- Dollar Correction Dampens the Opportunity of a True Bullish Reversal on Friday’s 3Q GDP
- Japanese Yen Won’t Remain Resilient to Stimulus, Deflation, Chocked Growth Forever
- British Pound Climbs Despite Drop in Sales Activity and Posen’s Incessantly Dovish Musings
- Euro Climb Finds Support through Climb in Optimism, Looking Ahead to Inflation and Jobs
- Australian Dollar Slips Against Most Crosses Despite IMF’s Suggestion for more RBA Hikes
- Canadian Dollar Range Bound Ahead of August GDP Report
Dollar Correction Dampens the Opportunity of a True Bullish Reversal on Friday’s 3Q GDP
Avoiding the actual performance of the dollar through Thursday’s session; if we were to evaluate the progress of the currency’s typical fundamental catalysts, the conclusion would be rather mundane. For the greatest potential energy at this point, risk appetite trends were steady. Looking to the S&P 500, the index ended the session little changed and just above the floor of its now-blatant two-month rising trend channel. And, if we were looking for a stimulus influence, it would be fair to suggest that speculative assets would have been nudged by a meaningful development. Even the macroeconomic docket was eerily quiet in the lead up to heavy event risk scheduled for the final 24 hours of trading. Yet, despite all of this, the trade-weighted Dollar Index would put in for its second largest daily decline in five weeks. Across the majors, this would pull EURUSD back from the edge of three-week lows, drive GBPUSD deeper into its congestion pattern, curb USDJPY’s nascent reversal effort and prevent AUDUSD from confirming the development of a new bear trend. Looking at this from a purely speculative point of view, such a move could be construed as defensive positioning – easing the possibility of a major breakout and trend development (perhaps dollar favorable) ahead of the more critical Federal Open Market Committee (FOMC) rate decision scheduled next Tuesday.
For those fundamental traders that can’t bear an explanation that relies on the market psychology; there were a few concerns that would generate significant concern for the greenback’s health. The most prominent of these matters was the carryover influence of the New York Fed’s poll of its Primary Dealers (those required to deal with open market operations and Treasury auctions) whereby they asked the banks what the expected size and time frame for a second round of stimulus would be. This is highly unusual; and their motivations can only be guessed at. Naturally, asking this group their expectations reflects an effort to establish the market’s expectations for the results. This is likely being done to determine what would constitute a surprise outcome to the markets next Wednesday. A shock could very well risk a major volatility event; which, if officials are concerned of, would indirectly suggest they believe risk appetite is flimsy. Another logical deduction from this poll is that the central bank is almost certain to offer a second wave of stimulus and perhaps attempt to meet expectations. The other lesser, dollar catalyst for the day was the suggestion by the IMF that the dollar was ‘on the strong side’ given its fundamental backdrop. That being said, their assessment loses credibility when they say the euro, pound and yen are generally ‘inline’ given their respective health.
Looking ahead to the final 24 hours of trading this week, the dollar has a big fundamental catalyst ahead of it. The advanced reading of third quarter GDP is inherently an important indicator; because it represents one of the broadest readings of health available. What makes this even more noteworthy is the fact that it comes just ahead of a second round of quantitative easing. In this capacity, officials and investors will benchmark the size and time frame for additional stimulus by this particular barometer of strength. Alternatively, with the outlook for what has dubbed ‘QE2’ already priced in, there may be a bigger impact on risk appetite trends (equities). That could trigger a significant move.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Heavy EURUSD and GBPUSD Risk Ahead of GDP
Japanese Yen Won’t Remain Resilient to Stimulus, Deflation, Chocked Growth Forever
An economy that has a heavy dependence on one particular sector, has battled deflation on and off for decades, faces deeply engrained credit troubles and is now pursuing an ever-increasing stimulus policy should reasonably maintain a weak currency. However, these are the conditions that the Japanese economy and yen face; and yet, the currency is just off record and multi-year highs against its primary counterparts. This is another example of speculative interests diverging from fundamental reality. This is certainly not uncommon; but the eventual corrections can be violent (just look at the dollar’s moves over the past three years). In the meantime, the BoJ’s rate decision Thursday morning was notable for details on the five trillion yen stimulus program the government approved with planned purchases of JGBs, lower grade corporate bonds, ETFs and REITs. More remarkable in this particular meeting was the revelation that the BoJ moved up its next decision three weeks to November 5th.
British Pound Climbs Despite Drop in Sales Activity and Posen’s Incessantly Dovish Musings
There was a smattering of scheduled event risk for the British pound; but it would ultimately carry little weight for price action. Housing prices reportedly grew at the slowest pace in a year according to Nationwide and the CBI’s sales report for October broke its expansionary pace for the first time since May. At it again, the BoE’s Posen remarked that he was afraid that QE was not enough and spending cuts would hurt growth.
Euro Climb Finds Support through Climb in Optimism, Looking Ahead to Inflation and Jobs
If we want to identify the source of the euro’s strength Thursday; we need look no further than EURUSD. When the dollar is weak, the natural liquidity link between these two currency leveraged buying of the shared currency. For fundamentals, the German jobs figures were already accounted for while the three year high in Eurozone confidence was notable. Tomorrow, we have inflation and employment to take in.
Australian Dollar Slips Against Most Crosses Despite IMF’s Suggestion for more RBA Hikes
Given the despair Aussie dollar bulls fell into after the modest deceleration of the 3Q CPI data early Wednesday morning; it seems pretty obvious that where the larger risk is in future moves. That said, there is plenty of support for a steady bullish and hawkish trend for the currency going forward. New to this column Thursday was the IMF’s suggestion to the RBA that hikes would be necessary is growth held steady.
Canadian Dollar Range Bound Ahead of August GDP Report
There was relatively little in the way of scheduled event risk for loonie traders to work with Friday; but the fundamentally inclined took note of Finance Minister Flaherty’s suggestion that the nation is moving towards a balanced budget in the medium-term – a significant deal nowadays. In the final 24 hours, all Canadian dollar traders will be watching US GDP; but it will be important to also take note of Canadian GDP for August.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
AUD |
0:00 |
HIA New Home Sales (MoM) (SEP) |
-2.6% |
Sales fell in the last four months. |
|
|
AUD |
0:30 |
Private Sector Credit (MoM) (SEP) |
0.3% |
0.1% |
Australian private sector credit likely rose for an eleventh month in Sept. |
|
AUD |
0:30 |
Private Sector Credit (YoY) (SEP) |
3.4% |
3.1% |
|
|
CNY |
1:35 |
MNI Business Condition Survey (OCT) |
69.54 |
– |
|
|
JPY |
4:00 |
Vehicle Production (YoY) (SEP) |
20.8% |
Increased YoY in last 10 months. |
|
|
JPY |
5:00 |
Housing Starts (YoY) (SEP) |
15.3% |
20.5% |
Housing starts likely rose annually for a fourth month in September. |
|
JPY |
5:00 |
Annualized Housing Starts (SEP) |
0.820M |
0.829M |
|
|
JPY |
5:00 |
Construction Orders (YoY) (SEP) |
0.0% |
Orders fell in 2 of last 3 months. |
|
|
EUR |
8:00 |
Italian Producer Price Index (MoM) (SEP) |
0.2% |
0.2% |
Italian producer prices likely rose in September for a second month. |
|
EUR |
8:00 |
Italian Producer Price Index (YoY) (SEP) |
4.1% |
3.7% |
|
|
GBP |
8:30 |
Net Consumer Credit (SEP) |
0.0B |
-0.1B |
U.K. mortgage approvals fell to the lowest in 17 months in September as ‘uncertainty’ deterred buyers. |
|
GBP |
8:30 |
Net Lending Sec. on Dwellings (SEP) |
1.0B |
1.7B |
|
|
GBP |
8:30 |
Mortgage Approvals (SEP) |
46.0K |
47.4K |
|
|
GBP |
8:30 |
M4 Money Supply (MoM) (SEP F) |
-0.3% |
U.K. M4 money supply declined in September for a second month. |
|
|
GBP |
8:30 |
M4 Money Supply (YoY) (SEP F) |
0.9% |
||
|
EUR |
9:00 |
Euro-Zone CPI Estimate (YoY) (OCT) |
1.8% |
1.8% |
Sept. reading highest since 2008. |
|
EUR |
9:00 |
Euro-Zone Unemployment Rate (SEP) |
10.1% |
10.1% |
At highest level in over 12 years. |
|
EUR |
9:00 |
Italian CPI (NIC incl. tobacco) (MoM) (OCT P) |
0.1% |
-0.2% |
Italian consumer prices likely increased in October for a third consecutive month, after declining 0.9% in July. |
|
EUR |
9:00 |
Italian CPI (NIC incl. tobacco) (YoY) (OCT P) |
1.6% |
1.6% |
|
|
EUR |
9:00 |
Italian CPI – EU Harmonized (MoM) (OCT P) |
0.4% |
0.6% |
|
|
EUR |
9:00 |
Italian CPI – EU Harmonized (YoY) (OCT P) |
1.7% |
1.6% |
|
|
CHF |
9:30 |
KOF Swiss Leading Indicator (OCT) |
2.16 |
2.21 |
Currently at lowest level since May. |
|
EUR |
10:00 |
Italian Unemployment Rate (SA) |
8.3% |
8.2% |
Unexpectedly declined in August. |
|
CAD |
12:30 |
Gross Domestic Product (MoM) (AUG) |
0.3% |
-0.1% |
July decline was first in 11 months. |
|
CAD |
12:30 |
Industrial Product Price (MoM) (SEP) |
0.3% |
0.4% |
Industrial product prices likely rose for a second month in September. |
|
CAD |
12:30 |
Raw Materials Price Index (MoM) (SEP) |
1.0% |
2.2% |
|
|
USD |
12:30 |
Gross Domestic Product (Annualized) (3Q A) |
2.0% |
1.7% |
The U.S. economy probably grew at a faster pace in the third quarter, reflecting a pickup in consumer spending. |
|
USD |
12:30 |
Personal Consumption (3Q A) |
2.5% |
2.2% |
|
|
USD |
12:30 |
Gross Domestic Product Price Index (3Q A) |
1.8% |
1.9% |
|
|
USD |
12:30 |
Core Personal Consumption (QoQ) (3Q A) |
1.0% |
1.0% |
|
|
USD |
12:30 |
Employment Cost Index (3Q) |
0.5% |
0.5% |
|
|
USD |
13:45 |
Chicago Purchasing Manager (OCT) |
58 |
60.4 |
Index has averaged 60.5 in 2010. |
|
USD |
13:55 |
U. of Michigan Confidence (OCT F) |
68 |
67.9 |
Confidence dipped in last 2 months. |
|
USD |
14:00 |
NAPM-Milwaukee (OCT) |
50 |
Declined in the last 2 months. |
|
|
USD |
20:15 |
Bloomberg Financial Conditions (APR) (OCT) |
Negative reading in last five months. |
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 |
1.4500 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0100 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4000 |
1.6000 |
86.00 |
0.9950 |
1.0750 |
1.0000 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3932 |
1.5934 |
81.02 |
0.9825 |
1.0206 |
0.9786 |
0.7542 |
112.87 |
129.09 |
|
Support 1 |
1.3685 |
1.5500 |
80.00 |
0.9500 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3500 |
1.5300 |
75.00 |
0.9000 |
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 |
1.6755 |
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 |
12.3911 |
1.4300 |
6.9894 |
7.7558 |
1.2967 |
Spot |
6.7246 |
5.3538 |
5.8864 |
|
Support 1 |
12.0500 |
1.4070 |
6.6950 |
7.7490 |
1.2900 |
Support 1 |
6.4500 |
5.3000 |
5.7030 |
|
Support 2 |
11.7200 |
1.3665 |
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 |
1.4063 |
1.6107 |
82.15 |
0.9950 |
1.0330 |
0.9878 |
0.7624 |
113.47 |
130.16 |
|
Resist 1 |
1.3997 |
1.6021 |
81.58 |
0.9887 |
1.0268 |
0.9832 |
0.7583 |
113.17 |
129.62 |
|
Pivot |
1.3881 |
1.5891 |
81.23 |
0.9846 |
1.0225 |
0.9774 |
0.7515 |
112.68 |
128.86 |
|
Support 1 |
1.3815 |
1.5805 |
80.66 |
0.9783 |
1.0163 |
0.9728 |
0.7474 |
112.38 |
128.32 |
|
Support 2 |
1.3699 |
1.5675 |
80.31 |
0.9742 |
1.0120 |
0.9670 |
0.7406 |
111.89 |
127.56 |
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 |
1.4132 |
1.6129 |
82.03 |
0.9960 |
1.0333 |
0.9942 |
0.7661 |
114.50 |
130.99 |
|
Resist. 2 |
1.4082 |
1.6080 |
81.78 |
0.9926 |
1.0302 |
0.9903 |
0.7632 |
114.09 |
130.52 |
|
Resist. 1 |
1.4032 |
1.6031 |
81.52 |
0.9892 |
1.0270 |
0.9864 |
0.7602 |
113.68 |
130.04 |
|
Spot |
1.3932 |
1.5934 |
81.02 |
0.9825 |
1.0206 |
0.9786 |
0.7542 |
112.87 |
129.09 |
|
Support 1 |
1.3832 |
1.5837 |
80.52 |
0.9758 |
1.0142 |
0.9708 |
0.7482 |
112.06 |
128.14 |
|
Support 2 |
1.3782 |
1.5788 |
80.26 |
0.9724 |
1.0110 |
0.9669 |
0.7452 |
111.65 |
127.66 |
|
Support 3 |
1.3732 |
1.5739 |
80.01 |
0.9690 |
1.0079 |
0.9630 |
0.7423 |
111.24 |
127.19 |
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
