- Dollar Climb Winded as Reserve Diversification Calls Grow ahead of G20, Fed Reminds of QE2
- Euro Financial Troubles Starting to Hit Circuit Breakers as Irish Debt Margins Boosted
- British Pound Rallies after Quarterly Inflation Report Calls for Tempered Inflation, Strong Growth
- Australian Dollar Tumbles Despite Increase in Net Jobs as Unemployment Rate Jumps
- Canadian Dollar Climbs Despite a Near-Record Trade Deficit that is Clearly Linked to Exchange Rate
- New Zealand Dollar Sees a Tepid Recovery in Factory Activity, Biggest Drop in Home Sales in Two Years
Dollar Climb Winded as Reserve Diversification Calls Grow ahead of G20, Fed Reminds of QE2
When there are underlying headwinds working against or in favor of a currency or asset, those long-term considerations will be a constant factor in price action. So, while there may be a more immediate and distressing fundamental catalyst that can alter volatility and trend in the short-term; that nagging concern can consistently come back to trouble the market. That is the situation that the US dollar currently faces. While the greenback has responded to a tentative correction in risk appetite and the short-term effort to rebalance from a speculatively oversold position, there is still the long-term issue that the world is moving away from a one-currency reserve habit and the more medium-term matter of the economic and speculative influence from the Fed’s expansive monetary policy. Without a tangible, counterbalance to keep the dollar above water; the currency is prone to slipping back into the sell column of the market’s trading book. The fact that the currency would finally correct Wednesday made sense given the progress that was made over the three previous active trading sessions. For the Dollar Index, returning to the mid-October highs was manageable; but surpassing them required a true conviction. We could see that same critical juncture across the majors: EURUSD briefly traded at a month low before holding up to a range low around 1.37; USDJPY tested the ceiling on a six-month descending trend channel for the first time since mid-September; and AUDUSD is now bouncing above parity.
With blind, speculative interest easing; the dollar now requires a meaningful catalyst to push it onto that next step of recovery. Should that support fail to materialize, the currency will simply be drawn back into its underlying fundamental troubles and the larger general trend. Scanning the more likely bullish drivers Wednesday, risk aversion would provide little support to the erstwhile safe haven. The S&P 500 was essentially unchanged for the day and gold posted a recovery from Tuesday’s dramatic reaction to the silver margin change. If the dollar is to be spurred on to a meaningful climb; an unwinding of high-risk speculative trades is its best bet. Alternatively, the economic docket will offer little to work with. From the second tier listings on the previous day’s calendar, the September trade report was the most influential indicator on deck. And, despite the sharper-than-expected contraction in the deficit to $44 billion on a two-year high for exports; it simply isn’t enough to encourage confidence in a broader economic recovery. Instead, concern surrounding the country’s deteriorating fiscal health comes into focus. A proposal from the bipartisan deficit commission released a range of recommendations to contain the ballooning budget shortfall. That said, curbing Medicare, eliminating tax deductibles on mortgage interest and reducing the increases for social security payouts are unlikely to find legislative traction. What’s more, the Fed’s announcement of plans to buy $105 billion in Treasuries in the next month reminds us of that debated stimulus program.
Looking ahead to the final 48 hours of trading this week, the dollar’s climb can certainly collapse under its own weight. While there is no traditional macroeconomic event risk scheduled for release; the beginning of the G20 meeting in Seoul, Korea holds direct implications for the dollar’s performance. Heading into the meeting, we have seen World Bank President Zoellick reiterate his belief that the world is already heading towards a new monetary policy system of many reserve currencies (evidenced, he says, by gold prices). Actual policy makers have already expressed their concern – which will be exacerbated by the FOMC. Yet, it is unlikely that there will be any concessions made in this meeting.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: CADJPY Hits its First Target, EURUSD Still Requires a Signal for Entry
Euro Financial Troubles Starting to Hit Circuit Breakers as Irish Debt Margins Boosted
No matter how bleak the future looks, there is always a point where the market will catch up to speculative expectations. For the euro, concerns of another financial hiccup have long been entertained by traders. However, just like with the Fed stimulus expectations, there is an issue of timing and severity that can alter the euro’s bearing. Acclimation was a deadening factor in the euro’s reaction to the record highs in yield spreads on 10-year Irish and Portuguese debt; but the move by clearing house LCH Clearnet to boost deposit requirements 15 percent to trade Irish debt is a clear escalation of problems. Will this be mirrored for other countries? Just how sever will the reaction to this move be?
British Pound Rallies after Quarterly Inflation Report Calls for Tempered Inflation, Strong Growth
An encouraging outlook for growth is exactly what is needed for the British pound after the UK government announced its 81 billion pound spending cuts just last month. However, if there was ever a group with a positive bias, it would be the BoE. What’s more, in the quarterly inflation report, they projected inflation to close in on 2 percent. So, not only is their growth outlook dubious; they have also curbed rate expectations.
Australian Dollar Tumbles Despite Increase in Net Jobs as Unemployment Rate Jumps
Risk appetite trends can be a confusing fundamental catalyst. Though investor sentiment was off its fearful-kick Wednesday, the Aussie dollar was still drawn to parity against its US counterpart. What’s more, the disoriented mood would encourage a bearish response to debatable employment data. Net jobs rose more than expected in October; but traders decided to focus on the sharp jump in the unemployment rate.
Canadian Dollar Climbs Despite a Near-Record Trade Deficit that is Clearly Linked to Exchange Rate
Against the greenback; the Canadian currency can weather significant fundamental currency. That’s said, the loonie was still able to post a serious rally against other counterparts Wednesday despite a swell in the September trade figures. Just off the record deficit set in July, a 22-month high in imports and a 3.6 percent drop in exports to the US shows a clear economic reaction to exchange rates.
New Zealand Dollar Sees a Tepid Recovery in Factory Activity, Biggest Drop in Home Sales in Two Years
When risk trends are in motion, it is easy to forget that the kiwi dollar can alter its own fundamental future by moving up or down the risk spectrum. The currency moved down that scale early Thursday morning when the manufacturing activity reading for October barely nudged from 14-month lows and the drop in home sales accelerated to its fastest clip since November of 2008.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
23:50 |
Domestic Corp Goods Price Index (MoM) (OCT) |
-0.2% |
0.0% |
Probably rose annually in October for the first time in four months. |
|
JPY |
23:50 |
Domestic Corp Goods Price Index (YoY) (OCT) |
0.5% |
-0.1% |
|
|
JPY |
23:50 |
Machine Orders (MoM) (SEP) |
-9.5% |
10.1% |
Machine orders likely fell in September, halting a 3-month rally. |
|
JPY |
23:50 |
Machine Orders (YoY) (SEP) |
4.9% |
24.1% |
|
|
JPY |
23:50 |
Loans & Discounts Corp (YoY) (SEP) |
-4.3% |
Declined annually in last 10 months. |
|
|
JPY |
23:50 |
Japan Buying Foreign Bonds (Yen) (NOV 5) |
566.6B |
Japanese investors were net buyers of foreign bonds during week ended Oct. 29, buying over 500 billion yen in overseas bonds and notes. |
|
|
JPY |
23:50 |
Japan Buying Foreign Stocks (Yen) (NOV 5) |
28.8B |
||
|
JPY |
23:50 |
Foreign Buying Japan Bonds (Yen) (NOV 5) |
373.6B |
||
|
JPY |
23:50 |
Foreign Buying Japan Stocks (Yen) (NOV 5) |
-51.0B |
||
|
AUD |
0:00 |
Consumer Inflation Expectation (NOV) |
3.8% |
Oct. reading highest in six months. |
|
|
AUD |
0:30 |
Employment Change (OCT) |
20.0K |
49.5K |
Australian employers in September added the most workers in eight months, driving the country’s currency toward a record and bolstering case for rate hikes. |
|
AUD |
0:30 |
Unemployment Rate (OCT) |
5.0% |
5.1% |
|
|
AUD |
0:30 |
Full Time Employment Change (OCT) |
55.8K |
||
|
AUD |
0:30 |
Part Time Employment Change (OCT) |
-6.3K |
||
|
AUD |
0:30 |
Participation Rate (OCT) |
65.6% |
65.6% |
|
|
CNY |
2:00 |
Consumer Price Index (YoY) (OCT) |
4.0% |
3.6% |
Chinese inflation accelerated in September to the fastest pace in 23 months as CPI rose 3.6%. |
|
CNY |
2:00 |
Producer Price Index (YoY) (OCT) |
4.5% |
4.3% |
|
|
CNY |
2:00 |
Purchasing Price Index (YoY) (OCT) |
7.1% |
||
|
CNY |
2:00 |
Retail Sales (YoY) (OCT) |
18.8% |
18.8% |
Chinese retail sales rose over 18% annually in 7 of the past 8 months. |
|
CNY |
2:00 |
Retail Sales (YTD) (YoY) (OCT) |
18.4% |
18.3% |
|
|
CNY |
2:00 |
Industrial Production (YoY) (OCT) |
13.4% |
13.3% |
Chinese industrial production rose over 13% YoY in the last 7 months. |
|
CNY |
2:00 |
Industrial Production (YTD) (YoY) (OCT) |
16.0% |
16.3% |
|
|
CNY |
2:00 |
Fixed Assets Invest Urban (YTD) (YoY) (OCT) |
24.4% |
24.5% |
Slowed YoY in last eleven months. |
|
NZD |
21:00 |
REINZ House Sales (YoY) (OCT) |
-33.1% |
New Zealand home sales plunged over 33% YoY in September, the largest annual decline since 2008. |
|
|
NZD |
21:00 |
REINZ Housing Price Index (MoM) (OCT) |
-0.3% |
||
|
NZD |
21:00 |
REINZ Housing Price Index (OCT) |
3192.9 |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
ALL |
G20 Summit Held in Seoul, South Korea |
|
|
EUR |
French Market Closed for Liberation Day |
|
|
EUR |
9:00 |
European Central Bank Monthly Report |
|
EUR |
10:15 |
ECB’s Juergen Stark Speaks on Economy |
|
EUR |
17:00 |
ECB’s Yves Mersch Speaks on Economy, Financial Markets |
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 |
1.4800 |
1.6715 |
89.00 |
1.0460 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4450 |
1.6420 |
86.00 |
0.9950 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3778 |
1.6123 |
82.13 |
0.9709 |
1.0000 |
1.0056 |
0.7837 |
113.16 |
132.41 |
|
Support 1 |
1.3700 |
1.5650 |
80.00 |
0.9500 |
0.9950 |
0.9640 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3500 |
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 |
12.2331 |
1.4164 |
6.8750 |
7.7519 |
1.2883 |
Spot |
6.7336 |
5.4098 |
5.8632 |
|
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 |
1.3912 |
1.6248 |
83.41 |
0.9811 |
1.0128 |
1.0131 |
0.7920 |
114.62 |
134.68 |
|
Resist 1 |
1.3845 |
1.6186 |
82.77 |
0.9760 |
1.0064 |
1.0093 |
0.7879 |
113.89 |
133.55 |
|
Pivot |
1.3758 |
1.6073 |
82.16 |
0.9717 |
1.0029 |
1.0035 |
0.7808 |
113.06 |
131.96 |
|
Support 1 |
1.3691 |
1.6011 |
81.52 |
0.9666 |
0.9965 |
0.9997 |
0.7767 |
112.33 |
130.83 |
|
Support 2 |
1.3604 |
1.5898 |
80.91 |
0.9623 |
0.9930 |
0.9939 |
0.7696 |
111.50 |
129.24 |
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 |
1.3980 |
1.6317 |
83.09 |
0.9841 |
1.0119 |
1.0212 |
0.7961 |
114.82 |
134.39 |
|
Resist. 2 |
1.3930 |
1.6268 |
82.85 |
0.9808 |
1.0089 |
1.0173 |
0.7930 |
114.41 |
133.90 |
|
Resist. 1 |
1.3879 |
1.6220 |
82.61 |
0.9775 |
1.0059 |
1.0134 |
0.7899 |
113.99 |
133.40 |
|
Spot |
1.3778 |
1.6123 |
82.13 |
0.9709 |
1.0000 |
1.0056 |
0.7837 |
113.16 |
132.41 |
|
Support 1 |
1.3677 |
1.6026 |
81.65 |
0.9643 |
0.9941 |
0.9978 |
0.7775 |
112.33 |
131.42 |
|
Support 2 |
1.3626 |
1.5978 |
81.41 |
0.9610 |
0.9911 |
0.9939 |
0.7744 |
111.91 |
130.92 |
|
Support 3 |
1.3576 |
1.5929 |
81.17 |
0.9577 |
0.9881 |
0.9900 |
0.7713 |
111.50 |
130.43 |
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
