- Dollar Plummets Against the Euro, Will Friday’s Wave of Data Alter its Course?
- Euro Traders Overwhelmed as EU Vows Comprehensive Effort, ECB Talks Inflation
- British Pound Draws Strength from the Euro as its Own BoE Remains Mum
- Canadian Dollar Shows Little Reaction to Trade Figures, Looking ahead to the BoC
- Japanese Yen: Is it a Coincidence that the Yen is Falling While China is Selling JGBs?
- Australian Dollar: Cooler Growth Doesn’t Necessarily Mean Lower Yields
Dollar Plummets Against the Euro, Will Friday’s Wave of Data Alter its Course?
And, here we thought Wednesday’s dollar selling effort was aggressive. The past 24 hours, however, have seen an acceleration of the currency’s tumble with the trade-weighted index sliding 1.04 percent – just slightly more aggressive than the 1.01 percent tumble the previous day. For this supposedly unbiased measure of dollar strength (not reflecting the prejudices of any of its counterparts), the decline was the worst we have seen in six weeks. In fact, this string of losses is similar to the string of declines through December 3rd – and that run notably ended with its most aggressive dive. When we look across the benchmark currency’s most liquid pairs, we can see the stain of bearishness quite clearly; but it should also be noted that not all the majors are reflecting the same force that the Index would denote.
Breaking down the components of the Dollar Index, EURUSD accounts for approximately 60 percent of total composite. With that in mind, we saw this benchmark pair post a massive 1.8 percent rally – its biggest run since July 1st. Elsewhere, the selling momentum behind the greenback was more restrained. This is strong evidence that the source of the dollar’s weakness can be traced back to a fundamental development for this particular pair. That makes sense when we consider the pound was the next best anti-dollar performer over the past week as the UK economy shares in the fortunes of its European sister. At the same time, we would see the mixed safe haven currency pairs (USDCHF and USDJPY) move little. Alternatively, the high-yielding pairs (AUDUSD and NZDUSD) are much more reserved in their respective climbs. This seems to fit nicely with the carry theme as it relates to risk appetite trends. For sentiment, we note that the benchmark S&P 500 was actually lower on the day. So, while the Dollar Index is technically the closest thing to a true representation to the greenback itself; it still reflects outside forces.
Having identified the primary source of the dollar’s disappointing performance for the day, we can identify the fundamental catalyst to its direction and momentum. With the liquidity between the Euro Zone and US economies, the two are often pitted against each other. In this relationship, we can look to the euro’s remarkable strength over the past few active sessions. Starting with unofficial support of the region’s finances (the ECB, China, Japan), moving on to relief from a risky bond auction and then talk of a potential rescue plan that aspires beyond the EFSF. The dollar has gained considerable ground on the weakness of this shared currency. This is what happens when its future stabilizes.
Moving forward, the health of the dollar’s primary counterpart will continue to have a meaningful influence on its own bearings; but the surprises are likely spent for the immediate future. This could leave the greenback open to its own fundamental developments. On the docket over the final 24 hours of trade, we will take a close look at the US consumer (in the University of Michigan consumer sentiment gauge and retail sales report) and the existence of any hawkish pressure on the Fed (via the CPI data). If a bounce is in store, this data could supply the needed push.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD may Offer a Highly Speculative Opportunity
Euro Traders Overwhelmed as EU Vows Comprehensive Effort, ECB Talks Inflation
The forecast for the euro is quickly starting to improve. While the currency is far from presenting itself as a robust fundamental player of a high-yield carry trade; a lot of the active threat that has driven the currency lower in the preceding six months has started to evaporate. This past week, we have seen a remarkably cooperative effort to boost the perception of health for the collective economy and currency. Having started with ad hoc and somewhat clumsy efforts to stem a crisis such as having the ECB buy up significant amounts of sovereign debt from periphery EU members and voice confidence in an adequate bond sales; we have seen policy officials graduate to the next level. Wednesday, we heard that policymakers would start to discuss a “comprehensive†effort (increase the EFSF, extend guarantees, lower yield costs, open a credit line to Portugal); and yesterday rumors were made tangible by the German Finance Ministers suggestion something would be ready by March. More bullish was today’s ECB decision. In the absence of policy changes, Trichet clearly noted concern of near-term inflation. Rate hike fodder.
British Pound Draws Strength from the Euro as its Own BoE Remains Mum
Neither the ECB nor the BoE rate decisions were expected to result in anything material. And, while the former garnered significant interest; the latter lived up to expectations. Without a change in rates or the bond program, the central bank held to tradition and did not release a statement. However, with distinct ties to the EU and knowledge of inflation above tolerance levels; traders saw relative strength in the currency.
Canadian Dollar Shows Little Reaction to Trade Figures, Looking ahead to the BoC
For the Canadian economy, trade is a vital source of performance. That would seem to suggest that the C$100 million deficit – the smallest in seven months – would put the currency on a much stronger footing. Yet, that is not the case. With much of the improvement in trade coming via Europe, traders decided to overlook the data. They will not likely be so flippant with next week’s BoC rate decision however.
Japanese Yen: Is it a Coincidence that the Yen is Falling While China is Selling JGBs?
We have said it before; and we will continue to say it: the Japanese yen rarely react to the performance of particular pieces of domestic, scheduled event risk. That said, capital flows are extremely important here. Carry flows were limited today despite the FX volatility; but there was an interesting report that China sold 81.3 billion yen worth of Japanese government bonds in November. A large source of capital is escaping.
Australian Dollar: Cooler Growth Doesn’t Necessarily Mean Lower Yields
Reviewing the fundamental development of the past months, we have seen growth-based data start to deteriorate; while the recent flood has really thrown the economy into disarray. This is a complimentary concern to the threat of a risk appetite correction to pull the Aussie down from multi-decade highs. However, these trials will not undermine the currency’s carry appeal. Yields will hold and carry’s buoyancy will return.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
23:50 |
Domestic Corporate Goods Price Index (MoM) (DEC) |
0.2% |
0.1% |
Japanese CGPI increased for a second month in November. |
|
JPY |
23:50 |
Domestic Corporate Goods Price Index (YoY) (DEC) |
1.0% |
0.9% |
|
|
JPY |
23:50 |
Japan Buying Foreign Bonds (Yen) (JAN 7) |
588.0B |
Japanese investors were net buyers of foreign securities during the last week of 2010, purchasing 588 billion yen in overseas bonds and notes and 12.7 billion yen in overseas stocks. |
|
|
JPY |
23:50 |
Japan Buying Foreign Stocks (Yen) (JAN 7) |
12.7B |
||
|
JPY |
23:50 |
Foreign Buying Japan Bonds (Yen) (JAN 7) |
-185.1B |
||
|
JPY |
23:50 |
Foreign Buying Japan Stocks (Yen) (JAN 7) |
23.5B |
||
|
EUR |
7:00 |
German Consumer Price Index (MoM) (DEC F) |
1.0% |
1.0% |
German inflation unexpectedly accelerated in December, rising 1.9% annually from 1.6% in November as strong economic growth in Germany continued. |
|
EUR |
7:00 |
German Consumer Price Index (YoY) (DEC F) |
1.7% |
1.7% |
|
|
EUR |
7:00 |
German Consumer Price Index – EU Harmonised (MoM) (DEC F) |
1.2% |
1.2% |
|
|
EUR |
7:00 |
German Consumer Price Index – EU Harmonised (YoY) (DEC F) |
1.9% |
1.9% |
|
|
EUR |
7:00 |
EU 25 New Car Registrations (DEC) |
-7.1% |
Declined YoY in the last eight months. |
|
|
CHF |
8:15 |
Producer & Import Prices (MoM) (DEC) |
0.1% |
-0.2% |
Swiss import prices likely rose in December following 3-month decline. |
|
CHF |
8:15 |
Producer & Import Prices (YoY) (DEC) |
0.1% |
0.1% |
|
|
EUR |
9:00 |
Italian Trade Balance (Total) (euros) (NOV) |
-2007M |
Italy posted a trade deficit in October for a ninth month of 2010. |
|
|
EUR |
9:00 |
Italian Trade Balance EU (euros) (NOV) |
-1004M |
||
|
GBP |
9:30 |
Producer Price Index Input n.s.a. (MoM) (DEC) |
1.7% |
0.9% |
U.K. raw material costs rose in November for a third month by more than economists forecast, driven by higher prices for oil, energy products, and imported goods. |
|
GBP |
9:30 |
Producer Price Index Input n.s.a. (YoY) (DEC) |
10.2% |
9.0% |
|
|
GBP |
9:30 |
Producer Price Index Output n.s.a. (MoM) (DEC) |
0.4% |
0.3% |
|
|
GBP |
9:30 |
Producer Price Index Output n.s.a. (YoY) (DEC) |
3.9% |
3.9% |
|
|
GBP |
9:30 |
Producer Price Index Output Core n.s.a. (MoM) (DEC) |
0.3% |
0.2% |
|
|
GBP |
9:30 |
Producer Price Index Output Core n.s.a. (YoY) (DEC) |
3.0% |
3.3% |
|
|
EUR |
10:00 |
Euro-Zone Consumer Price Index (MoM) (DEC) |
0.6% |
0.1% |
European prices accelerated more than economists expected in Dec. on energy prices, topping the ECB’s limit for the first time in 2 years. |
|
EUR |
10:00 |
Euro-Zone Consumer Price Index (YoY) (DEC) |
2.2% |
2.2% |
|
|
EUR |
10:00 |
Euro-Zone Consumer Price Index – Core (YoY) (DEC) |
1.1% |
1.1% |
|
|
EUR |
10:00 |
Euro-Zone Trade Balance s.a. (euros) (NOV) |
1.7B |
3.6B |
European exports declined in October on a stronger euro currency. |
|
EUR |
10:00 |
Euro-Zone Trade Balance (euros) (NOV) |
3.3B |
5.2B |
|
|
EUR |
10:00 |
Italian Consumer Price Index – EU Harmonized (MoM) (DEC F) |
0.3% |
0.3% |
Italian consumer prices increased for a fourth time in five months in December, as transportation costs rose 1.4%. |
|
EUR |
10:00 |
Italian Consumer Price Index – EU Harmonized (YoY) (DEC F) |
2.0% |
2.0% |
|
|
USD |
13:30 |
Consumer Price Index (MoM) (DEC) |
0.4% |
0.1% |
The cost of living in the U.S. rose less than forecast in November, indicating that higher prices for commodities such as food and fuel were not filtering through into the prices of other goods and services. |
|
USD |
13:30 |
Consumer Price Index (YoY) (DEC) |
1.3% |
1.1% |
|
|
USD |
13:30 |
Consumer Price Index Ex Food & Energy (MoM) (DEC) |
0.1% |
0.1% |
|
|
USD |
13:30 |
Consumer Price Index Ex Food & Energy (YoY) (DEC) |
0.8% |
0.8% |
|
|
USD |
13:30 |
Consumer Price Index Core Index s.a. (DEC) |
222.200 |
221.982 |
|
|
USD |
13:30 |
Consumer Price Index n.s.a. (DEC) |
219.100 |
218.803 |
|
|
USD |
13:30 |
Advance Retail Sales (DEC) |
0.8% |
0.8% |
Retail sales rose more than forecast in November and optimism among small businesses rose to a 3-year high. |
|
USD |
13:30 |
Advance Retail Sales Less Autos (DEC) |
0.7% |
1.2% |
|
|
USD |
13:30 |
Advance Retail Sales Less Autos & Gas (DEC) |
0.3% |
0.8% |
|
|
USD |
14:15 |
Industrial Production (DEC) |
0.5% |
0.4% |
U.S. industrial production rose in November for an 8th time in 9 months. |
|
USD |
14:15 |
Capacity Utilization (DEC) |
75.6% |
75.2% |
|
|
USD |
14:55 |
U. of Michigan Confidence (JAN P) |
75.5 |
74.5 |
Likely rose to a 7-month high in Jan. |
|
USD |
15:00 |
Business Inventories (NOV) |
0.7% |
0.7% |
Inventories rose in the last 10 months. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|||
|
EUR |
23:00 |
Bank of Spain Publishes Report on ECB Borrowing |
|||
|
USD |
17:45 |
Fed’s Jeffrey Lacker Speaks on U.S. Economic Outlook |
|||
|
USD |
18:15 |
Fed’s Eric Rosengren Speaks on U.S. 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 |
1.3615 |
1.6420 |
89.00 |
1.0000 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3400 |
1.5910 |
86.00 |
0.9775 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3351 |
1.5826 |
82.80 |
0.9646 |
0.9894 |
0.9959 |
0.7693 |
110.54 |
131.03 |
|
Support 1 |
1.2900 |
1.5312 |
80.00 |
0.9300 |
0.9800 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2585 |
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 |
14.4500 |
1.6755 |
7.1750 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
13.8500 |
1.5931 |
6.8900 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.1387 |
1.5489 |
6.8344 |
7.7736 |
1.2856 |
Spot |
6.7116 |
5.5796 |
5.8746 |
|
Support 1 |
12.0500 |
1.4724 |
6.4000 |
7.7490 |
1.2750 |
Support 1 |
6.4500 |
5.2625 |
5.7030 |
|
Support 2 |
11.7200 |
1.3475 |
5.9200 |
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 |
1.3568 |
1.5975 |
83.43 |
0.9825 |
0.9941 |
1.0064 |
0.7764 |
111.96 |
131.92 |
|
Resist 1 |
1.3460 |
1.5900 |
83.12 |
0.9736 |
0.9918 |
1.0012 |
0.7729 |
111.25 |
131.47 |
|
Pivot |
1.3274 |
1.5810 |
82.83 |
0.9674 |
0.9886 |
0.9967 |
0.7669 |
109.97 |
130.99 |
|
Support 1 |
1.3166 |
1.5735 |
82.52 |
0.9585 |
0.9863 |
0.9915 |
0.7634 |
109.26 |
130.54 |
|
Support 2 |
1.2980 |
1.5645 |
82.23 |
0.9523 |
0.9831 |
0.9870 |
0.7574 |
107.98 |
130.06 |
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 |
1.3533 |
1.5999 |
83.73 |
0.9767 |
0.9995 |
1.0093 |
0.7799 |
112.04 |
132.73 |
|
Resist. 2 |
1.3488 |
1.5956 |
83.50 |
0.9737 |
0.9970 |
1.0059 |
0.7772 |
111.67 |
132.30 |
|
Resist. 1 |
1.3442 |
1.5912 |
83.27 |
0.9707 |
0.9945 |
1.0026 |
0.7746 |
111.29 |
131.88 |
|
Spot |
1.3351 |
1.5826 |
82.80 |
0.9646 |
0.9894 |
0.9959 |
0.7693 |
110.54 |
131.03 |
|
Support 1 |
1.3260 |
1.5740 |
82.33 |
0.9585 |
0.9843 |
0.9892 |
0.7640 |
109.79 |
130.18 |
|
Support 2 |
1.3214 |
1.5696 |
82.10 |
0.9555 |
0.9818 |
0.9859 |
0.7614 |
109.41 |
129.76 |
|
Support 3 |
1.3169 |
1.5653 |
81.87 |
0.9525 |
0.9793 |
0.9825 |
0.7587 |
109.04 |
129.33 |
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
