- Dollar Finds Balance as Big Ticket Fundamental Threats – G20, GDP, FOMC – Approach
- British Pound Collapses as Market Recognizes the Threat of Austerity and Weight of Stimulus
- Euro Firm Despite a Drop in Economic Activity and Disappointing Auction for Spain
- Canadian Dollar Approaches another Fundamental Wave in Retail Sales and CPI
- Australian Dollar Falls in the Face of Stable Risk Trends as Chinese Economy Cools
- Japanese Yen: Economic Minister Warns a Collapse in Chinese Economy Would be Dire for Japan
Dollar Finds Balance as Big Ticket Fundamental Threats – G20, GDP, FOMC – Approach
It is interesting to see how influential policy officials’ comments can be on positioning. Ultimately, the impact their remarks have on the markets boil down to what the topic happens to be and the frequency with which it is brought up. For example, Japanese policymakers’ constant threats against the yen’s advance are interpreted as empty and impotent threats; while RBA Governor Steven’s select prognostications are often treated as the market’s own outlook. As for Treasury Secretary Timothy Geithner’s sway, constant and repetitive reflections on the economy and currency have lost their charm. Therefore, it is interesting that many analysts and financial media outlets attributed a sharp rally in the dollar prior to Thursday morning’s Chinese GDP release to suggestions made by Geithner that currencies are “roughly in alignment.” This is a vague comment; and he has not pursued any policy directly aimed at manipulating the dollar. Yet, in the pursuit of an easy explanation, this is something to hang onto. More realistic is the notion that the impending threat of volatility in the wake of heavy event risk encouraged an early break that took advantage of pre-release liquidity and the need to defuse a bigger decline after the actual data. This is consistent with the modest advance through the end of Thursday – the fourth in the past five active trading days – as risk trends edged lower and stimulus slipped.
Fundamental developments are only as market-moving as speculative interests say they are. Over the past 72 hours, risk appetite trends have proven themselves to be the most influential dynamic when it comes to the dollar’s bearings. China’s growth update would provide a clear measure of confidence in the global economy and in turn define the value of the greenback as a safe haven and direct investment alternative to the world’s second largest powerhouse. Coming largely in line with expectations, the ‘surprise’ factor that often produces the greatest level of volatility was dampened. On the other hand, the deceleration in the country’s remarkable performance (to a 9.6 percent rate of annualized growth) would nevertheless remind investors that global activity was cooling and the best performers (for growth and returns) held their own risk. Being reminded that China is not a risk-free alternative to the United States financial, fiscal and economic troubles goes a long way to disrupt popular capital flows. In the meantime, the US Leading Indicators composite for September wasn’t a great rebuttal as the 0.3 percent growth can largely be attributed to rising stocks, low market rates and to an extent an improvement in manufacturing.
A fundamental current that continues to lose its authority over speculative interests are stimulus forecasts. Thursday, St. Louis Fed President Bullard remarked that a stimulus decision would not be made until after the 3Q GDP release (which he said may be stronger than 2Q), that the FOMC was not there to “ratify what the markets think,” and that he supported a program that moved in $100 billion market increments. All of this is deflates the massive easing program the market had priced in. We’ll see what Hoenig and Plosser say tomorrow. In the meantime, we need to keep a mind to the G20 this weekend and US 3Q GDP next week. And, off the docket, the mortgage-backed securities market is coming back to haunt us as foreclosures pick up. According to the Fed, foreigners are already bailing with their MBS holdings falling to a three-year low.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPUSD Hits its First Target, EURUSD Taking Time to Develop
British Pound Collapses as Market Recognizes the Threat of Austerity and Weight of Stimulus
The full weight of the UK’s fiscal and economic position doesn’t seem to have fully set in – much like the US stimulus scenario was underappreciated until a month ago and Europe’s debt obligations are still ignored to this day. With the announcement of the government’s biggest spending cut (81 billion pounds) on record and the loss of nearly 500,000 public jobs, the United Kingdom is at significant risk of stalling in its recovery and in turn pinching its financial markets. As it stands, the consensus forecast for 3Q GDP growth is a sparse 0.4 percent. Chancellor of the Exchequer Osbourne recognizes this threat; and therein lies the reasoning for his comment that he would approve a “deployment” of stimulus from the BoE should activity stall. Through Thursday’s session, we see that mortgage approvals dropped to a 17-month low and retail sales were unchanged. The outlook for growth is diving, stimulus seems more likely and the argument for a rate hike is fading.
Euro Firm Despite a Drop in Economic Activity and Disappointing Auction for Spain
There are grander fundamental concerns for FX traders at the moment. This is no doubt why disappointing developments hold limited weight for euro price action. In the previous session, the Eurozone PMI figure hit a year low and Spain’s debt auction fell short of its maximum. Further off the beaten path, French strikes are going strong and Allied Irish subordinate debt holders are being asked to take an 80 percent loss.
Canadian Dollar Approaches another Fundamental Wave in Retail Sales and CPI
Once again, the Canadian dollar steps up for potential volatility when the rest of the calendar falls into a lull. However, how much can we expect from top tier economic indicators when the implications for interest rate expectations have been handicapped by the dovish turn from the BoC? The CPI data will tell us if there is any argument to be made for a rate hike while retail sales are still important to gauge economic activity.
Australian Dollar Falls in the Face of Stable Risk Trends as Chinese Economy Cools
Who stands to suffer most from a slower Chinese economy? While the cooling of the Asian giant is generally encouraging in the effort to curb an economic and asset bubble; the temperance means the imports of natural materials will necessarily drop as well. Australia happens to be one of the largest suppliers of metals and energy commodities to China. How well can Australia stand on its own in this volatile global market?
Japanese Yen: Economic Minister Warns a Collapse in Chinese Economy Would be Dire for Japan
Despite the simmering political tensions between Japan and China, policy officials understand the economic dependence between the two. This reliance is the basis for the Japanese Economic Minister and BoJ Governor to express their support for China’s decision to hike its benchmark rate to curb bubbles. It was the minister that said a crisis in China would cause severe problems in the island nation.
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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 |
|
AUD |
0:30 |
Import Price Index (QoQ) (3Q) |
0.0% |
1.9% |
Australian import prices increased in each quarter this year. |
|
AUD |
0:30 |
Export Price Index (QoQ) (3Q) |
4.0% |
16.1% |
|
|
JPY |
5:00 |
Supermarket Sales (YoY) (SEP) |
-1.1% |
Fell annually in last 21 months. |
|
|
EUR |
6:45 |
French Business Survey Overall Demand (OCT) |
17 |
2Q reading highest in three years. |
|
|
EUR |
8:00 |
Euro-Zone Government Debt-GDP Ratio (DEC 31) |
78.7% |
At highest level since at least 1995. |
|
|
EUR |
8:00 |
German IFO – Expectations (OCT) |
102.9 |
103.9 |
German business confidence unexpectedly rose in September to highest level in over three years. |
|
EUR |
8:00 |
German IFO – Business Climate (OCT) |
106.5 |
106.8 |
|
|
EUR |
8:00 |
German IFO – Current Assessment (OCT) |
110.0 |
109.7 |
|
|
EUR |
8:00 |
Italian Retail Sales s.a. (MoM) (AUG) |
0.0% |
0.0% |
Sales were likely stagnant in August for a second straight month. |
|
EUR |
8:00 |
Italian Retail Sales (YoY) (AUG) |
1.5% |
1.7% |
|
|
11:00 |
Consumer Price Index (MoM) (SEP) |
0.1% |
-0.1% |
The twelve-month inflation rate slowed in August on decelerating energy costs, as the price of oil dropped 10%. |
|
|
CAD |
11:00 |
Consumer Price Index (YoY) (SEP) |
1.9% |
1.7% |
|
|
CAD |
11:00 |
Bank Canada Consumer Price Index Core (MoM) (SEP) |
0.3% |
0.1% |
|
|
CAD |
11:00 |
Bank Canada Consumer Price Index Core (YoY) (SEP) |
1.6% |
1.6% |
|
|
CAD |
12:30 |
Retail Sales (MoM) (AUG) |
-0.1% |
-0.1% |
Dropped last month as purchases of appliances and electronics fell. |
|
CAD |
12:30 |
Retail Sales Less Autos (MoM) (AUG) |
0.5% |
-0.4% |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
ALL |
G-20 Summit of Finance Ministers and Central Bank Governors |
|
|
USD |
1:45 |
Fed’s Thomas Hoenig to Speak on Economic Outlook |
|
EUR |
7:15 |
ECB’s Ewald Nowotny Speaks on Economy, Regulation |
|
USD |
12:00 |
Fed’s Charles Plosser Speaks on Regulatory Reform |
|
EUR |
16:00 |
ECB’s Carlos Costa Speaks on Economy |
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 |
1.3931 |
1.5711 |
81.27 |
0.9663 |
1.0275 |
0.9775 |
0.7461 |
113.21 |
127.68 |
|
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 |
12.3988 |
1.4278 |
6.9550 |
7.7641 |
1.3011 |
Spot |
6.6708 |
5.3538 |
5.8456 |
|
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 |
1.4130 |
1.5912 |
82.25 |
0.9722 |
1.0382 |
0.9952 |
0.7601 |
114.45 |
129.87 |
|
Resist 1 |
1.4031 |
1.5812 |
81.76 |
0.9693 |
1.0329 |
0.9864 |
0.7531 |
113.83 |
128.78 |
|
Pivot |
1.3951 |
1.5749 |
81.34 |
0.9652 |
1.0248 |
0.9803 |
0.7483 |
113.32 |
128.14 |
|
Support 1 |
1.3852 |
1.5649 |
80.85 |
0.9623 |
1.0195 |
0.9715 |
0.7413 |
112.70 |
127.05 |
|
Support 2 |
1.3772 |
1.5586 |
80.43 |
0.9582 |
1.0114 |
0.9654 |
0.7365 |
112.19 |
126.41 |
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 |
1.4128 |
1.5900 |
82.28 |
0.9793 |
1.0409 |
0.9932 |
0.7581 |
114.89 |
129.60 |
|
Resist. 2 |
1.4079 |
1.5853 |
82.03 |
0.9761 |
1.0375 |
0.9893 |
0.7551 |
114.47 |
129.12 |
|
Resist. 1 |
1.4029 |
1.5806 |
81.78 |
0.9728 |
1.0342 |
0.9853 |
0.7521 |
114.05 |
128.64 |
|
Spot |
1.3931 |
1.5711 |
81.27 |
0.9663 |
1.0275 |
0.9775 |
0.7461 |
113.21 |
127.68 |
|
Support 1 |
1.3833 |
1.5616 |
80.76 |
0.9598 |
1.0208 |
0.9697 |
0.7401 |
112.37 |
126.72 |
|
Support 2 |
1.3783 |
1.5569 |
80.51 |
0.9565 |
1.0175 |
0.9657 |
0.7371 |
111.95 |
126.24 |
|
Support 3 |
1.3734 |
1.5522 |
80.26 |
0.9533 |
1.0141 |
0.9618 |
0.7341 |
111.53 |
125.76 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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