- Dollar Marks a Delayed Slide to Yearly Lows after a Strong Risk Response to 3Q Earnings
- British Pound Offsets Drop in Employment and Confidence with BoE Sentance’s Hawkish Commentary
- Euro Climbs as Investor Optimism Veils ECB Nowotny’s Support of Maintaining Stimulus
- New Zealand Dollar Outlook Dims after Home Sales, Retail Sales and Business Activity Disappoint
- Canadian Dollar Traders will Weigh in on Importance of Trade Data
- Japanese Yen: Policy Officials Callout Currency Manipulators while they Maintain Intervention Threat
Dollar Marks a Delayed Slide to Yearly Lows after a Strong Risk Response to 3Q Earnings
The dollar would hold out well through the European and US trading hours Wednesday. While one of the benchmark currency’s arch-nemeses, risk appetite, was advancing; the greenback itself was making a valiant effort to hold the floor on its own eight-month lows. However, after the close of the official New York trading session; we saw its defenses start to give. For some of its liquid pairings, the bottom had already dropped out. AUDUSD had pushed above 0.99 and marked another modern historical high; while USDCAD made the move below channel support and on towards parity. And yet, the ‘core’ pairs would wait until the thin liquidity of Thursday’s Asian session before they made their move backed by the cumulative fundamental and speculative pressure through the previous 48 hours. USDJPY would eventually take out the weakly-formed 81.70 base it had formed; while USDCHF moved on to record lows. Yet, it was EURUSD’s push through 1.40 that would really mar the greenback’s performance. The gravitas this pair maintains would subsequently drag the dollar index to its lowest level of the year.
Given this unusual development for the dollar, there was clearly some interesting fundamental intent at work in the background. Considering the ultimate progress made fits within a trend that has been in place for the past month, it is fair to assume that momentum played a dominant role in this price action. The source of this momentum is speculation itself. The outlook for additional stimulus from the Fed is still the most accessible selling point for the dollar. After the muted reaction to the FOMC’s decidedly dovish lean through the minutes of its September meeting minutes Tuesday afternoon; there was an uncomfortable air around the greenback. This stability would prove even more unnerving when equities and other risk-based assets would start to climb on the promise of the temporary capital gains that usually follow a heavy-handed capital injection by a deep-pocketed government. Through the Asian session, speculative confidence would accelerate as the BoJ Governor suggested a bond purchase program may have to be adopted and China reported its new loans grew by 595.5 billion yuan while total imports rose to a record high. The update from the later economic powerhouse introduced a component of dollar selling that has faded recently: risk appetite. However, the pure appetite for return may play a greater role in the greenback’s performance (displacing stimulus speculation) in the near future. The reason for this shift in priorities: the market has made a significant effort to price in the effects of an expansion of monetary policy and we are now entering the third quarter earnings season. The first inklings of performance appear promising. Blue chip Intel set its 4Q revenue forecast at $11.0 to $11.8 billion (above forecasts) on foreign orders; while JPMorgan reported a 3Q profit increase of 23 percent.
Earnings will be a natural source of fuel for speculators. Though the outlook for economic activity is deteriorating (why else would policy officials hold to their expansionary quest) and yields are even further behind the growth curve; positive earnings whets the appetite for dividends and capital gains. And, the obvious disconnect between revenues and a lack of demand doesn’t concern those with a short attention span. Before the next US session open, we will see the Google figures. Most of the banks are grouped for release next week.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD and GBPUSD Slow to Response, Aussie Crosses Enticing
British Pound Offsets Drop in Employment and Confidence with BoE Sentance’s Hawkish Commentary
Once again the British pound is one of the most interesting performers on the day. With the dollar breaking down across the board, we have seen AUDUSD make a drive towards parity and EURUSD a push to eight-month lows. However, GBPUSD has delayed its participation and held 1.60. Clearly, this isn’t a dynamic of the dollar. Instead the pound itself is struggling with the threat of its own policy group expanding its stimulus program and devaluing the currency. BoE Monetary Policy Committee member Andrew Sentence kept up the dissenter vote in his address with warnings of engrained inflation. Yet, the novelty of his minority counsel is certainly wearing thin. Instead, his fellow policymaker’s (Tucker) ambivalence opens us to concerning data. Along with the 18-month low in consumer confidence, September jobless claims would report their second consecutive increase. Will high inflation and deteriorating growth tie the BoE’s hands or will they get creative? Probably the latter.
Euro Climbs as Investor Optimism Veils ECB Nowotny’s Support of Maintaining Stimulus
The market always finds some level balance – even if it takes time. The equilibrium to ECB member Weber’s exceptionally hawkish call for an immediate unwinding of bond purchases yesterday was central banker Nowotny’s rebuttal that the unorthodox policy should be kept as a “safety belt.” In the meantime, the market is happy to ignore a 15-month high in euro Libor rates as liquidity drains and public strikes in France.
New Zealand Dollar Outlook Dims after Home Sales, Retail Sales and Business Activity Disappoint
For scheduled event risk, the New Zealand dollar would offer top billing Thursday morning. The round of monthly indicators was a perfect reflection of economic health – it just wasn’t a promising reflection. August retail sales were unchanged, home sales fell at the fastest pace in nearly two years through September and business activity fell to a 13-year low. That interest rate forecast doesn’t look too bright.
Canadian Dollar Traders will Weigh in on Importance of Trade Data
Speaking of diminished interest rate forecasts, we still see the Canadian dollar living the life of a high-yield currency. The anemic 30 basis points of cumulative rate potential over the coming 12 months will be regurgitated in Thursday’s North American session with the nation’s August trade figures. With the previous reading showing a record deficit; traders may be reminded that the connections to the US go both ways.
Japanese Yen: Policy Officials Callout Currency Manipulators while they Maintain Intervention Threat
In an instance of the pot calling the kettle black, Japanese Prime Minister Kan voiced his displeasure with South Korea’s efforts to keep the won from appreciating. That said, Japanese policy officials continue to sound the warning they will fight the yen’s appreciation with intervention whenever it is necessary. So far, their efforts have brought little more than embarrassment; but they may yet exhaust speculative interests.
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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 |
Retail Sales (MoM) (AUG) |
0.3% |
-0.4% |
N.Z. retail sales fell in July for the first time in three months. |
|
NZD |
21:45 |
Retail Sales Ex-Auto (MoM) (AUG) |
0.2% |
-0.1% |
|
|
NZD |
22:30 |
Business NZ PMI (SEP) |
49.3 |
At lowest level since August 2009. |
|
|
JPY |
23:50 |
Domestic Corporate Goods Price Index (MoM) (SEP) |
0.0% |
0.0% |
Index was unchanged in June after rising annually in the prior 9 months. |
|
JPY |
23:50 |
Domestic Corporate Goods Price Index (YoY) (SEP) |
0.0% |
0.0% |
|
|
AUD |
0:00 |
Consumer Inflation Expectation (OCT) |
3.1% |
Expectation rose slightly in Sept. |
|
|
JPY |
4:00 |
Tokyo Condominium Sales (YoY) (SEP) |
18.5% |
Rose annually in last seven months. |
|
|
JPY |
6:00 |
Machine Tool Orders (YoY) (SEP F) |
112.9% |
Rose annually in last ten months. |
|
|
CAD |
12:30 |
International Merchandise Trade (C$) (AUG) |
-2.3B |
-2.7B |
July trade gap widened to a record. |
|
USD |
12:30 |
Trade Balance (AUG) |
-$44.0B |
-$42.8B |
July trade gap shrank by nearly $7B. |
|
USD |
12:30 |
Producer Price Index (MoM) (SEP) |
0.1% |
0.4% |
U.S. producer prices rose in August for a second month, indicating demand is strong enough to prevent deflation. |
|
USD |
12:30 |
Producer Price Index (YoY) (SEP) |
3.7% |
3.1% |
|
|
USD |
12:30 |
PPI Ex Food & Energy (MoM) (SEP) |
0.1% |
0.1% |
|
|
USD |
12:30 |
PPI Ex Food & Energy (YoY) (SEP) |
1.5% |
1.3% |
|
|
USD |
12:30 |
Initial Jobless Claims (OCT 9) |
445K |
445K |
Jobless claims in U.S. fell to a three-month low in week ended Oct. 2. |
|
USD |
12:30 |
Continuing Claims (OCT 2) |
4450K |
4462K |
|
|
USD |
15:00 |
DOE U.S. Crude Oil Inventories (OCT 8) |
3088K |
Crude refinery inputs averaged 14.2 mil barrels per day last week, 515K barrels below prior week’s average. |
|
|
USD |
15:00 |
DOE U.S. Gasoline Inventories (OCT 8) |
-2646K |
||
|
USD |
15:00 |
DOE U.S. Distillate Inventory (OCT 8) |
-1124K |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
23:45 |
Fed’s Jeffrey Lacker Speaks on Economy |
|
EUR |
7:00 |
ECB’s Lorenzo Bini Smaghi Speaking as Aspen Institute Conference |
|
EUR |
8:00 |
European Central Bank Monthly Report |
|
EUR |
9:00 |
German Economic Institutes Release Bi-annual Group Forecasts |
|
EUR |
10:00 |
ECB’s Axel Weber Speaks on Fiscal Policy |
|
JPY |
15:00 |
Bank of Japan Holds Quarterly Branch Managers’ Meeting |
|
USD |
21:00 |
Fed’s Narayana Kocherlakota Speaks on Monetary Policy |
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 |
0.9900 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3959 |
1.5890 |
81.78 |
0.9591 |
1.0041 |
0.9914 |
0.7612 |
114.15 |
129.94 |
|
Support 1 |
1.3500 |
1.5500 |
80.00 |
0.9550 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3335 |
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 |
12.3637 |
1.4081 |
6.8088 |
7.7603 |
1.3022 |
Spot |
6.6288 |
5.3422 |
5.7884 |
|
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 |
1.4046 |
1.5992 |
82.16 |
0.9690 |
1.0148 |
0.9998 |
0.7685 |
115.14 |
130.87 |
|
Resist 1 |
1.4003 |
1.5941 |
81.97 |
0.9640 |
1.0094 |
0.9956 |
0.7648 |
114.65 |
130.41 |
|
Pivot |
1.3957 |
1.5858 |
81.82 |
0.9593 |
1.0053 |
0.9895 |
0.7597 |
114.19 |
129.71 |
|
Support 1 |
1.3914 |
1.5807 |
81.63 |
0.9543 |
0.9999 |
0.9853 |
0.7560 |
113.70 |
129.25 |
|
Support 2 |
1.3868 |
1.5724 |
81.48 |
0.9496 |
0.9958 |
0.9792 |
0.7509 |
113.24 |
128.55 |
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 |
1.4150 |
1.6074 |
82.81 |
0.9716 |
1.0170 |
1.0061 |
0.7727 |
115.86 |
131.89 |
|
Resist. 2 |
1.4102 |
1.6028 |
82.55 |
0.9685 |
1.0138 |
1.0024 |
0.7698 |
115.43 |
131.40 |
|
Resist. 1 |
1.4055 |
1.5982 |
82.30 |
0.9654 |
1.0105 |
0.9988 |
0.7669 |
115.00 |
130.92 |
|
Spot |
1.3959 |
1.5890 |
81.78 |
0.9591 |
1.0041 |
0.9914 |
0.7612 |
114.15 |
129.94 |
|
Support 1 |
1.3863 |
1.5798 |
81.26 |
0.9528 |
0.9977 |
0.9840 |
0.7555 |
113.30 |
128.96 |
|
Support 2 |
1.3816 |
1.5752 |
81.01 |
0.9497 |
0.9944 |
0.9804 |
0.7526 |
112.87 |
128.48 |
|
Support 3 |
1.3768 |
1.5706 |
80.75 |
0.9466 |
0.9912 |
0.9767 |
0.7497 |
112.44 |
127.99 |
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
