- Dollar Draws Little Strength from China’s Rate Hike as Trading Conditions Dampen Sentiment
- Euro Strengthens Not on Outlook for Financial Health but on Temporary Reprieve from Fear
- Japanese Yen Traders More Concerned with Carry and 2011 Financial Outlook than Tuesday’s Data
- British Pound Slips after Hometrack Data Provides a Dour View of 2010 Housing and 2011 Outlook
- Swiss Franc Options Traders Most Optimistic on Currency in Three Months
- Canadian Dollar Slowly Approaches a Contentious Parity with the Greenback
- Australian Dollar Unfazed by China Rate Hike – Is that a Permanent Condition?
Dollar Draws Little Strength from China’s Rate Hike as Trading Conditions Dampen Sentiment
It is one of the primary tenets of fundamental trading in the FX market. A rise or fall in risk appetite trends usually generates significant activity amongst those currencies holding a place in the carry and sentiment spectrum. That said, some may have been caught off guard by the reaction from the principal liquidity currency (the US dollar) to China’s decision to hike its benchmark lending rate. This concerted effort at reining in speculative interest and economic activity (under the original intention to temper inflation) should have a real effect on global investor sentiment considering China has stood as the ‘light at the end of the tunnel’ that was the recovery from the worst financial crisis in modern times. However, there are a few considerations we need to account for.
The first matter to account for is speculative participation. Just as with last week, investors and traders (two separate classes of market participant) are holding to the sidelines until after the holiday period passes. In fact, we note that trading volume on the S&P 500 Monday was only 355 million shares – the lowest level of turnover since the very light trading day that follows Thanksgiving. The absence of this vital segment of the market means that the primary contributor to momentous and sustainable trends is absent. As such, the news that China was upping its effort to cool its markets was met with considerable financial media exposure but a limited reaction from the markets themselves. This does not, however, mean that this development will not weigh on the dollar and capital markets going forward. In fact, this is just another decisive step to slow an oversold market in China and undermine the belief that there are consistent gains to be made globally. The other consideration to account for is the market’s preoccupation with the balance of stimulus and austerity. While China may have hiked its benchmark lending rate, Premier Wen took the opportunity over the weekend to suggest that the government would increase the supply of affordable houses. This is just within this one economy; but elsewhere we see tremendous amounts of capital floating in the European, US, Japanese and other systems. Market participants are still greedy enough to take advantage of ‘free’ government money; but that won’t last forever.
Looking at domestic sparks for fundamental activity on the dollar’s part, the event risk was relatively light Monday. And yet, the tone was actually favorable to the dollar. A $35 billion auction of 2-year Treasury notes met with the highest level of demand in six months suggesting a higher yield can still draw investors into the US fold and thereby the dollar. In other news, a Wall Street Journal / Indeed Inc. report noted job advertisements rose to 4.7 million (from 2.7 million the same time last year); while former financial leper AIG received $4.3 billion in credit lines from 30 banks – a sign of financial stability. Tomorrow, we will turn back to the economic docket with the Conference Board’s consumer confidence indicator. While providing a meaningful backdrop for the outlook for growth; it’s impact in these conditions will likely be limited.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Trade Potential is High for EURUSD, GBPUSD and AUDCAD
Euro Strengthens Not on Outlook for Financial Health but on Temporary Reprieve from Fear
One of the benefits of lower speculative leverage in the capital markets is that fear is tempered just as surely as greed is. That is beneficial for the euro given the clear and steady deterioration of the region’s financial health. There were no new downgrades or painful budget announcements Monday; but the ECB did report that it purchased 1.121 billion euros in government bonds last week. That brings the total support the central bank has had to afford banks since the program began to $73.5 billion euros.
Japanese Yen Traders More Concerned with Carry and 2011 Financial Outlook than Tuesday’s Data
Early this morning; the Japanese economic calendar released a wave of data. In the round, we saw that the jobless rate held at 5.1 percent, retail trade rose 1.3 percent through the year and the headline national CPI reading held at 0.1 percent annualized growth. However, short-term improvements won’t distract the market’s focus on long-term growth and financial issues that will anchor the yen as a funding currency.
British Pound Slips after Hometrack Data Provides a Dour View of 2010 Housing and 2011 Outlook
There is little debate as to the state of the UK housing market. However, today’s Hometrack data helped put it into better perspective. Beyond the 1.6 percent decline through the year, the data showed the longest waiting period since April 2009, the biggest drop in demand since January 2001 and the lowest match of offer to listing price since August 2009. What’s more, the group expects another 2 percent value drop in 2011.
Swiss Franc Options Traders Most Optimistic on Currency in Three Months
The Swiss franc has made a concerted effort to stabilize against the dollar and claw back losses against the euro. However, we can see the market’s conviction in other measures. Namely, options, risk reversals and interest rate forecasts are all supporting a bullish outlook for the single currency. We would say that that contradicts the SNB’s vows to fight an appreciation; but their lack of success on that front is well known.
Canadian Dollar Slowly Approaches a Contentious Parity with the Greenback
There is a psychological aspect to trading that leads to the encouragement of capital flows and the birth of technical analysis. One of the more simple concerns amongst market participants is the appeal of big numbers. These benchmarks act as a magnet and hurdle for the market’s to surpass. With that in mind, we are keeping an eye on the USDCAD’s slow approach back towards parity. Is it a floor or temporary obstacle?
Australian Dollar Unfazed by China Rate Hike – Is that a Permanent Condition?
One of the better measures for the market’s response to the Chinese rate hike is the Australian dollar. The export demand from China represents a not-insignificant measure of output of Aussie businesses. And yet, the news of a rate hike did not sway carry traders from the Aussie dollar. Perhaps they investors believe the market swell will survive such small steps. But more likely, it is a situation of liquidity.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
23:30 |
JPY Job-To-Applicant Ratio (NOV) |
0.57 |
0.56 |
7 straight months of improvement |
|
JPY |
23:30 |
JPY Household Spending (YoY) (NOV) |
0.3% |
-0.4% |
|
|
JPY |
23:30 |
JPY Jobless Rate (NOV) |
5.1% |
5.1% |
Structural shift to temporary jobs |
|
JPY |
23:30 |
JPY Tokyo Consumer Price Index (YoY) (DEC) |
0.1% |
0.2% |
Headline CPI boosted by surging commodity prices. “Core” figures remain firmly negative; deflation remains entrenched in Japan |
|
JPY |
23:30 |
JPY Tokyo CPI Ex-Fresh Food (YoY) (DEC) |
-0.4% |
-0.5% |
|
|
JPY |
23:30 |
JPY Tokyo CPI Ex Food, Energy (YoY) (DEC) |
-0.5% |
-0.6% |
|
|
JPY |
23:30 |
JPY National Consumer Price Index (YoY) (NOV) |
0.1% |
0.2% |
|
|
JPY |
23:30 |
JPY National CPI Ex-Fresh Food (YoY) (NOV) |
-0.6% |
-0.6% |
|
|
JPY |
23:30 |
JPY National CPI Ex Food, Energy (YoY) (NOV) |
-0.8% |
-0.8% |
|
|
JPY |
23:50 |
JPY Industrial Production (YoY) (NOV P) |
5.5% |
4.3% |
Potentially the first uptick in six months |
|
JPY |
23:50 |
JPY Industrial Production (MoM) (NOV P) |
0.9% |
-2.0% |
|
|
JPY |
23:50 |
JPY Retail Trade s.a. (MoM) (NOV) |
1.1% |
-1.9% |
Trying to rebound after two months of negative growth |
|
JPY |
23:50 |
JPY Retail Trade (YoY) (NOV) |
0.4% |
-0.2% |
|
|
JPY |
23:50 |
JPY Large Retailers’ Sales (NOV) |
-0.3% |
0.4% |
|
|
CNY |
CNY Leading Index (NOV) |
– |
101.57 |
Declined for eight straight months |
|
|
JPY |
1:30 |
JPY Labor Cash Earnings (YoY) (NOV) |
0.6% |
0.6% |
Partial recovery was down -2.4% last year |
|
EUR |
6:30 |
EUR French GDP (QoQ) (3Q F) |
0.4% |
0.4% |
No change from prior estimate |
|
EUR |
6:30 |
EUR French GDP (YoY) (3Q F) |
1.8% |
1.8% |
|
|
CHF |
7:00 |
CHF UBS Consumption Indicator (NOV) |
– |
1.716 |
|
|
USD |
14:00 |
USD S&P/Case-Shiller Home Price Index (OCT) |
– |
147.49 |
Expected to be the fourth straight monthly decline in home prices |
|
USD |
14:00 |
USD S&P/Case-Shiller 20 City (MoM) SA (OCT) |
-0.6% |
-0.8% |
|
|
USD |
14:00 |
USD S&P/Case-Shiller Composite-20 (YoY) (OCT) |
-0.2% |
0.6% |
|
|
USD |
15:00 |
USD Consumer Confidence (DEC) |
56.3 |
54.1 |
Would be highest since May |
|
USD |
15:00 |
USD Richmond Fed Manufacturing Index (DEC) |
11 |
9 |
|
|
USD |
22:00 |
USD ABC Consumer Confidence (DEC 26) |
– |
-41 |
Any uptick would make it a 28-month high |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
AUD |
-:- |
Australian Markets closed for Boxing Day |
|
NZD |
-:- |
New Zealand Markets closed for Boxing Day |
|
GBP |
-:- |
UK Markets closed for Boxing Day |
|
CAD |
-:- |
Canadian Markets closed for Boxing Day |
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 |
1.0460 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3700 |
1.5910 |
86.00 |
1.0000 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3112 |
1.5441 |
82.88 |
0.9630 |
1.0076 |
1.0047 |
0.7493 |
108.68 |
127.98 |
|
Support 1 |
1.3000 |
1.5312 |
80.00 |
0.9500 |
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 |
8.7915 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
13.8500 |
1.5931 |
8.3675 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.3680 |
1.5470 |
6.7320 |
7.7817 |
1.2995 |
Spot |
6.8607 |
5.6840 |
5.9692 |
|
Support 1 |
12.0500 |
1.4724 |
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 |
1.3177 |
1.5503 |
83.28 |
0.9689 |
1.0147 |
1.0072 |
0.7519 |
109.25 |
128.69 |
|
Resist 1 |
1.3144 |
1.5472 |
83.08 |
0.9660 |
1.0111 |
1.0060 |
0.7506 |
108.96 |
128.34 |
|
Pivot |
1.3117 |
1.5445 |
82.97 |
0.9606 |
1.0081 |
1.0040 |
0.7485 |
108.77 |
128.08 |
|
Support 1 |
1.3084 |
1.5414 |
82.77 |
0.9577 |
1.0045 |
1.0028 |
0.7472 |
108.48 |
127.73 |
|
Support 2 |
1.3057 |
1.5387 |
82.66 |
0.9523 |
1.0015 |
1.0008 |
0.7451 |
108.29 |
127.47 |
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 |
1.3309 |
1.5598 |
83.86 |
0.9716 |
1.0210 |
1.0187 |
0.7585 |
110.32 |
129.67 |
|
Resist. 2 |
1.3260 |
1.5556 |
83.62 |
0.9685 |
1.0183 |
1.0152 |
0.7558 |
109.91 |
129.23 |
|
Resist. 1 |
1.3212 |
1.5513 |
83.38 |
0.9655 |
1.0156 |
1.0117 |
0.7531 |
109.51 |
128.78 |
|
Spot |
1.3115 |
1.5428 |
82.90 |
0.9594 |
1.0101 |
1.0046 |
0.7477 |
108.71 |
127.89 |
|
Support 1 |
1.3018 |
1.5343 |
82.42 |
0.9533 |
1.0046 |
0.9975 |
0.7423 |
107.91 |
127.00 |
|
Support 2 |
1.2970 |
1.5300 |
82.18 |
0.9503 |
1.0019 |
0.9940 |
0.7396 |
107.51 |
126.55 |
|
Support 3 |
1.2921 |
1.5258 |
81.94 |
0.9472 |
0.9992 |
0.9905 |
0.7369 |
107.10 |
126.11 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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