- Dollar Keeps Up the Selling Pace Even as Risk Trends Level Off and the US Stimulus Discussion Eases
- Euro: What is the Probability that the ECB Will Take Up the Global Stimulus Call?
- British Pound’s Congestion Would Likely End with an Increase in the BoE’s Bond Purchase Program
- Australian Dollar Rallies to Match Multi-Decade Highs against Greenback after Labor Data
- Canadian Dollar and Interest Rate Speculation Leveraged Bolstered by Strong Ivey Reading
- Japanese Yen Back at an 18-Year High Against the Dollar after Intervention, Stimulus and IMF Warning
Dollar Keeps Up the Selling Pace Even as Risk Trends Level Off and the US Stimulus Discussion Eases
The trade-weighted Dollar Index remained under tremendous selling pressure through Wednesday even as the risk appetite tide from the previous session receded. It seems that the market is living by the credo: when in doubt, sell dollars. This matches the general pace that the benchmark currency has traced out over the past three weeks or so. In fact, over the past 18 active trading days, the Dollar Index has fallen. What’s more, on those five sessions that the benchmark was able to produce a positive close, it wouldn’t actually reclaim the losses that it suffered through the previous day’s performance. Looking across the majors, we can see that there are particular milestones that the greenback can slip below to fuel the broad selling initiative even though it may be distended in some areas of the market. For example, where EURUSD has cleared all its Fibonacci resistance to trade at eight-month highs and USDCHF plunges record lows; there are other pairs that are on the verge of equivalent anti-dollar moves. For example, USDJPY is toeing 18-year lows, AUDUSD is eyeing a 27-year high and GBPUSD is looking at a more tame 8-month high. Should these pairs force meaningful breakouts, it will add another wave of selling pressure.
It is blatantly clear that there is a predisposition to sell dollars; but what is the rationale behind this consistent drive? It would be willfully ignorant to suggest that speculative interest itself is not a prominent source of the dollar’s woes. When the crowd takes up the cause of a particular trend, speculators will jump in and those in front of the move will progressively be knocked out. Aside from pure selling momentum, a more tangible fundamental motivation to unload the greenback wholesale is the persistent concern that the Federal Reserve will expand its $2 trillion stimulus program at the next policy gathering. The Bank of Japan’s decision to loosen the reins on its own efforts has certainly added fuel to the fire. In a similar capacity, the Bank of England and European Central Bank’s rate decisions could provide similar encouragement for the greenback should those groups follow suit. Then again, if both policy authorities abstain; it could leverage the anti-dollar sentiment as fiat-based capital flows into euro and sterling-based assets. It will be difficult to establish a positive outcome for the dollar in this scenario; and it is highly likely that the currency will respond. For the greenback itself, the IMF significantly downgraded the outlook for economic potential. In its semiannual World Economic Outlook report, the group lowered its growth forecast for the world’s largest economy sharply. For the current year, the output reading was dropped from a 3.3 percent to 2.6 percent clip, while the 2011 benchmark was lowered from a 2.9 percent to 2.3 percent pace. In its comments, the IMF said this upturn was notably weaker than previous recoveries – an assessment that raises lasting concerns.
On the data front, we would see more evidence of a deteriorating economy and therefore greater support for another stimulus injection. Mortgage applications through the week ending October 1st dropped for a fifth week; and the ADP private payrolls report printed an unexpected 39,000 net contraction. These figures speak to the weaker areas of the economy; but are not particular market-moving. Tomorrow’s ISCS chain store sales and consumer credit numbers carry more weight but are themselves second tier. News traders are biding their time to the NFPs.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: An Aussie Rally Stops Out AUDUSD but EURJPY Continues to Gain
Euro: What is the Probability that the ECB Will Take Up the Global Stimulus Call?
The euro seems to take all its fundamental shortfalls in stride. The docket was active today with the final readings of second quarter Eurozone GDP (with modest downside revisions to fixed capital investment and consumption) as well as a bigger-than-expected increase in German factory orders; but the real updates weren’t scheduled. After Moody’s warned it was going to review Ireland the previous day, Fitch decided to cut the country’s sovereign credit rating and lowered its outlook to negative. Perhaps just as remarkable (and perhaps too easily overlooked) was the EU’s suggestion that Greece’s deficit and debt figures for the 2006 to 2009 period would be revised higher once again. Will the market be so successful in ignoring the ECB’s decision? If they group offers little guidance, then the anti-dollar march will continue for the shared currency. Alternatively, if they hint that they are starting to fall in line with the Fed and BoJ, the euro can quickly lose its appeal.
British Pound’s Congestion Would Likely End with an Increase in the BoE’s Bond Purchase Program
Between the ECB and BoE rate decision, the latter carries the greater potential for a more expansionary outcome – and the market’s know it. Thanks to the vociferous musings of MPC member Posen that the economy needs additional bond purchases, traders are pricing it in as a potential outcome. That being said, a hold will likely not produce a statement; and the sterling could very well respond with a relief rally.
Australian Dollar Rallies to Match Multi-Decade Highs against Greenback after Labor Data
It may seem unusual that the Australian dollar was so invested in an employment report when the RBA just recently announced its decision to maintain rates unchanged. However, it is specifically because of that bearish outcome that the market is more critical of growth-based indicators like this. The net 49,500 jobs added to the economy adds to existing speculation that the central bank will follow up with a hike later this year.
Canadian Dollar and Interest Rate Speculation Leveraged Bolstered by Strong Ivey Reading
The outlook for a Bank of Canada rate hike has dwindled down to nothing over the past few months; but with each positive indicator the market absorbs, the hope (legitimacy is a bit of a stretch given the policy group’s bearish lean) of a near-term hike grows. Wednesday brought the Ivey PMI business activity report’s four-year high. That being said, the 12-month rate outlook did drop by 10 bps on the day.
Japanese Yen Back at an 18-Year High Against the Dollar after Intervention, Stimulus and IMF Warning
USDJPY is back under 83. This brings one of the FX market’s benchmarks to an 18-year low and symbolically undermines the Japanese government’s efforts at intervention and the BoJ’s decision to open the floodgates on stimulus. What’s more, the market ignored the IMF’s warning that the holdings of government debt by national banks creates instability. Eventually, the masses will come around to reality.
For Real Time Forex News, visit:http://www.dailyfx.com/real_time_news/
**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 |
22:30 |
AiG Performance of Construction Index (SEP) |
43.2 |
Fell in August for a fourth month. |
|
|
JPY |
23:50 |
Official Reserve Assets (SEP) |
$1070.1B |
At highest level since November ’09. |
|
|
GBP |
NIESR Gross Domestic Product Estimate (SEP) |
0.7% |
Increased in the last six months. |
||
|
AUD |
0:30 |
Employment Change (SEP) |
20.0K |
30.9K |
Australian job growth exceeded forecasts in August, sending the unemployment rate down to 5.1% and increasing speculation of an RBA rate hike. |
|
AUD |
0:30 |
Unemployment Rate (SEP) |
5.1% |
5.1% |
|
|
AUD |
0:30 |
Part Time Employment Change (SEP) |
-22.1K |
||
|
AUD |
0:30 |
Full Time Employment Change (SEP) |
53.1K |
||
|
AUD |
0:30 |
Participation Rate (SEP) |
65.4% |
65.4% |
|
|
JPY |
5:00 |
Leading Index (AUG P) |
99.1 |
100.0 |
Leading index likely fell below 100 in August for first time since May. |
|
JPY |
5:00 |
Coincident Index (AUG P) |
103.5 |
103.0 |
|
|
JPY |
6:00 |
Machine Tool Orders (YoY) (SEP P) |
170.0% |
Rose annually in last nine months. |
|
|
EUR |
6:45 |
French Trade Balance (euros) (AUG) |
-4.0B |
-4.2B |
French trade deficit widened in July. |
|
GBP |
8:30 |
Industrial Production (MoM) (AUG) |
0.2% |
0.3% |
Industrial production rose in July for just the second time in 4 months. |
|
GBP |
8:30 |
Industrial Production (YoY) (AUG) |
4.1% |
1.9% |
|
|
GBP |
8:30 |
Manufacturing Production (MoM) (AUG) |
0.2% |
0.3% |
Manufacturing production likely rose in August for a fourth month. |
|
GBP |
8:30 |
Manufacturing Production (YoY) (AUG) |
5.8% |
4.9% |
|
|
EUR |
10:00 |
German Industrial Production s.a. (MoM) (AUG) |
0.5% |
0.1% |
German industrial production rose annually in July for a 7th month. |
|
EUR |
10:00 |
German Industrial Production (YoY) (AUG) |
9.8% |
10.9% |
|
|
GBP |
11:00 |
Bank of England Interest Rate Decision |
0.50% |
0.50% |
Market swaps imply 4% chance of a rate hike at tomorrow’s meeting. |
|
GBP |
11:00 |
Bank of England Asset Purchase Target |
200B |
200B |
|
|
EUR |
11:45 |
European Central Bank Interest Rate Decision |
1.00% |
1.00% |
Market implies no chance of hike. |
|
CAD |
12:30 |
Building Permits (MoM) (AUG) |
-2.0% |
-3.3% |
Declined in 2 of past 3 months. |
|
USD |
12:30 |
Initial Jobless Claims (OCT 2) |
455K |
453K |
Initial claims last week were below 460K for a third week in September. |
|
USD |
12:30 |
Continuing Claims (SEP 25) |
4450K |
4457K |
|
|
USD |
14:30 |
ICSC Chain Store Sales (YoY) (SEP) |
2.9% |
3.2% |
Rose annually in last nine months. |
|
USD |
19:00 |
Consumer Credit (AUG) |
-$3.5B |
-$3.6B |
Credit fell in the last six months. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
EUR |
12:30 |
ECB President Jean-Claude Trichet Holds Press Conference |
|
USD |
17:20 |
Fed’s Richard Fisher Speaks on Economic Conditions |
|
USD |
17:30 |
Fed’s Thomas Hoenig 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 |
1.4200 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0000 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4000 |
1.5965 |
86.00 |
0.9950 |
1.0750 |
0.9850 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3935 |
1.5887 |
82.90 |
0.9611 |
1.0103 |
0.9765 |
0.7525 |
115.51 |
131.70 |
|
Support 1 |
1.3500 |
1.5500 |
83.00 |
0.9600 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3335 |
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 |
12.4710 |
1.4185 |
6.8618 |
7.7549 |
1.3072 |
Spot |
6.7041 |
5.3493 |
5.7699 |
|
Support 1 |
12.0500 |
1.4070 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
6.6150 |
5.3000 |
5.7030 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
6.4440 |
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 |
1.4043 |
1.5992 |
83.48 |
0.9718 |
1.0215 |
0.9848 |
0.7601 |
116.24 |
132.87 |
|
Resist 1 |
1.3989 |
1.5940 |
83.19 |
0.9664 |
1.0159 |
0.9807 |
0.7563 |
115.88 |
132.28 |
|
Pivot |
1.3894 |
1.5886 |
82.98 |
0.9632 |
1.0111 |
0.9750 |
0.7511 |
115.28 |
131.87 |
|
Support 1 |
1.3840 |
1.5834 |
82.69 |
0.9578 |
1.0055 |
0.9709 |
0.7473 |
114.92 |
131.28 |
|
Support 2 |
1.3745 |
1.5780 |
82.48 |
0.9546 |
1.0007 |
0.9652 |
0.7421 |
114.32 |
130.87 |
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 |
1.4131 |
1.6075 |
83.91 |
0.9743 |
1.0239 |
0.9913 |
0.7642 |
117.33 |
133.76 |
|
Resist. 2 |
1.4082 |
1.6028 |
83.65 |
0.9710 |
1.0205 |
0.9876 |
0.7613 |
116.87 |
133.25 |
|
Resist. 1 |
1.4033 |
1.5981 |
83.40 |
0.9677 |
1.0171 |
0.9839 |
0.7583 |
116.42 |
132.73 |
|
Spot |
1.3935 |
1.5887 |
82.90 |
0.9611 |
1.0103 |
0.9765 |
0.7525 |
115.51 |
131.70 |
|
Support 1 |
1.3837 |
1.5793 |
82.40 |
0.9545 |
1.0035 |
0.9691 |
0.7467 |
114.60 |
130.67 |
|
Support 2 |
1.3788 |
1.5746 |
82.15 |
0.9512 |
1.0001 |
0.9654 |
0.7437 |
114.15 |
130.15 |
|
Support 3 |
1.3739 |
1.5699 |
81.89 |
0.9479 |
0.9967 |
0.9617 |
0.7408 |
113.69 |
129.64 |
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
