- Dollar Extends Favorable Correction Indifferent to Stalled Risk Trends, Talk of a Gold Standard
- Euro may See the Next Fundamental Wave as Financial Troubles Return to the Headlines
- British Pound Offers Selective Strength as Housing and Retail Sales Data Conflicts with Policy Efforts
- Australian Dollar Tempers its Response to 15-Month Low in Business Sentiment, RBA Report Ahead
- Canadian Dollar Stumbles with Housing Activity Sliding, BoC Governor Speaks Tuesday
- New Zealand Dollar Little Encouraged by Policy Officials Withdrawal of Stimulus
Dollar Extends Favorable Correction Indifferent to Stalled Risk Trends, Talk of a Gold Standard
We were skeptical of the dollar’s tentative recovery this past Friday as the advance would develop after a series of significantly losses and a move below very important support (what can be reasonably argued to be a technical breakout). Yet, the currency’s perceived strength has been boosted significantly through Monday’s close with a follow up rally that establishes the first back-to-back gain for the greenback since October 27th. And, while this move is still far from overtaking significant technical milestones that can procure a more meaningfully shift in the underlying trend; the fact that it has developed while risk appetite was otherwise anchored is encouraging. In fact, the S&P 500 would close the day little changed in a 0.2 percent loss. The most likely explanation for this unique dollar performance is that it reflects a natural correction from an extreme level while the underlying fundamental driver (risk appetite) was otherwise stalled. If that is in fact the case, a revival of sentiment trends would quickly take the reins on the currency should the winds pick up. On the other hand, if the dollar can maintain this trend of self-sustained development; we may find a rebalancing from stimulus speculation that could keep its advance in place for some time.
In the market’s initial reaction to the Fed’s expansive policy step last week, it would seem that the outcome was significantly off the market – hence the rally in capital markets and subsequent dive for the currency. However, the total program actually matches what the unofficial forecast had established beforehand. That said, a reaction one way or the other would be warranted on this event despite its outcome given its confirmation. Now, with the actual event far enough behind us, we can better evaluate its effectiveness in boosting economic activity and leveraging speculative appetites. Already sowing the seeds of a more conservative policy approach after falling over the QE2 precipice last week, we saw a round of Fed commentary that rising as a voice of dissension. St. Louis Fed President Bullard was the meekest of the commentators with his suggestion that he would have preferred not to have announced the $600 billion figure upfront. Dallas President Fisher took it a step further in suggesting that the program was the “wrong medicine” for the US as it came along with costs that include a weaker dollar and the a possible label of “monetizing” government debt. Most ambitious though was Kevin Warsh. The Fed Governor said the central bank was at risk of losing its credibility and that meaningful changes would be best made in regulatory, fiscal and trade policy. A highlight to FX traders particularly, Warsh went on to suggest that the Fed should reconsider its purchasing program should the dollar continue to drop. We’ll watch to see just how prevalent the stimulus argument is over price action going forward.
In the meantime, the dollar could find additional strength through the euro’s troubles. With stimulus speculation moving off the financial headlines, the sharp increase European sovereign yields casts a meaningful concerning contrast against a currency that is at very rich levels against its benchmark counterpart. If the media ramps up coverage, this could very well turn into the top driver. In the meantime, schedule event risk was light Monday with just the FOMC’s senior loan survey for the quarter (which showed an improvement in credit standards but drop in demand). Tomorrow’s NFIB Small Business Optimism survey is notable for the sector’s influence in job creation.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD Long Stopped Out on Dollar Strength, Awaiting S&P Signal
Euro may See the Next Fundamental Wave as Financial Troubles Return to the Headlines
Perception is the dominant force in pricing currencies just as it is with any other asset. That is why financial media can be so influential in defining underlying fundamental drivers for the FX market. Up until last week, the primary concern was the fallout from a second wave of stimulus by the Fed. Moving up from the background as that story passes; we now see increased reference to the record 10-year yield spreads on Irish debt. EU Commissioner Olli Rehn arrived in Ireland Monday to evaluate the country’s efforts to cut its deficit. Will they receive continued support? Inevitably. Yet, with Greece, Portugal and Spain suffering from fading confidence; the need for funds may simply be too great.
British Pound Offers Selective Strength as Housing and Retail Sales Data Conflicts with Policy Efforts
The pound is still riding strong off the BoE’s decision to pass on an opportunity to boost its bond purchasing program. However, data has started to chip away at this strength. Early in Monday’s session, Rightmove reported a pickup in first-time homebuyers’ plans to buy; but expectations for prices to fall also grew. Add to that an 18-month low in the RICS house figures and drop in retail sales, and the balance is tipped.
Australian Dollar Tempers its Response to 15-Month Low in Business Sentiment, RBA Report Ahead
Though risk appetite trends were relatively stable Monday, the effort made by the dollar to gain ground drew an unwanted contrast to the Australian dollar’s remarkable highs. Risk trends are the dominant force for this currency; but the 15-month low in business sentiment adds a tangible concern to the mix. Looking ahead to tomorrow’ the RBA’s financial stability report could give us something else to chew on.
Canadian Dollar Stumbles with Housing Activity Sliding, BoC Governor Speaks Tuesday
Just as the franc appreciates when the euro falls, the Canadian dollar would ease with the strength of its larger trade partner. For intrinsic fundamental guidance, the loonie would see an uncharacteristic slip in its perceived solid growth scheme with the weakest reading of housing starts in 14-months in October (167,900). Tomorrow, the top fundamental concern is BoC Governor Carney’s discussion on financial reform.
New Zealand Dollar Little Encouraged by Policy Officials Withdrawal of Stimulus
It received little attention; but the RBNZ announced Monday that it would end the last of its temporary liquidity facilities due to a lack of use. This relieves a token hurdle to the eventual acceleration of the central bank’s hawkish policy regime; but it also reminds us that the kiwi does not have the fundamental backdrop of the Aussie dollar. Further confirmation of this fact comes through the weak housing and spending data.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
4:30 |
Bankruptcies (YoY) (OCT) |
-4.6% |
Declined annually in last 14 months. |
|
|
JPY |
5:00 |
Eco Watchers Survey: Outlook (OCT) |
41.4 |
Japanese current conditions declined in the last two months. |
|
|
JPY |
5:00 |
Eco Watchers Survey: Current (OCT) |
41.2 |
||
|
JPY |
6:00 |
Machine Tool Orders (YoY) (OCT P) |
113.6% |
Rose YoY in the last 10 months. |
|
|
CHF |
6:45 |
SECO Consumer Confidence (OCT) |
17 |
16 |
Increased in the last 5 quarters. |
|
EUR |
7:00 |
German Consumer Price Index (MoM) (OCT F) |
0.1% |
0.1% |
German inflation held steady in October, rising 1.3% annually, as a stronger euro helped counter rising energy prices. |
|
EUR |
7:00 |
German Consumer Price Index (YoY) (OCT F) |
1.3% |
1.3% |
|
|
EUR |
7:00 |
German CPI – EU Harmonised (MoM) (OCT F) |
0.1% |
0.1% |
|
|
EUR |
7:00 |
German CPI – EU Harmonised (YoY) (OCT F) |
1.3% |
1.3% |
|
|
EUR |
7:30 |
Bank of France Business Sentiment (OCT) |
102 |
102 |
Sentiment rose slightly in Sept. |
|
EUR |
7:45 |
French Central Government Balance (euros) (SEP) |
-122.1B |
Gov. deficit widened in August. |
|
|
EUR |
7:45 |
French Trade Balance (euros) (SEP) |
-3.9B |
-4.9B |
Imports widened to 2-month high. |
|
GBP |
9:30 |
Visible Trade Balance (Pounds) (SEP) |
-8.000B |
-8.227B |
U.K. trade deficit likely narrowed in September for a second consecutive month. |
|
GBP |
9:30 |
Trade Balance Non EU (Pounds) (SEP) |
-4.500B |
-4.694B |
|
|
GBP |
9:30 |
Total Trade Balance (Pounds) (SEP) |
-4.500B |
-4.643B |
|
|
GBP |
9:30 |
Industrial Production (MoM) (SEP) |
0.4% |
0.3% |
Production rose in the last 2 months. |
|
GBP |
9:30 |
Industrial Production (YoY) (SEP) |
3.6% |
4.2% |
|
|
GBP |
9:30 |
Manufacturing Production (MoM) (SEP) |
0.2% |
0.3% |
U.K. manufacturing rose more than forecast in August. |
|
GBP |
9:30 |
Manufacturing Production (YoY) (SEP) |
4.9% |
6.0% |
|
|
USD |
12:30 |
NFIB Small Business Optimism (OCT) |
90 |
89 |
Sits at highest level since May. |
|
13:30 |
New Housing Price Index (MoM) (SEP) |
0.1% |
0.1% |
Increased in 13 of last 14 months. |
|
|
USD |
15:00 |
IBD/TIPP Economic Optimism (NOV) |
46.5 |
46.4 |
Probably increased in November. |
|
USD |
15:00 |
Wholesale Inventories (SEP) |
0.7% |
0.8% |
Inventories rose in last 8 months. |
|
USD |
22:00 |
ABC Consumer Confidence (NOV 7) |
-46 |
Confidence rose slightly last week. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
CAD |
17:15 |
BoC Governor Mark Carney Speaks on Financial Reform |
|
AUD |
20:00 |
Reserve Bank of Australia Financial Stability Report |
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 |
1.4800 |
1.6715 |
89.00 |
1.0460 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4450 |
1.6420 |
86.00 |
0.9950 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3918 |
1.6130 |
81.18 |
0.9659 |
1.0027 |
1.0136 |
0.7881 |
112.98 |
130.94 |
|
Support 1 |
1.3700 |
1.5650 |
80.00 |
0.9500 |
0.9950 |
0.9640 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3500 |
1.5500 |
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 |
1.4865 |
8.3675 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.5400 |
6.1150 |
|
Spot |
12.2300 |
1.4078 |
6.8414 |
7.7505 |
1.2878 |
Spot |
6.7006 |
5.3550 |
5.8148 |
|
Support 1 |
12.0500 |
1.3665 |
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 |
1.4163 |
1.6259 |
81.64 |
0.9727 |
1.0088 |
1.0214 |
0.7991 |
114.96 |
132.25 |
|
Resist 1 |
1.4040 |
1.6195 |
81.41 |
0.9693 |
1.0057 |
1.0175 |
0.7936 |
113.97 |
131.60 |
|
Pivot |
1.3964 |
1.6149 |
81.21 |
0.9648 |
1.0026 |
1.0127 |
0.7889 |
113.32 |
131.07 |
|
Support 1 |
1.3841 |
1.6085 |
80.98 |
0.9614 |
0.9995 |
1.0088 |
0.7834 |
112.33 |
130.42 |
|
Support 2 |
1.3765 |
1.6039 |
80.78 |
0.9569 |
0.9964 |
1.0040 |
0.7787 |
111.68 |
129.89 |
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 |
1.4118 |
1.6320 |
82.12 |
0.9789 |
1.0145 |
1.0288 |
0.8000 |
114.58 |
132.82 |
|
Resist. 2 |
1.4068 |
1.6272 |
81.88 |
0.9756 |
1.0115 |
1.0250 |
0.7971 |
114.18 |
132.35 |
|
Resist. 1 |
1.4018 |
1.6225 |
81.65 |
0.9724 |
1.0086 |
1.0212 |
0.7941 |
113.78 |
131.88 |
|
Spot |
1.3918 |
1.6130 |
81.18 |
0.9659 |
1.0027 |
1.0136 |
0.7881 |
112.98 |
130.94 |
|
Support 1 |
1.3818 |
1.6035 |
80.71 |
0.9594 |
0.9968 |
1.0060 |
0.7821 |
112.18 |
130.00 |
|
Support 2 |
1.3768 |
1.5988 |
80.48 |
0.9562 |
0.9939 |
1.0022 |
0.7791 |
111.78 |
129.53 |
|
Support 3 |
1.3718 |
1.5940 |
80.24 |
0.9529 |
0.9909 |
0.9984 |
0.7762 |
111.38 |
129.06 |
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
