business sale forecast surveys for the fourth quarter was minimal. However, the long-term concerns will work on the evolving outlook for the Canadian economy and currency. Leading conditions were reportedly the loosest they have been on records going back to 1999; but sales expectations were still at their lowest levels since the first quarter of 2009.
Japanese Yen Respond to Interest in Ireland Debt but not BoJ’s Monetization Concerns
Does Japan have the money to help support Ireland? The announcement by Finance Minister Noda that the government would invest 20 percent in the debt issue to support the nation’s bailout does not commit directly to Ireland – but rather falls on Euro Zone guarantees. Perhaps this is a means for avoiding direct monetization which BoJ Deputy Governor Nishimura warned against early Monday.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
23:50 |
Official Reserve Assets (DEC) |
$1101.0B |
November reading was 3-month low. |
|
|
GBP |
0:01 |
BRC Retail Sales Monitor (DEC) |
November retail sales were up 0.7% on a like-for-like basis from year ago. |
||
|
AUD |
0:30 |
Trade Balance (Australian dollar) (NOV) |
2050M |
2625M |
Surplus widened in October on higher gold exports and lower fuel imports. |
|
JPY |
5:00 |
Coincident Index (NOV P) |
102.2 |
100.8 |
Japan’s leading index fell to a nine-month low in October. |
|
JPY |
5:00 |
Leading Index (NOV P) |
100.9 |
97.7 |
|
|
EUR |
7:30 |
Bank of France Business Sentiment (DEC) |
107 |
At highest reading since January 2008. |
|
|
USD |
12:30 |
NFIB Small Business Optimism (DEC) |
94.5 |
93.2 |
Likely rose to a 3-year high in Dec. |
|
13:15 |
Housing Starts (DEC) |
180.0K |
188.1K |
November rise was first in 4 months. |
|
|
USD |
15:00 |
IBD/TIPP Economic Optimism (JAN) |
47.0 |
45.8 |
Likely rose to 8-month high in January. |
|
USD |
15:00 |
Wholesale Inventories (NOV) |
1.0% |
1.9% |
Positive reading in last ten months. |
|
USD |
22:00 |
ABC Consumer Confidence (JAN 9) |
-45 |
ABC confidence is at a four-week low. |
|
|
Currency |
GMT |
Upcoming Events & Speeches |
|||
|
USD |
13:30 |
Fed’s Charles Plosser Speaks on U.S. Economic Outlook |
|||
|
USD |
19:00 |
Fed’s Narayana Kocherlakota Speaks on U.S. 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 |
1.3615 |
1.6420 |
89.00 |
1.0000 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3400 |
1.5910 |
86.00 |
0.9735 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.2947 |
1.5575 |
82.82 |
0.9681 |
0.9935 |
0.9957 |
0.7634 |
107.23 |
128.99 |
|
Support 1 |
1.2900 |
1.5312 |
80.00 |
0.9300 |
0.9900 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2585 |
1.5186 |
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 |
7.1750 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
13.8500 |
1.5931 |
6.8650 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.2322 |
1.5775 |
6.8280 |
7.7769 |
1.2977 |
Spot |
6.8818 |
5.7530 |
5.9792 |
|
Support 1 |
12.0500 |
1.4724 |
6.4000 |
7.7490 |
1.2750 |
Support 1 |
6.4500 |
5.2625 |
5.7030 |
|
Support 2 |
11.7200 |
1.3475 |
5.9200 |
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 |
1.3023 |
1.5679 |
83.55 |
0.9776 |
1.0016 |
1.0041 |
0.7692 |
108.10 |
129.93 |
|
Resist 1 |
1.2985 |
1.5627 |
83.18 |
0.9728 |
0.9976 |
0.9999 |
0.7663 |
107.66 |
129.46 |
|
Pivot |
1.2926 |
1.5551 |
82.93 |
0.9680 |
0.9943 |
0.9941 |
0.7618 |
107.25 |
128.89 |
|
Support 1 |
1.2888 |
1.5499 |
82.56 |
0.9632 |
0.9903 |
0.9899 |
0.7589 |
106.81 |
128.42 |
|
Support 2 |
1.2829 |
1.5423 |
82.31 |
0.9584 |
0.9870 |
0.9841 |
0.7544 |
106.40 |
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 |
1.3133 |
1.5752 |
83.78 |
0.9807 |
1.0041 |
1.0099 |
0.7746 |
108.80 |
130.79 |
|
Resist. 2 |
1.3086 |
1.5708 |
83.54 |
0.9776 |
1.0014 |
1.0064 |
0.7718 |
108.41 |
130.34 |
|
Resist. 1 |
1.3040 |
1.5663 |
83.30 |
0.9744 |
0.9988 |
1.0028 |
0.7690 |
108.02 |
129.89 |
|
Spot |
1.2947 |
1.5575 |
82.82 |
0.9681 |
0.9935 |
0.9957 |
0.7634 |
107.23 |
128.99 |
|
Support 1 |
1.2854 |
1.5487 |
82.34 |
0.9618 |
0.9882 |
0.9886 |
0.7578 |
106.44 |
128.09 |
|
Support 2 |
1.2808 |
1.5442 |
82.10 |
0.9586 |
0.9856 |
0.9850 |
0.7550 |
106.05 |
127.64 |
|
Support 3 |
1.2761 |
1.5398 |
81.86 |
0.9555 |
0.9829 |
0.9815 |
0.7522 |
105.66 |
127.19 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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