- Dollar Hints at a Meaningful Reversal after GDP Release, A Collapse in Risk is Essential to Follow Through
- Euro: Is EURUSD’s Correction a Reflection of Dollar Strength or Euro Weakness?
- British Pound Highly Susceptible to a Turn in Investor Confidence after Growth Surprise
- Canadian Dollar Faces the Heaviest Round of Scheduled Event Risk Next Week
- Australian Dollar at Risk of Reversal from both Sentiment Trends and the RBA Decision
- Japanese Yen: Measuring the Market’s Interests as the Yen Responds to Risk and Deficit Concerns
Dollar Hints at a Meaning Reversal after GDP Release, A Collapse in Risk is Essential to Follow Through
A dollar correction was long overdue. And, so it was on Friday, the greenback managed its first advance against the euro in six days and only its third positive performance in three weeks. However, there is a difference between correction and reversal. We would be jumping the gun to call this tentative move confirmation of a prominent dollar-bull trend. As it stands, the end-of-week pullback has retraced only 17 percent of EURUSD’s aggressive gains. What’s more, the tension this particular pair carried meant it was highly prone to a natural speculative retracement. Looking around at the rest of the majors, we see the necessity for caution. Whereas GBPUSD and USDJPY marked big dollar favorable moves, there was little in the way of meaningful progress on both fronts. More critical to this comparison is the fact that neither USDCAD nor AUDUSD would produce substantive breakouts in the US dollar’s favor. Each pair offers a unique angle on the greenback’s fundamental appeal (USDCAD isolates underlying economic strength while AUDUSD is highly sensitive to risk appetite trends); yet neither would capitalize on the dollar buying that occurs as a natural consequence of the EURUSD selling.
As it happens, the performance from AUDUSD next week is exceptionally important to the bearings of the dollar itself. Just as surely as we saw the dollar tumble against the euro and the euro only these past three weeks; the currency can subsequently recover that same ground without establishing a broader bid amongst the rest of the majors. AUDUSD is so useful because it is a good indicator of a very specific catalyst for the benchmark – risk appetite trends. Should investor sentiment start to falter after months of stimulus-fed advancement; the dollar will be well positioned for a wave of safe haven flows. We have discussed the considerable potential in a shifting risk scheme for some time; but we have reason to believe that such a development is more likely come next week than it has been in many weeks. Looking across the financial markets for signs of the balance between risk and reward; we see that our favored benchmark – the S&P 500 – has dropped out the rising trend channel that has maintained its stead advance since the third of December.
From a purely fundamental perspective, it may seem highly unusual that the beginning of a reversal would happen specifically on this day. Though coming slightly below the market consensus, the advanced reading of 4Q US GDP was still a strong report. The 3.2 percent annualized pace was backed by the strongest performance in consumer spending in over for years, the biggest contribution from net exports in 30 years and the strongest clip of overall growth excluding inventories in 26 years. That said, we should recall that the Fed said just this past week that expansion has yet to materially improve the employment situation. What’s more, there is a dollar-positive dimension to this data as well as it plays to relative growth. All of that aside, investor sentiment itself has generally deviated so far from fundamentals that a correction is necessary. Next week, we could have an ideal scenario for cultivating risk aversion and a dollar rally. Instability in the Middle East; concerns over Europe, Japan and China; as well as presence of key data could help guide the necessary steps. At the top of our threat list is January NFPs; but a Friday release means we have an entire week to jumpstart a move before the indicator’s gravity stalls the markets.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD takes a first Step, A True Reversal would Bring AUDUSD
Euro: Is EURUSD’s Correction a Reflection of Dollar Strength or Euro Weakness?
It is difficult to say whether it was a strong dollar or weak euro that lead to Friday’s EURUSD correction. Whereas the greenback would show limited progress across the spectrum; the euro dropped uniformly across the board. On the docket, we saw the best Euro Zone retail sales PMI reading since May 2006 and a marked drop in the annual clip of the region’s M3 (the ECB’s favored inflation reading). That said, the shared currency’s weakness likely doesn’t trace back to specific data. Instead, suggestions that officials are discussing extending Greece and Ireland’s repayment schedule from 3 to 30 years and IMF Managing Director Lipsky’s warning that we should “never say never” on another bailout reminds us that there still major problems. Portugal has decided to test the market’s confidence next Wednesday with a sale of government debt.
British Pound Highly Susceptible to a Turn in Investor Confidence after Growth Surprise
The combination of a surprise economic slump in the fourth quarter and the biggest drop in consumer confidence in 16 years was a rude awakening to pound traders that there is a downside to pursuing a path of austerity. In Davos, Prime Minister Cameron repeated his vow that debt reduction is their top priority. Perhaps with the consequences in mind, the market will pay more attention to next week’s data.
Canadian Dollar Faces the Heaviest Round of Scheduled Event Risk Next Week
In an otherwise restrained weak for scheduled event risk, the Canadian dollar sees some of the heaviest data – data that the currency would actually react to (unlike say the US dollar as it follows risk trends). Through it a monthly reading, the November GDP release will be key to validating the BoC’s dovish tone – the market still needs convincing. And, the net jobs change is itself a known market-mover.
Australian Dollar at Risk of Reversal from both Sentiment Trends and the RBA Decision
We have heard discouraging damage estimates for the cost of recovering from Australia’s floods. Yet, we have also heard from Treasury Swan that this disaster is likely to further stoke inflation. Now, we are coming to the real bread-and-butter of the Aussie dollar’s performance – interest rates. The RBA is expected to hold rates Tuesday morning; but will their top concern be pained growth or unbearable inflation.
Japanese Yen: Measuring the Market’s Interests as the Yen Responds to Risk and Deficit Concerns
If we are looking at a potential scenario where risk appetite could falter next week; then we have a complicated picture for the Japanese yen. The nation’s downgrade this past week is just an early warning sign of much more prevalent, underlying problems. However, the market could very well push those issues to the background in the near-term if a slide in sentiment reverses carry flows and subsequently boosts the yen.
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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 |
|
NZD |
21:45 |
Building Permits (MoM) (DEC) |
-1.3% |
8.8% |
Likely fell for second time in 3 months. |
|
NZD |
21:45 |
Trade Balance (New Zealand dollars) (DEC) |
50M |
-186M |
New Zealand’s trade deficit narrowed in November, as demand from China increased prices of dairy and lumber exports. |
|
NZD |
21:45 |
Balance (YTD) (New Zealand dollars) (DEC) |
1463 |
1350 |
|
|
NZD |
21:45 |
Exports (New Zealand dollars) (DEC) |
3.80B |
3.65B |
|
|
NZD |
21:45 |
Imports (New Zealand dollars) (DEC) |
3.75B |
3.84B |
|
|
JPY |
23:15 |
Nomura/JMMA Manufacturing Purchasing Manager Index (JAN) |
48.3 |
Japanese PMI at a three-month high. |
|
|
AUD |
23:30 |
TD Securities Inflation (MoM) (JAN) |
0.2% |
Inflation rose above the RBA’s target range for a fourth month in December. |
|
|
AUD |
23:30 |
TD Securities Inflation (YoY) (JAN) |
3.8% |
||
|
JPY |
23:50 |
Industrial Production (MoM) (DEC P) |
2.8% |
1.0% |
Industrial production rose in November following a five-month decline. |
|
JPY |
23:50 |
Industrial Production (YoY) (DEC P) |
4.4% |
5.8% |
|
|
JPY |
23:50 |
Loans & Discounts Corp (YoY) (DEC) |
-4.5% |
Declined annually in the last 13 months. |
|
|
AUD |
0:30 |
Private Sector Credit (MoM) (DEC) |
0.3% |
0.3% |
Bank lending rose in November, beating economist expectations. |
|
AUD |
0:30 |
Private Sector Credit (YoY) (DEC) |
3.4% |
3.6% |
|
|
NZD |
2:00 |
Money Supply M3 (YoY) (DEC) |
-0.2% |
M3 declined YoY in the last 13 months. |
|
|
JPY |
4:00 |
Vehicle Production (YoY) (DEC) |
-6.7% |
Production fell YoY in the last 2 months. |
|
|
JPY |
5:00 |
Housing Starts (YoY) (DEC) |
4.6% |
6.8% |
Japanese housing starts rose annually in the last six months. |
|
JPY |
5:00 |
Annualized Housing Starts (DEC) |
0.859M |
0.847M |
|
|
JPY |
5:00 |
Construction Orders (YoY) (DEC) |
1.1% |
-5.3% |
Construction orders last rose in May. |
|
EUR |
7:00 |
German Retail Sales (MoM) (DEC) |
2.0% |
-1.9% |
German retail sales declined in November for a third time in 4 months. |
|
EUR |
7:00 |
German Retail Sales (YoY) (DEC) |
1.1% |
2.0% |
|
|
EUR |
7:45 |
French Producer Prices (MoM) (DEC) |
0.6% |
0.4% |
Rise in November prices led by a 2.8% rise in coke and refinery production. |
|
EUR |
7:45 |
French Producer Prices (YoY) (DEC) |
5.0% |
4.5% |
|
|
EUR |
9:00 |
Italian Producer Price Index (MoM) (DEC) |
0.6% |
0.4% |
Italian producer prices increased YoY in November, as manufacturing costs rose 4.3%. |
|
EUR |
9:00 |
Italian Producer Price Index (YoY) (DEC) |
4.5% |
4.1% |
|
|
EUR |
10:00 |
Euro-Zone Consumer Price Index Estimate (YoY) (JAN) |
2.3% |
2.2% |
Accelerated to fastest pace since 2008. |
|
EUR |
10:00 |
Italian Business Confidence (JAN) |
103.5 |
103.0 |
Likely rose near a 3-year high in January. |
|
CAD |
13:30 |
Gross Domestic Product (MoM) (NOV) |
0.3% |
0.2% |
Canada’s GDP grew less than expected in October, after contracting in the month before. |
|
CAD |
13:30 |
Gross Domestic Product (YoY) (NOV) |
3.3% |
||
|
CAD |
13:30 |
Industrial Product Price (MoM) (DEC) |
0.6% |
0.5% |
Prices rose on higher costs for petroleum and coal products. |
|
CAD |
13:30 |
Raw Materials Price Index (MoM) (DEC) |
3.2% |
3.5% |
|
|
USD |
13:30 |
Personal Income (DEC) |
0.4% |
0.3% |
Consumer spending rose in November for a fifth straight month as rising incomes and stock prices gave consumers the confidence to boost purchases for a fifth consecutive month. |
|
USD |
13:30 |
Personal Spending (DEC) |
0.5% |
0.4% |
|
|
USD |
13:30 |
Personal Consumption Expenditure Core (MoM) (DEC) |
0.1% |
0.1% |
|
|
USD |
13:30 |
Personal Consumption Expenditure Core (YoY) (DEC) |
0.8% |
0.8% |
|
|
USD |
13:30 |
Personal Consumption Expenditure Deflator (YoY) (DEC) |
1.3% |
1.0% |
|
|
USD |
14:45 |
Chicago Purchasing Manager (JAN) |
64.8 |
66.8 |
December reading was highest since 2006. |
|
USD |
15:00 |
NAPM-Milwaukee (JAN) |
62.0 |
December reading was a 5-month high. |
|
|
USD |
15:30 |
Dallas Fed Manufacturing Activity (JAN) |
15.0 |
12.8 |
Likely positive for a fourth straight month. |
|
NZD |
21:45 |
Average Hourly Earnings (QoQ) (4Q) |
0.6% |
1.0% |
New Zealand average hourly earnings likely rose for a third consecutive quarter in 4Q. |
|
NZD |
21:45 |
Private Wages ex Overtime (QoQ) (4Q) |
0.5% |
0.6% |
|
|
NZD |
21:45 |
Labor Cost Private Sector (QoQ) (4Q) |
0.6% |
0.5% |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
NZD |
New Zealand Market Closed For Auckland Anniversary |
|
|
USD |
17:00 |
Fed’s Dennis Lockhart Speaks on U.S. Economy |
|
GBP |
17:00 |
BoE’s Andrew Haldane Speaks on Financial Markets |
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 |
1.3885 |
1.6420 |
89.00 |
1.0000 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3750 |
1.6034 |
86.00 |
0.9775 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3610 |
1.5865 |
82.12 |
0.9419 |
1.0007 |
0.9928 |
0.7722 |
111.76 |
130.29 |
|
Support 1 |
1.3425 |
1.5312 |
80.00 |
0.9300 |
0.9800 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2900 |
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 |
13.8500 |
1.6575 |
7.4025 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
12.5000 |
1.6300 |
7.2825 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.2066 |
1.6140 |
7.1935 |
7.7908 |
1.2849 |
Spot |
6.5262 |
5.4770 |
5.8150 |
|
Support 1 |
11.7200 |
1.5300 |
6.9900 |
7.7490 |
1.2750 |
Support 1 |
6.2850 |
5.2625 |
5.7030 |
|
Support 2 |
11.4400 |
1.4725 |
6.8000 |
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 |
1.3809 |
1.6027 |
83.29 |
0.9497 |
1.0069 |
1.0036 |
0.7829 |
114.78 |
133.04 |
|
Resist 1 |
1.3709 |
1.5946 |
82.70 |
0.9458 |
1.0038 |
0.9982 |
0.7775 |
113.27 |
131.66 |
|
Pivot |
1.3647 |
1.5886 |
82.35 |
0.9432 |
0.9986 |
0.9933 |
0.7741 |
112.39 |
130.74 |
|
Support 1 |
1.3547 |
1.5805 |
81.76 |
0.9393 |
0.9955 |
0.9879 |
0.7687 |
110.88 |
129.36 |
|
Support 2 |
1.3485 |
1.5745 |
81.41 |
0.9367 |
0.9903 |
0.9830 |
0.7653 |
110.00 |
128.44 |
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 |
1.3785 |
1.6032 |
83.00 |
0.9534 |
1.0107 |
1.0059 |
0.7826 |
113.19 |
131.86 |
|
Resist. 2 |
1.3741 |
1.5991 |
82.78 |
0.9505 |
1.0082 |
1.0026 |
0.7800 |
112.83 |
131.47 |
|
Resist. 1 |
1.3698 |
1.5949 |
82.56 |
0.9476 |
1.0057 |
0.9994 |
0.7774 |
112.47 |
131.07 |
|
Spot |
1.3610 |
1.5865 |
82.12 |
0.9419 |
1.0007 |
0.9928 |
0.7722 |
111.76 |
130.29 |
|
Support 1 |
1.3522 |
1.5781 |
81.68 |
0.9362 |
0.9957 |
0.9862 |
0.7670 |
111.05 |
129.51 |
|
Support 2 |
1.3479 |
1.5739 |
81.46 |
0.9333 |
0.9932 |
0.9830 |
0.7644 |
110.69 |
129.11 |
|
Support 3 |
1.3435 |
1.5698 |
81.24 |
0.9304 |
0.9907 |
0.9797 |
0.7618 |
110.33 |
128.72 |
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
