- Dollar Folds as BoJ Stimulus Leverages Speculation Over Fed’s Potential and Investor Sentiment
- Euro Boosting its Profile as One of the Few Alternative Currencies Left, Or at Least Evens the Playing Field
- Japanese Yen’s Losses Reserved after Remarkable Monetary Policy Expansion Effort but for How Long?
- Australian Dollar Speculators only Temporarily Knocked Off Their Pace by an RBA Hold
- British Pound Ignores Improvement in Service Sector Report as Support for Stimulus Grows
- Canadian Dollar Advances ahead of Ivey Business Activity Report
Dollar Folds as BoJ Stimulus Leverages Speculation Over Fed’s Potential and Investor Sentiment
For those that only scratch the surface of fundamentals, the plunge for the dollar Tuesday may come as a surprise. Given the performance of the day’s top-tier economic release, it would seem that the currency would be encouraged into a rally. And, even if we go one level deeper by connecting the data’s influence in reducing the necessity of additional stimulus from the Federal Reserve; we would still miss the principal concern for the benchmark currency: risk appetite trends. While the dollar performance recently has deviated from the ebb and flow of risk appetite trends, the currency will readily fall back into its role should the winds really pick up (for better or worse). More remarkable for price action over the past 24 hours than traditional economic indicators was the marked surge in investor sentiment. As a benchmark for this speculative drive, the S&P 500 produced a clean break from a three-week period of congestion to trade at near-five month highs. This advance would further bleed into corporate bond yields, speculative commodities (like crude oil) and high-yield / high-potential currencies. What makes it even more interesting is that gold (a favored safe haven) surged while the Aussie dollar stumbled. Interesting developments are afoot.
In the past month, fundamental dollar traders have had to make an adjustment in their analysis to interpret the greenback’s health. While the flow of speculative capital still caters to (and weighs on) the currency’s safe haven status, risk trends have actually cooled. In its place, speculation surrounding the possibility of Fed stimulus expansion has stepped up. Should the central bank increase its bond purchase program (be they acquisitions of Treasuries, agency debt or even corporate bonds), the net result is an influx in the supply of dollars in the system and a degradation of the economy’s fiscal and monetary integrity. What’s more – and what we saw in price action Tuesday – is the condition whereby an increase in stimulus placates the ‘simplistic’ growth and capital-dependant markets, thereby simultaneously boosting risk appetite and undermining the appeal of the nation’s currency. Visions of an impending increase in Fed buying come November 3rd wasn’t necessarily the result of any particular US event through the previous session, rather it was speculative interpretation following the Bank of Japan’s remarkably expansive shift much earlier in the day. A rate cut and new program aimed at lowering rates, boosting growth and fighting deflation suggests to traders that the US central bank is more likely to follow through on a stimulus hike at its own meeting. Is this the case? Probably not; but the market is a collective of investors’ biases. Price will go where bid and sell orders encourage it.
If the dollar was preoccupied with the fallout of the BoJ’s policy decision, did the US data even register? Certainly. The services sector accounts for approximately 90 percent of output from the business side of the economy; and therefore the ISM figure carries significant weight. The unexpectedly robust increase in the figure offers evidence of support for the economy. And, though this indicator alone won’t thwart Fed stimulus expansion, the improvement in new orders (which hit a three-year high), employment and new orders is encouraging. Looking at tomorrow’s docket, risk appetite dominants for potential; but the ADP private payroll figure will offer a lead in to speculation surrounding Friday’s NFPs.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURJPY Hits its First Target, AUDUSD and AUDCAD May See More
Euro Boosting its Profile as One of the Few Alternative Currencies Left, Or at Least Evens the Playing Field
The euro was particularly strong Tuesday; and this wasn’t just a performance evaluation against the weak US dollar. The shared currency advanced against all of its major counterparts through the day through developments from with its own docket and also in reference to the global response to the BoJ’s stimulus efforts. With the expansive step from its economic peer, Europe’s assets and its fiat currency look increasingly attractive because it represents a diversified alternative that is seeing its disadvantages dimming. Essentially, the euro’s counterparts are depreciating while the currency holds steady. What’s more, fears over a coming financial crisis in Europe eased further Tuesday. While Moody’s said it would put Ireland through a three-month review to assess the necessity of a downgrade, the same group said it was “impressed” by Greece’s recent budget efforts. In fact, the ratings agency said the risk would be “to the upside” if they maintain their efforts.
Japanese Yen’s Losses Reserved after Remarkable Monetary Policy Expansion Effort but for How Long?
For influence, Japan’s fundamental developments were clearly dominant Tuesday. While the market was generally pricing in an increase in the BoJ’s stimulus efforts at the conclusion of its meeting, most believe the result would be an expansion of its 30 trillion yen liquidity facility. What they saw was a cut in the rate to a range above zero and a new 5 trillion yen program to buy funds. Will this be effective though? Probably not.
Australian Dollar Speculators only Temporarily Knocked Off Their Pace by an RBA Hold
Just as it was with the BoJ, the outcome of the Australian central bank’s policy meeting was a surprise to speculators. The market and economists had priced in a 25 bps rate hike to the primary rate to 4.75 percent. Instead, the group maintained the rate. The immediate reaction was a sell off to account for this mispricing. That being said, they did leave the door open to future hikes; and therefore the Aussie recovered.
British Pound Ignores Improvement in Service Sector Report as Support for Stimulus Grows
There was one prominent economic release on the UK’s economic docket through the previous session; but its impact has proven lax. The service sector PMI figure for September unexpectedly climbed to a 52.8 reading; but sticklers would point out that new orders dropped to a yearly low. Adding to the negative sentiment, the Institute of Directors (a business lobby) backed BoE Posen’s call for stimulus expansion.
Canadian Dollar Advances ahead of Ivey Business Activity Report
With the market’s appetite whetted for high yield and high potential currencies, the Canadian dollar found itself with something of an undeserved bid Tuesday. Going forward, if the speculative drive is still strong, the loonie will likely tap the mass sentiment for direction. However, in the event that risk appetite trends temper, the Ivey PMI for September will step in. This business report will feed growth and interest rate expectations.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
GBP |
23:01 |
BRC Shop Price Index (SEP) |
1.7% |
August reading beat 1.5% July gain. |
|
|
GBP |
New Car Registrations (YoY) (SEP) |
-17.5% |
Declined annually in last 2 months. |
||
|
CHF |
7:00 |
Foreign Currency Reserves (SEP) |
218.1B |
Reserves dropped in last 3 months. |
|
|
EUR |
9:00 |
Euro-Zone GDP s.a. (QoQ) (2Q F) |
1.0% |
1.0% |
European exports surged the most on record and corporate spending rebounded from a two-year slump in 2Q, aiding the euro zone’s fastest economic expansion in four years. |
|
EUR |
9:00 |
Euro-Zone GDP s.a. (YoY) (2Q F) |
1.9% |
1.9% |
|
|
EUR |
9:00 |
Euro-Zone Household Consumption (QoQ) (2Q F) |
0.5% |
0.5% |
|
|
EUR |
9:00 |
Euro-Zone Gross Fixed Capital (QoQ) (2Q F) |
1.8% |
1.8% |
|
|
EUR |
9:00 |
Euro-Zone Government Expenditure (QoQ) (2Q F) |
0.5% |
0.5% |
|
|
EUR |
10:00 |
German Factory Orders s.a. (MoM) (AUG) |
0.9% |
-2.2% |
German factory orders declined in July for a second time in 3 months. |
|
EUR |
10:00 |
German Factory Orders n.s.a. (YoY) (AUG) |
17.2% |
17.7% |
|
|
USD |
11:00 |
MBA Mortgage Applications (OCT 1) |
-0.8% |
Apps fell in the last four weeks. |
|
|
USD |
11:30 |
Challenger Job Cuts (YoY) (SEP) |
-54.5% |
ADP employment fell in August for the first time in seven months. |
|
|
USD |
12:15 |
ADP Employment Change (SEP) |
20K |
-10K |
|
|
14:00 |
Ivey Purchasing Managers Index (SEP) |
62.0 |
65.9 |
Index beat expectations in August. |
|
|
USD |
14:30 |
DOE U.S. Crude Oil Inventories (OCT 1) |
413K |
-475K |
Crude refinery inputs averaged 14.7 million barrels per day during the week ending September 24. |
|
USD |
14:30 |
DOE U.S. Gasoline Inventories (OCT 1) |
-250K |
-3469K |
|
|
USD |
14:30 |
DOE U.S. Distillate Inventory (OCT 1) |
-1000K |
-1265K |
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 |
1.4200 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0000 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3900 |
1.5965 |
86.00 |
0.9950 |
1.0750 |
0.9850 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3847 |
1.5900 |
83.19 |
0.9664 |
1.0167 |
0.9713 |
0.7490 |
115.19 |
132.26 |
|
Support 1 |
1.3300 |
1.5500 |
83.00 |
0.9650 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2500 |
1.5300 |
80.00 |
0.9500 |
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 |
12.4925 |
1.4283 |
6.8883 |
7.7565 |
1.3096 |
Spot |
6.6974 |
5.3831 |
5.8178 |
|
Support 1 |
12.0500 |
1.4070 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
6.6150 |
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 |
|
Resist 2 |
1.4003 |
1.6039 |
84.41 |
0.9777 |
1.0317 |
0.9836 |
0.7591 |
116.27 |
133.51 |
|
Resist 1 |
1.3925 |
1.5969 |
83.80 |
0.9720 |
1.0242 |
0.9775 |
0.7540 |
115.73 |
132.89 |
|
Pivot |
1.3781 |
1.5861 |
83.38 |
0.9683 |
1.0198 |
0.9658 |
0.7449 |
114.81 |
132.39 |
|
Support 1 |
1.3703 |
1.5791 |
82.77 |
0.9626 |
1.0123 |
0.9597 |
0.7398 |
114.27 |
131.77 |
|
Support 2 |
1.3559 |
1.5683 |
82.35 |
0.9589 |
1.0079 |
0.9480 |
0.7307 |
113.35 |
131.27 |
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 |
1.4033 |
1.6081 |
84.18 |
0.9791 |
1.0297 |
0.9860 |
0.7607 |
116.96 |
134.33 |
|
Resist. 2 |
1.3986 |
1.6036 |
83.93 |
0.9759 |
1.0264 |
0.9823 |
0.7577 |
116.52 |
133.81 |
|
Resist. 1 |
1.3940 |
1.5991 |
83.68 |
0.9727 |
1.0232 |
0.9787 |
0.7548 |
116.08 |
133.29 |
|
Spot |
1.3847 |
1.5900 |
83.19 |
0.9664 |
1.0167 |
0.9713 |
0.7490 |
115.19 |
132.26 |
|
Support 1 |
1.3754 |
1.5809 |
82.70 |
0.9601 |
1.0102 |
0.9639 |
0.7432 |
114.30 |
131.23 |
|
Support 2 |
1.3708 |
1.5764 |
82.45 |
0.9569 |
1.0070 |
0.9603 |
0.7403 |
113.86 |
130.71 |
|
Support 3 |
1.3661 |
1.5719 |
82.20 |
0.9537 |
1.0037 |
0.9566 |
0.7373 |
113.42 |
130.19 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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