- Dollar Corrects as EU Steps up its Crisis Fight, Beige Book Offers Little Growth Optimism
- Euro Confidence in Portugal Auction Restrained, Open Ended EU Discussion More Interesting
- British Pound: Will the BoE Rate Decision Produce Any Surprises for Traders
- Australian Dollar Loses its Bullish Momentum after a Disappointing Employment Report
- Swiss Franc Sent Mixed Signals as SNB Jordan Says Currency Primary Risk, Rate May Need to Rise
- Canadian Dollar Marking Progress at an 18-Month High as Rate Expectations Offset Growth Pains
Dollar Corrects as EU Steps up its Crisis Fight, Beige Book Offers Little Growth Optimism
The tension surrounding the dollar’s bullish ambitions has been palpable recently. Following last week’s impressive 2.5 percent Dollar Index rally, the currency was visibly struggling to revive its run when liquidity returned after the weekend lull. Speculative interest is itself one of the most consistent and influential drivers for a market; so the lost momentum necessitated a meaningful catalyst to put traders back on the greenback. Having waited patiently through the first half of the week, Wednesday finally brought an event worthy of the dollar’s fundamental appeal. A year ago, the Portuguese bond auction would hardly make it onto the docket of a global sovereign debt trader; but nowadays, it is a critical event for FX, interest rate, equities and every other manner of trader. Interest in the event itself was high; but the immediate reaction proved the market was still awaiting a more influential update. Yet, with a wave of highly supportive proposals from European policy makers (most unsubstantiated), fear of an ever-expanding financial crisis abated and risk appetite subsequently jumped. In turn, the S&P 500 rallied to a new two-year high, the euro charged higher and the safe haven dollar subsequently suffered its biggest daily drop in four weeks.
Relief surrounding the European Union’s issues is not likely a permanent state (we explain why more fully below); and so risk appetite is unlikely to return with much fervor. That said, the markets are once again put on the lookout for a meaningful catalyst to revive the relationships between the various asset classes and put the dollar back into line as a currency that represents a certain aspect of financial stability as well as a representative for domestic assets. Taking stock of the fundamental appeal of the benchmark currency; today’s scheduled event risk was worth reflection. The Beige Book nudged the general assessment of the economy’s health once again with notes that activity expanded “moderately from November through December.†This fits the gradual trend of improvement we have seen over few quarters and denotes a level of stability that cannot be underestimated in these uncertain times. At the same time, it is not exactly surprising and therefore does not provide any immediate lift to the greenback itself. Perhaps more remarkable is the note that lending activity is “stable†and credit quality has proven to be “steady to improving†over the previous period. That is another facet to the debate over whether the second round of Fed stimulus should fully play out, be cut short or see an expansion. Yet, if the extent of hawkish support is Dallas Fed Fisher’s comments Wednesday, then it is far more likely that the $600 billion figure originally planned will hit maturity as expected.
In other news, the import inflation data proved restrained. Though prices rose 1.1 percent through December, when fuel prices are excluded, growth was much more reasonable at 0.3 percent. We reserve our official rate forecasts on inflation data for Friday’s CPI figures; but this upstream figure doesn’t provide much pressure. Looking over the next 24 hours, the calendar is relatively restrained. The trade balance for November should be interesting following China’s figures released earlier this week. The jobless claims and factory-level inflation reports are further down on the totem. As per usual, the possibility of a significant shift in risk appetite stands as the greatest threat for dollar volatility.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURAUD and EURCHF Set for European Financial Fireworks
Euro Confidence in Portugal Auction Restrained, Open Ended EU Discussion More Interesting
Over the past six months, the biggest fluctuations for the euro have been generated through meaningful developments (both good and bad) in the European sovereign financial crisis. Looking for the next step in this tumultuous tale, euro traders were holding their breath for Wednesday’s Portuguese debt auction. By loose accounts, the sale was a ‘success;’ but expectations were lifted somewhat in the lead up thanks to vows of support by China and Japan as well as rumored aggressive ECB purchases. And yet, despite the suggestion that 80 percent of the sale went to indirect bidders (foreign demand, which some commentators believe traces back to China); rates are still restrictively high. Doubt clearly stains this event; but perhaps there still is reason to be optimistic. Commentary and early reports circulated suggestions that the EU is discussing proposals including: increasing the 440 billion euro bailout program, reducing emergency lending rates, extending guarantees, the ability to intervene in the bond market and injecting money directly into Portugal and Greece. We will see if any of these take traction next week.
British Pound: Will the BoE Rate Decision Produce Any Surprises for Traders
The UK trade deficit ballooned to a new record Wednesday reminding global investors that the nation’s recovery is generally unbalanced. Over the coming 24 hours, we will see the fundamental pressure pick up. The NIESR GDP estimate for December is a good overall reading; while industrial production focuses on a very important sector for growth. As for the BoE rate decision – no change will means no statement.
Australian Dollar Loses its Bullish Momentum after a Disappointing Employment Report
The Australian dollar found a controlled bid into Thursday with the help of a market wide taste for risk. However, progress was severely stunted by the growing fundamental headwinds the currency faces. Yesterday, RBA member McKibbin offered a rough estimate that the country’s floods could cut GDP by 1 percentage point. And, just this morning, December employment grew a tepid 2,300 Australians.
Swiss Franc Sent Mixed Signals as SNB Jordan Says Currency Primary Risk, Rate May Need to Rise
The Swiss franc is much like the Japanese yen – it does not often decide its own destiny via regular event risk. So, to get the franc moving Wednesday, SNB policy maker Jordan remarked that the greatest risk to Switzerland was a strong currency and a drop in export demand. This, along with a dimmed view of growth, would seem ultimately bearish; but their general hawkish lean may overwhelm their jawbone efforts.
Canadian Dollar Marking Progress at an 18-Month High as Rate Expectations Offset Growth Pains
The Canadian dollar has advanced to 18 month highs against its US counterpart; but there is relatively little momentum in this positive move. Interest rate expectations are certainly higher than the greenbacks, financial conditions are arguably more stable and growth is on par; however, the relationship between the two will mute aggressive moves. Perhaps tomorrow’s trade figures will help add volatility to the mix.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
23:00 |
QV House Prices (YoY) (DEC) |
0.3% |
Prices rose YoY in last 14 months. |
|
|
JPY |
23:50 |
Machine Orders (MoM) (NOV) |
2.0% |
-1.4% |
Japan’s machinery orders fell for a second month in October. |
|
JPY |
23:50 |
Machine Orders (YoY) (NOV) |
17.4% |
7.0% |
|
|
GBP |
NIESR Gross Domestic Product Estimate (DEC) |
0.6% |
The last 13 readings were positive. |
||
|
AUD |
0:30 |
Employment Change (DEC) |
25.0K |
54.6K |
Payrolls in Australia soared by 366,000 in the first 11 months of this year to 11.4 million, the most since records began in 1978 and 27,000 more than the previous high in 2006. |
|
AUD |
0:30 |
Unemployment Rate (DEC) |
5.1% |
5.2% |
|
|
AUD |
0:30 |
Full Time Employment Change (DEC) |
55.1K |
||
|
AUD |
0:30 |
Part Time Employment Change (DEC) |
-0.4K |
||
|
AUD |
0:30 |
Participation Rate (DEC) |
66.1% |
66.1% |
|
|
CNY |
2:00 |
Conference Board Leading Economic Report (NOV) |
Increased 0.9% in October to 152.1. |
||
|
NZD |
2:00 |
ANZ Commodity Price (DEC) |
0.0% |
Stalled in Nov. following 2-month rise. |
|
|
JPY |
4:30 |
Bankruptcies (YoY) (DEC) |
-6.3% |
Declined in the last seventeen months. |
|
|
JPY |
6:00 |
Machine Tool Orders (YoY) (DEC P) |
104.2% |
Rose annually in the last 12 months. |
|
|
EUR |
6:30 |
French Consumer Price Index (MoM) (DEC) |
0.4% |
0.1% |
The French inflation rate held steady in November, boosted by higher costs for food and energy. Prices probably rose faster in December, as commodity prices accelerated higher. |
|
EUR |
6:30 |
French Consumer Price Index (YoY) (DEC) |
1.7% |
1.6% |
|
|
EUR |
6:30 |
French Consumer Price Index – EU Harmonised (MoM) (DEC) |
0.4% |
0.1% |
|
|
EUR |
6:30 |
French Consumer Price Index – EU Harmonised (YoY) (DEC) |
2.0% |
1.8% |
|
|
EUR |
6:30 |
French Consumer Price Index Ex Tobacco Index (DEC) |
120.63 |
120.09 |
|
|
EUR |
7:00 |
German Wholesale Price Index (MoM) (DEC) |
0.7% |
German wholesale prices rose in November for a third time in 4 months. |
|
|
EUR |
7:00 |
German Wholesale Price Index (YoY) (DEC) |
7.8% |
||
|
GBP |
9:30 |
Industrial Production (MoM) (NOV) |
0.5% |
-0.2% |
U.K. industrial production dipped in October following a 3-month rise. |
|
GBP |
9:30 |
Industrial Production (YoY) (NOV) |
3.3% |
3.3% |
|
|
GBP |
9:30 |
Manufacturing Production (MoM) (NOV) |
0.4% |
0.6% |
U.K. manufacturing expanded twice as much as forecast in October. |
|
GBP |
9:30 |
Manufacturing Production (YoY) (NOV) |
5.3% |
5.8% |
|
|
GBP |
12:00 |
Bank of England Intereset Rate Decision |
0.50% |
0.50% |
Market swaps indicate a 6.0% chance of a 25bp rate hike at this meeting. |
|
GBP |
12:00 |
Bank of England Asset Purchase Target |
200B |
200B |
|
|
EUR |
12:45 |
European Central Bank Interest Rate Decision |
1.00% |
1.00% |
Market swaps show no chance of hike. |
|
13:30 |
International Merchandise Trade (Canadian dollar) (NOV) |
-2.0B |
-1.7B |
Negative reading in last six months. |
|
|
USD |
13:30 |
Initial Jobless Claims (JAN 8) |
410K |
409K |
Jobless claims dropped last month to the lowest level since July 2008. |
|
USD |
13:30 |
Continuing Claims (JAN 1) |
4080K |
4103K |
|
|
USD |
13:30 |
Producer Price Index (MoM) (DEC) |
0.8% |
0.8% |
Producer prices in the U.S. increased by 0.8% in November, the largest rise in eight months. Higher prices for gas, heating oil, and fruit were the main drivers of higher wholesale costs. |
|
USD |
13:30 |
Producer Price Index (YoY) (DEC) |
3.8% |
3.5% |
|
|
USD |
13:30 |
Producer Price Index Ex Food & Energy (MoM) (DEC) |
0.2% |
0.3% |
|
|
USD |
13:30 |
Producer Price Index Ex Food & Energy (YoY) (DEC) |
1.4% |
1.2% |
|
|
USD |
13:30 |
Trade Balance (NOV) |
-$40.5B |
-$38.7B |
Deficit probably widened in November. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|||
|
EUR |
13:30 |
ECB President Jean-Claude Trichet Holds Press Conference |
|||
|
USD |
18:00 |
Fed Chairman Ben Bernanke Speaks on Small Business Lending |
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 |
0.9775 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3131 |
1.5768 |
82.89 |
0.9670 |
0.9879 |
0.9962 |
0.7622 |
108.84 |
130.70 |
|
Support 1 |
1.2900 |
1.5312 |
80.00 |
0.9300 |
0.9800 |
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 |
6.8900 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.0813 |
1.5591 |
6.8321 |
7.7740 |
1.2877 |
Spot |
6.7507 |
5.6735 |
5.9053 |
|
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 |
1.3262 |
1.5905 |
83.72 |
0.9789 |
0.9944 |
1.0071 |
0.7668 |
109.73 |
132.02 |
|
Resist 1 |
1.3197 |
1.5836 |
83.30 |
0.9730 |
0.9912 |
1.0017 |
0.7645 |
109.29 |
131.36 |
|
Pivot |
1.3079 |
1.5710 |
83.06 |
0.9696 |
0.9880 |
0.9910 |
0.7604 |
108.57 |
130.49 |
|
Support 1 |
1.3014 |
1.5641 |
82.64 |
0.9637 |
0.9848 |
0.9856 |
0.7581 |
108.13 |
129.83 |
|
Support 2 |
1.2896 |
1.5515 |
82.40 |
0.9603 |
0.9816 |
0.9749 |
0.7540 |
107.41 |
128.96 |
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 |
1.3148 |
1.5770 |
84.21 |
0.9861 |
1.0012 |
1.0006 |
0.7708 |
109.49 |
131.65 |
|
Resist. 2 |
1.3103 |
1.5727 |
83.97 |
0.9831 |
0.9986 |
0.9971 |
0.7681 |
109.11 |
131.21 |
|
Resist. 1 |
1.3058 |
1.5684 |
83.73 |
0.9800 |
0.9960 |
0.9936 |
0.7653 |
108.73 |
130.76 |
|
Spot |
1.2968 |
1.5598 |
83.25 |
0.9739 |
0.9908 |
0.9866 |
0.7598 |
107.96 |
129.86 |
|
Support 1 |
1.2878 |
1.5512 |
82.77 |
0.9678 |
0.9856 |
0.9796 |
0.7543 |
107.19 |
128.96 |
|
Support 2 |
1.2833 |
1.5469 |
82.53 |
0.9647 |
0.9830 |
0.9761 |
0.7515 |
106.81 |
128.51 |
|
Support 3 |
1.2788 |
1.5426 |
82.29 |
0.9617 |
0.9804 |
0.9726 |
0.7488 |
106.43 |
128.07 |
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
