- Dollar Climbs a Second Day as a Natural Reversal Effort Offsets Disappointing FOMC Minutes
- Euro Puts in for an Uneven Performance as Traders Doubt Data, ECB Financing Progress
- British Pound Surges on the First Action London Session with Help from Manufacturing
- Japanese Yen Starting to Feel the Fundamental Pressure as Kan Hints at Higher Taxes
- Australian Dollar Progresses a Stumble into a Possible Reversal While Risk Seems Steady
- Canadian Dollar Moves Right Back to Parity against the Greenback without Conviction
Dollar Climbs a Second Day as a Natural Reversal Effort Offsets Disappointing FOMC Minutes
Tuesday was a highly unusual trading day for not only the US dollar but for the capital markets in general. Falling back on the normal fundamental drivers, it would seem that the backdrop activity should have been relatively steady. Instead, various assets and currency pairs were exceptionally volatile; and more interestingly, there was a remarkable divergence in the performance of markets that usually trade hand-in-hand. Looking first at our benchmark for investor sentiment, the S&P 500 spent the New York session retracing the sharp rally that opened the New Year. Under normal circumstances, this would denote a general move towards risk aversion. However, the conviction in this reversal was tepid at best considering the benchmark index would not trade below Monday’s low. Yet, if we expand our horizons, we note that oil and AUDUSD tumble through the day. Such a performance from two favored speculative assets would suggest a concerted effort at unwinding risky positioning. Yet, looking closer, we also note that the Japanese yen collapsed through the early morning – typifying a build in carry interest.
Such a mixed day could lead one to believe that fundamentals had descended into chaos. However, this confusion can be alleviated by untangling the performance of the various assets. The first thing to establish is that trading conditions are still abnormal. Liquidity has certainly improved since the end of December; but many long-term investors as well as short-term speculators are keeping to the sidelines until there is a clear and consistent vote on market direction through the coming month, quarter and year. With that in mind, we note that divergences can develop and volatility is still very high. More importantly, the larger fundamental trends (like underlying risk appetite) have not reengaged. That said, we look back to our benchmark for speculative interest – the S&P 500. The index was lower on the day; but it did not make the necessary effort to break the long-term bull trend. That would contribute to the tentative boost to the greenback against fundamentally troubled currencies like the euro and Japanese yen. That said, there was also a notable push from key counter-currencies like the yen and Australian dollar. The former was shaken by the mention of a tax hikes that could dampen the economic recovery while the latter is still suffering from the destructive effects of the nation’s worst flood in recent memory along with a marked drop in key data. So, after untangling this complicated scenario; what should we take away from the day’s developments? Market conditions are still distorted, the influences of government stimulus versus austerity will continue to press and trends are still flimsy. Therefore, cautious and skepticism are warranted on the dollar’s nascent advance.
While, as traders, our primary concern is fundamental trends impacting the market now; we should also keep an eye on developments that alter the long-term course of the currency market. That said, the market’s general projection for the dollar over the next six months via the $600 billion stimulus program seems to be accurately priced in. The minutes from the FOMC’s last monetary policy decision noted directly that though there were improvements in the economy, they were “not sufficient” to warrant a change in the asset-purchasing program. A change in the program before its maturity is highly unlikely barring an extreme change in the outlook; so don’t expect this to have a marked impact on the dollar besides the constant weight of regular Treasury purchases. Looking ahead to tomorrow, we will get in the NFPs spirit with the ADP report release.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD Moves Towards its First Target, Missed out on GBPJPY
Euro Puts in for an Uneven Performance as Traders Doubt Data, ECB Financing Progress
It was difficult to get an accurate read on the euro Tuesday. The currency slipped against the US dollar and British pound but rallied against the Swiss franc. That in itself is a contradiction to accepted risk appetite correlations. Once again, this can be partially attributed to the unusual market conditions we are still facing as well as the data and news for the day. On the docket, we note that German unemployment rose for the first time since June of 2009 (though it doesn’t really alter the larger trend) while the initial Euro Zone CPI reading hit an October 2008 high (though the ECB is likely to take more interest in the later-released core data). On the headlines, the ECB announced it had successfully sterilized its cumulative government bond purchases through last week; but skepticism certainly remains surrounding European financials.
British Pound Surges on the First Action London Session with Help from Manufacturing
With London back online, sterling traders had a round of notable event risk to take stock of. The near eight-month high in mortgage approvals was worth a footnote; but it was the manufacturing activity PMI reading that really struck a chord with pound bulls. The strongest reading in 16 years suggests that – like the US – the United Kingdom may fall back on a factory-led recovery to sustain it.
Japanese Yen Starting to Feel the Fundamental Pressure as Kan Hints at Higher Taxes
It is a rare occasion when Japanese fundamentals actually alter the course of the yen; but the currency certainly felt the aftershocks of an announcement by Finance Minister Kan. The policy maker said it was inevitable that the government must debate the current course of consumption tax and social security to rein in its deficits. Will an economic slump finally remind the market that the future looks dim for Japan?
Australian Dollar Progresses a Stumble into a Possible Reversal While Risk Seems Steady
The Australian dollar was one of the more active currencies for the day – fundamentally rather than technically. The disastrous effects of the nation’s flood have forced many companies to break contracts and create a very real concern for growth. Yet, where this may be temporary, the fourth consecutive drop in factory activity presents a more engrained trouble with high interest rates and a high currency.
Canadian Dollar Moves Right Back to Parity against the Greenback without Conviction
When there isn’t a clear foundation of fundamental support for a currency (be it growth, interest rates, speculative conviction or any other overwhelming driver), trends are quickly snuffed out. That seems to be the case for USDCAD; which has quickly retraced from its bearish break below the closely-watched parity level. This is already a difficult pair on which to establish trends and a lack of risk trend is further complicating.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
23:50 |
Monetary Base (YoY) (DEC) |
7.6% |
Not translating into inflation |
|
|
AUD |
1:00 |
HIA New Home Sales (MoM) (NOV) |
6.1% |
Fell 0.2% in Nov after surging in Oct |
|
|
CNY |
2:30 |
HSBC Services PMI (DEC) |
53.1 |
Manufacturing is more important |
|
|
JPY |
5:00 |
Vehicle Sales (YoY) (DEC) |
-30.7% |
Down as subsidies have expired |
|
|
EUR |
8:45 |
Italian Purchasing Manager Index Services (DEC) |
53.5 |
54.5 |
Service sector is expanding in Europe, but the recovery continues to be led by manufacturing |
|
EUR |
8:50 |
French Purchasing Manager Index Services (DEC F) |
54.1 |
54.1 |
|
|
EUR |
8:55 |
German Purchasing Manager Index Services (DEC F) |
58.3 |
58.3 |
|
|
EUR |
9:00 |
Euro-Zone Purchasing Manager Index Composite (DEC F) |
55 |
55 |
|
|
EUR |
9:00 |
Euro-Zone Purchasing Manager Index Services (DEC F) |
53.7 |
53.7 |
|
|
GBP |
9:30 |
UK PMI Construction (DEC) |
51 |
51.8 |
Weak housing keeps activity muted |
|
GBP |
9:30 |
Official Reserves (Changes) (DEC) |
-$728M |
||
|
EUR |
10:00 |
Euro-Zone Industrial New Orders (YoY) (OCT) |
18.4% |
13.5% |
Recovering from last year’s 15% year-over-year decline in October |
|
EUR |
10:00 |
Euro-Zone Industrial New Orders s.a. (MoM) (OCT) |
1.5% |
-3.8% |
|
|
EUR |
10:00 |
Euro-Zone Producer Price Index (MoM) (NOV) |
0.3% |
0.4% |
CPI is considered more important from a monetary policy standpoint |
|
EUR |
10:00 |
Euro-Zone Producer Price Index (YoY) (NOV) |
4.4% |
4.4% |
|
|
USD |
12:00 |
MBA Mortgage Applications (DEC 31) |
-18.6% |
Plunging as long-term rates rise |
|
|
USD |
12:30 |
Challenger Job Cuts (YoY) (DEC) |
ADP not a consistent indicator of government nonfarm payrolls report |
||
|
USD |
13:30 |
ADP Employment Change (DEC) |
100K |
93K |
|
|
CAD |
13:30 |
Industrial Product Price (MoM) (NOV) |
0.3% |
0.5% |
Prices are creeping higher on commodity inflation |
|
CAD |
13:30 |
Raw Materials Price Index (MoM) (NOV) |
2.0% |
1.7% |
|
|
USD |
15:00 |
ISM Non-Manufacturing Composite (DEC) |
55.6 |
55 |
Would be highest since April 2006 |
|
USD |
15:30 |
DOE U.S. Crude Oil Inventories (DEC 31) |
-1258K |
Inventories have been plunging on elevated demand and year-end tax considerations |
|
|
USD |
15:30 |
DOE U.S. Gasoline Inventory (DEC 31) |
-2316K |
||
|
USD |
15:30 |
DOE U.S. Distillate Inventory (DEC 31) |
+243K |
||
|
Currency |
GMT |
Upcoming Events & Speeches |
|||
|
USD |
18:00 |
Hoenig Speaks at The Central Exchange in Kansas City |
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 |
1.3840 |
1.6420 |
89.00 |
1.0000 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3700 |
1.5910 |
86.00 |
0.9735 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3301 |
1.5584 |
82.04 |
0.9494 |
0.9991 |
1.0052 |
0.7672 |
109.12 |
127.84 |
|
Support 1 |
1.3000 |
1.5312 |
80.00 |
0.9300 |
0.9950 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2925 |
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 |
6.7650 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.2430 |
1.5419 |
6.6780 |
7.7694 |
1.2880 |
Spot |
6.7233 |
5.6029 |
5.8644 |
|
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 |
1.3483 |
1.5753 |
82.65 |
0.9636 |
1.0098 |
1.0227 |
0.7786 |
110.94 |
129.85 |
|
Resist 1 |
1.3392 |
1.5668 |
82.34 |
0.9565 |
1.0044 |
1.0139 |
0.7729 |
110.03 |
128.85 |
|
Pivot |
1.3342 |
1.5562 |
81.98 |
0.9446 |
0.9981 |
1.0084 |
0.7685 |
109.33 |
127.60 |
|
Support 1 |
1.3251 |
1.5477 |
81.67 |
0.9375 |
0.9927 |
0.9996 |
0.7628 |
108.42 |
126.60 |
|
Support 2 |
1.3201 |
1.5371 |
81.31 |
0.9256 |
0.9864 |
0.9941 |
0.7584 |
107.72 |
125.35 |
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 |
1.3492 |
1.5762 |
83.01 |
0.9615 |
1.0100 |
1.0200 |
0.7788 |
110.77 |
129.65 |
|
Resist. 2 |
1.3444 |
1.5718 |
82.77 |
0.9584 |
1.0073 |
1.0163 |
0.7759 |
110.36 |
129.20 |
|
Resist. 1 |
1.3397 |
1.5673 |
82.52 |
0.9554 |
1.0046 |
1.0126 |
0.7730 |
109.95 |
128.75 |
|
Spot |
1.3301 |
1.5584 |
82.04 |
0.9494 |
0.9991 |
1.0052 |
0.7672 |
109.12 |
127.84 |
|
Support 1 |
1.3205 |
1.5495 |
81.56 |
0.9434 |
0.9936 |
0.9978 |
0.7614 |
108.29 |
126.93 |
|
Support 2 |
1.3158 |
1.5450 |
81.31 |
0.9404 |
0.9909 |
0.9941 |
0.7585 |
107.88 |
126.48 |
|
Support 3 |
1.3110 |
1.5406 |
81.07 |
0.9373 |
0.9882 |
0.9904 |
0.7556 |
107.47 |
126.03 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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