• Dollar Ends the Week at Seven-Month Lows as Risk Appetite Surges, US Data Disappoints
  • Euro Supported by German Business Sentiment Survey but More Liquidity in Dollar Losses
  • British Pound Little Moved by Policy Official’s Remarks on Rates, Stimulus
  • Japanese Yen Sees the Volatility of Intervention but Lacks the True Follow Through
  • Canadian Dollar Set to Continue its Steady Fundamental Descent Next Week with GDP Numbers
  • Australian Dollar a Standout Among Already Excessively Leveraged High Yield Currencies

Dollar Ends the Week at Seven-Month Lows as Risk Appetite Surges, US Data Disappoints

Scanning the financial headlines and taking a perfunctory look at the economic docket, we could come up with a simple explanation to the remarkable market develops into the end of the week. With a distinct timing to two very aggressive speculative rallies early in the US trading session, it seems the media and most speculators are content with assigning the durable goods orders and new home sales figures the attribution for catalyzing risk appetite which in turn sent equities surging and the US dollar tumbling. However, it is the responsible thing to do to maintain some level of skepticism rather than blindly follow the crowd. If we take a closer look at the individual releases for the session, we are presented with the same inconsistencies that are present for the broader speculative backdrop: risk appetite continues to climb without genuine support from economic or financial assurance. For a purely speculative examination of the market, we note that the S&P 500 recovered from a three-day slump with its biggest rally in a four weeks and subsequently was rewarded for its effort with a four-month high. For the FX market, EURUSD surged 1.3 percent to its own five-month high. Yet, there are cracks in the theory that this is purely a reflection of optimism as we would see safe haven gold (valued for its role as an alternative to traditional assets that all have their roots in the same financial soil) push its own record high while the high-yield Aussie dollar lost ground against the euro. There is a clear taste for risk; but how quickly will it be sated?

Barring the argument against the durability of risk appetite through long-term economic and fundamental imbalances (which is substantial but easily ignored given the short time frame that many investors have adopted in these volatile times), it is still peculiar that today’s scheduled event risk would lead to a direct rally for the capital markets. Moving down to an intraday (i.e. 15-minute) chart of S&P 500 futures or EURUSD, we can see distinctly that bullish momentum developed specifically after the 8:30 EST release of the August durable goods orders and 10:00 EST issue of the new home sales figures for the same month. For the first wave, the headline factory bookings number would disappoint with its biggest drop in a year (a 1.3 percent decline). A positive spin could be adopted through the surprising 2.0 percent increase in the ex-transport reading or the 4.1 percent jump in non-defense capital goods orders excluding aircraft (a proxy for investment). That being said, these weren’t far beyond expectations nor is this level of volatility from these particular readings unusual. It is safe to say trades were looking for catalysts with which to feed their bias. The housing was more difficult to put a slant on. The highly-sensitive sector report came in well below the forecast; but there was no monthly change. A positive revision to July’s reading put both months at a 288,000 annual pace which marks the second lowest level on record. Furthermore, the median sales price was at its lowest since December 2003 while the number of homes on the market hit a 1968 low.

Beyond simply assigning positive connotations to each of these indicators, a more conspiracy-theory explanation could be that the speculative community welcomes this data as encouragement for the Federal Reserve to expand their stimulus program (which fits with the dollar’s particularly volatile reaction). The central bank did leave that avenue wide open at its last policy decision. Looking ahead to the coming week, there is plenty of traditional economic fare. However, risk appetite and the discussion of stimulus will likely determine the greenback’s future.

Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: A Late AUDCAD Short Addition Joins USDJPY, GBPCHF, EURNZD

Euro Supported by German Business Sentiment Survey but More Liquidity in Dollar Losses

Positive sentiment across the capital markets has a very clear impact on the euro as it helps to curb some of the pain found in the fiscal and economic troubles the region faces. However, the shared currency was enjoying a significantly more aggressive run Friday than some of its more investment-slanted peers (the Aussie and kiwi dollars for example). Early in the day, a very clear run was sparked after the release of the German IFO business sentiment survey for September. The headline reading advanced to a more-than three-year high thanks to optimistic assessments of current conditions (Germany’s 2Q GDP numbers were remarkable). However, the expectations component was discouraging. That being said, such doubts would trouble the euro as traders would quickly tap the outflow of capital from the US dollar through EURUSD.

British Pound Little Moved by Policy Official’s Remarks on Rates, Stimulus

There weren’t any macro indicators scheduled for the UK; but it is worth noting the murmurings of policy officials. Making his stand, MPC member Sentance reiterated his belief that the Bank of England should move to raise rates soon, but at a measured pace. Elsewhere, the BoE’s Barker said the need for further stimulus was “less certain,” but she did note CPI has been above 3 percent for 26 of the past 32 months.

Japanese Yen Sees the Volatility of Intervention but Lacks the True Follow Through

How effective is FX intervention? Normally, this would be a question of academics and speculation; but we have seen more than our share of subject material this past year. The BoJ marked its return to manipulation last Wednesday to reasonable success. Yet, early Friday, USDJPY rallied under the assumption the Central Bank was at work. However, without confirmation, the market simply retraced. Reminiscent of the SNB.

Canadian Dollar Set to Continue its Steady Fundamental Descent Next Week with GDP Numbers

The Canadian dollar certainly benefited from the dollar’s bleeding and the concurrent advance in risk appetite through the week’s final hours. However, the currency is underperforming against those peers that aren’t explicit safe havens or the dollar. A diminished outlook for yields and growth is slowly weighing the currency down. Looking ahead to next week, July’s GDP could leverage such concerns influence over risk trends.

Australian Dollar a Standout Among Already Excessively Leveraged High Yield Currencies

If risk appetite is overheating; then it is important to identify those currencies that are at the extremes of over and under-valued. The Aussie dollar may be at the former end of that spectrum. While the economy was able to weather the last recession with the help of China’s export appetite; it is hard to justify the currency’s current highs even under a positive light. The greater the extreme, the more dramatic the correction.

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**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

GBP

23:01

Hometrack Housing Survey (MoM) (SEP)

-0.3%

U.K. housing survey declined in August for a second month.

GBP

23:01

Hometrack Housing Survey (YoY) (SEP)

1.5%

JPY

23:50

Corporate Service Price Index (YoY) (AUG)

-1.1%

-1.2%

Fell annually in last 22 months.

JPY

23:50

Merchandise Trade Balance Total (AUG)

321.8B

804.2B

Japan’s export growth slowed for a fifth month in July, adding to risks of a slowdown for the world’s third largest economy.

JPY

23:50

Adjusted Merchandise Trade Balance (AUG)

682.2B

610.4B

JPY

23:50

Merchandise Trade Exports (YoY) (AUG)

19.6

23.5

JPY

23:50

Merchandise Trade Imports (YoY) (AUG)

16.3

15.7

EUR

8:00

Euro-Zone M3 (3-month ave.) (AUG)

0.1%

European loan growth grew at the fastest pace in 13 months in July.

EUR

8:00

Euro-Zone M3 s.a. (YoY) (AUG)

0.4%

0.2%

USD

12:30

Chicago Fed National Activity Index (AUG)

0

July reading better than month prior.

USD

14:30

Dallas Fed Manufacturing Index (SEP)

-13.5

Has been negative in last 3 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

EUR/GBP

Resistance 2

1.3815

1.6375

95.05

1.0600

1.0922

0.9850

0.7635

127.60

146.05

0.8725

Resistance 1

1.3500

1.5965

89.00

1.0460

1.0750

0.9665

0.7440

120.00

140.00

0.8600

Spot

1.3474

1.5820

84.39

0.9856

1.0265

0.9585

0.7329

113.70

133.49

0.8517

Support 1

1.2500

1.5300

83.00

0.9800

0.9950

0.8100

0.6850

103.80

125.00

0.8065

Support 2

1.2150

1.5125

80.00

0.9650

0.9700

0.7835

0.6585

100.00

119.00

0.7780

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

Resistance 2

14.4500

1.8025

8.7915

7.8165

1.4945

Resistance 2

7.7500

5.7800

6.2750

Resistance 1

13.8500

1.6755

8.3675

7.8075

1.4655

Resistance 1

7.5800

5.5400

6.1150

Spot

12.5531

1.4766

7.0180

7.7566

1.3225

Spot

6.8155

5.5295

5.8873

Support 1

12.0500

1.4500

6.6950

7.7490

1.3000

Support 1

6.7600

5.3000

5.8000

Support 2

11.7200

1.3665

6.4300

7.7450

1.2500

Support 2

6.4440

5.1000

5.6000

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

EUR/GBP

Resistance 2

1.3624

1.5971

85.92

0.9943

1.0412

0.9706

0.7409

114.74

134.76

0.8578

Resistance 1

1.3549

1.5895

85.15

0.9899

1.0339

0.9646

0.7369

114.22

134.12

0.8547

Pivot

1.3418

1.5769

84.64

0.9840

1.0282

0.9554

0.7321

113.25

133.15

0.8515

Support 1

1.3343

1.5693

83.87

0.9796

1.0209

0.9494

0.7281

112.73

132.51

0.8485

Support 2

1.3212

1.5567

83.36

0.9737

1.0152

0.9402

0.7233

111.76

131.54

0.8453

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

EUR/GBP

Resistance 3

1.3647

1.6003

85.40

0.9981

1.0390

0.9727

0.7444

115.52

135.66

0.8608

Resistance 2

1.3604

1.5957

85.15

0.9950

1.0359

0.9692

0.7415

115.06

135.12

0.8585

Resistance 1

1.3560

1.5911

84.89

0.9919

1.0327

0.9656

0.7387

114.61

134.58

0.8562

Spot

1.3474

1.5820

84.39

0.9856

1.0265

0.9585

0.7329

113.70

133.49

0.8517

Support 1

1.3388

1.5729

83.89

0.9793

1.0203

0.9514

0.7271

112.79

132.40

0.8471

Support 2

1.3344

1.5683

83.63

0.9762

1.0171

0.9478

0.7243

112.34

131.86

0.8449

Support 3

1.3301

1.5637

83.38

0.9731

1.0140

0.9443

0.7214

111.88

131.32

0.8426

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

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