• Dollar Pullback Encouraged by Follow Risk Appetite Rally, What should we Expect from NFPs?
  • Euro: A Divergence between EURUSD and EURCHF Shows there is Something Amiss Post-ECB
  • Canadian Dollar Surges ahead of its own Important Employment Data, US Jobs Figures
  • British Pound: The Sterling Plunges against High Yield and Safe Haven Currency Alike
  • Swiss Franc Advances after 3Q GDP Figures Meet Expectations, Boost Rate Speculation
  • Australian Dollar’s Reaction to Risk Trends Dampened by Poor Retail Sales Showing

Dollar Pullback Encouraged by Follow Risk Appetite Rally, What should we Expect from NFPs?

A single, daily correction can easily be written off as a necessary breather from a prominent trend; but back-to-back declines starts to look like the foundation for a reversal. The benchmark dollar put in for its second bearish performance Thursday; and the question of whether this current bearing is merely a temporary pullback or meaningful reversal has instantly become more difficult to answer. Between the currency’s two most prominent catalysts (the euro’s health and risk appetite trends), one would temper its influence while the other easily compensated.

Assessing the greenback’s bearings from here is largely a question of fundamental influence; but there is also a market-flows component to its intermediate behavior. Looking to the trade-weighted Dollar Index, it is worth noting that the serial declines mark the most aggressive decline since the currency bottomed after the Fed announced its second stimulus program back on November 4th. That said, the retracement to this point is only a fifth of the initial run up through November. Given pace and current standings, the absence of a firm catalyst could easily leave the dollar open to unwinding of long positions. Amongst the majors, we can see the greenback’s performance has progressed at different rates. USDCAD was without doubt the most dramatic performer – fitting given tomorrow’s event risk. From there, the high yield for the Australian dollar and direct contrast of the euro leveraged the currency. And, interestingly enough, GBPUSD, USDJPY and USDCHF have been far more reserved.

Collectively, the dollar has plenty of room to fall off; and this will be the market’s naturally inclination if the currency’s favored fundamental drivers don’t revive their support of safe haven flows. The most immediate disconnect for dollar buying has come via the break in fear of an escalating European financial crisis. The impact this has on sentiment is almost as influential as the natural flow of speculative capital out of European assets into the world’s most liquid markets. However, the euro’s troubles are not over – they have simply come to a temporary balance. From the ECB’s rate decision, there was little to really derive optimism from. On a relative basis and given expectations heading into the event, the central bank fell well short of stemming the bleeding. Another jolting develop from within Europe’s boarder can quickly revive EURUSD selling pressure (more on that below); but so too can general risk appetite trends return the focus to the region’s troubles.

It seems a chicken-and-the-egg situation between fear igniting European troubles and vice versa; but sentiment is open to many catalysts. With the S&P 500 just off a two-year high, there is a natural inclination for risk appetite to maintain its climb. It is against this proclivity that the upcoming NFPs will be judged against. If we were to assess the influence that this monthly jobs figure really has on the outlook for economic health and market stability, it ultimately carries little weight. It is a common belief that the US economy is recovering but at a slow clip. And, with many months of large net job increases before the economy is back up to speed; there is little to draw from this data. However, it is also a shared belief that this particular indicator is a major market mover. Therefore, traders will react. If the data comes out better than expected, it will likely fit the prevailing bullish trend nicely. Alternatively, a disappointment will struggle to do more than curb the advance.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: USDCAD and GBPAUD are New, Risky Possibilities

Euro: A Divergence between EURUSD and EURCHF Shows there is Something Amiss Post-ECB

Has Europe’s financial future immediately improved after the ECB rate decision Thursday? It would seem that way if were to just refer to EURUSD. However, there is an element of risk appetite that goes beyond the region’s fundamental situation. Looking at EURCHF, we can see the true disappointment in the results. With European governments struggling to smother crises in their individual economies and against the backdrop of a liberal Federal Reserve; traders expected the ECB to step up its support of the region. Instead, they simply expanded their existing liquidity program through the first quarter. This falls far short; but unclaimed government bond purchases may help in the background.

Canadian Dollar Surges ahead of its own Important Employment Data, US Jobs Figures

If we are looking for potential volatility through the final 12 hours of the trading, the best bet is with USDCAD. Not only is this pair obliged to respond to the US non-farm payrolls; but the Canadian employment statistics are due as well. For the greatest impact on this particular pair (and perhaps a break below parity), strong NFPs will stoke risk appetite (weigh the dollar) and strong Canadian figures will boost the loonie.

British Pound: The Sterling Plunges against High Yield and Safe Haven Currency Alike

It is hard to miss the disappointing performance of the sterling. It is reasonable to expect the drop against high yield currencies as risk appetite was the primary driver for the day and the European connection provided little support. That said, the currency dropped against the yen and even held against the dollar. We could say it was the construction data; but that would be reaching. There are long-term concerns here.

Swiss Franc Advances after 3Q GDP Figures Meet Expectations, Boost Rate Speculation

The franc has a natural catalyst in its financial connections to the euro: when savings flee European banks, it naturally heads towards Swiss accounts. However, this safe haven aspect aside, the currency actually far more comparable to a yield currency. While its rate is low now, expectations for rate hikes are rising quickly. Thursday’s strong 0.7 percent 3Q growth reading certainly helped this belief along.

Australian Dollar’s Reaction to Risk Trends Dampened by Poor Retail Sales Showing

Risk appetite was up Thursday and that certainly helped the major with the high yield. However, it is worth noting that the currency’s performance against the Canadian and New Zealand dollars are notable slack. Though the currency currently maintains the highest return; its outlook for further expansion on that yield differential is tempering with data like the biggest drop in retail sales since July of last year.

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ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

AUD

22:30

AiG Performance of Service Index (NOV)

50.7

Expanded for first time since April.

JPY

23:50

Loans & Discounts Corp (YoY) (OCT)

-4.0%

Fell annually in the last 11 months.

CNY

1:00

China PMI Non-Manufacturing (NOV)

60.5

Fell in Oct. for first time since June.

CHF

8:15

Consumer Price Index (MoM) (NOV)

0.10%

0.5%

Swiss inflation unexpectedly eased in October on a stronger franc.

CHF

8:15

Consumer Price Index (YoY) (NOV)

0.10%

0.2%

EUR

8:45

Italian PMI Services (NOV)

51.4

51.0

German services index increased in November to the highest level since August 2007.

EUR

8:50

French PMI Services (NOV F)

55.7

55.7

EUR

8:55

German PMI Services (NOV F)

58.6

58.6

EUR

9:00

Euro-Zone PMI Composite (NOV F)

55.4

55.4

Europe services, manufacturing beat expectations in October.

EUR

9:00

Euro-Zone PMI Services (NOV F)

55.2

55.2

GBP

9:30

Purchasing Manager Index Services (NOV)

53.2

53.2

At highest level since June.

GBP

9:30

Official Reserves (Changes) (NOV)

$657M

Positive reading in last 3 months.

EUR

10:00

Euro-Zone Retail Sales (MoM) (OCT)

0.20%

-0.1%

Retail sales unexpectedly declined for a second month in September.

EUR

10:00

Euro-Zone Retail Sales (YoY) (OCT)

1.00%

1.5%

CAD

12:00

Net Change in Employment (NOV)

19.8K

3.0K

Canadian employers added fewer jobs than economists predicted in October, as part-time work declined while full-time positions expanded.

CAD

12:00

Unemployment Rate (NOV)

7.9%

7.9%

CAD

12:00

Full Time Employment Change (NOV)

47.2

CAD

12:00

Part Time Employment Change (NOV)

-44.2

CAD

12:00

Participation Rate (NOV)

67.2

67.2

USD

13:30

Change in Non-Farm Payrolls (NOV)

150K

151K

Payrolls increased in 41 U.S. states in October, led by Texas and New York, indicating the labor market is stabilizing.

USD

13:30

Unemployment Rate (NOV)

9.6%

9.6%

USD

13:30

Change in Private Payrolls (NOV)

158K

159K

USD

13:30

Change in Manufacturing Payrolls (NOV)

5K

-7K

USD

13:30

Average Hourly Earnings (MoM) (NOV)

0.2%

0.2%

U.S. average hourly earnings increased in October for a fourth consecutive month.

USD

13:30

Average Hourly Earnings(YoY) (NOV)

1.7%

1.7%

USD

13:30

Average Weekly Hours (NOV)

34.3

34.3

USD

15:00

ISM Non-Manufacturing Composite (NOV)

54.8

54.3

Likely rose to highest since May.

USD

15:00

Factory Orders (OCT)

-1.2%

2.1%

Likely fell for first time since June.

Currency

GMT

Upcoming Events & Speeches

EUR

9:00

ECB’s Ewald Nowotny Speaks on Euro-Zone 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

1.3840

1.6420

89.00

1.0460

1.0922

1.0600

0.8230

127.60

146.05

Resist 1

1.3700

1.5650

86.00

1.0000

1.0750

1.0200

0.8000

120.00

140.00

Spot

1.3217

1.5587

83.88

0.9935

1.0039

0.9758

0.7548

110.86

130.74

Support 1

1.3000

1.5500

80.00

0.9500

0.9950

0.9600

0.6850

103.80

125.00

Support 2

1.2925

1.5300

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

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

12.3268

1.4845

6.8794

7.7662

1.3062

Spot

6.9045

5.6382

6.0793

Support 1

12.0500

1.3665

6.6950

7.7490

1.2750

Support 1

6.4500

5.2625

5.7030

Support 2

11.7200

1.3475

6.4300

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

1.3362

1.5745

84.78

1.0126

1.0248

0.9875

0.7631

111.88

132.47

Resist 1

1.3289

1.5666

84.33

1.0031

1.0143

0.9816

0.7589

111.37

131.61

Pivot

1.3175

1.5589

83.91

0.9959

1.0086

0.9721

0.7523

110.68

130.90

Support 1

1.3102

1.5510

83.46

0.9864

0.9981

0.9662

0.7481

110.17

130.04

Support 2

1.2988

1.5433

83.04

0.9792

0.9924

0.9567

0.7415

109.48

129.33

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

1.3411

1.5771

84.85

1.0056

1.0153

0.9906

0.7665

112.60

132.72

Resist. 2

1.3363

1.5725

84.61

1.0026

1.0125

0.9869

0.7635

112.17

132.23

Resist. 1

1.3314

1.5679

84.37

0.9996

1.0096

0.9832

0.7606

111.73

131.73

Spot

1.3217

1.5587

83.88

0.9935

1.0039

0.9758

0.7548

110.86

130.74

Support 1

1.3120

1.5495

83.39

0.9874

0.9982

0.9684

0.7490

109.99

129.75

Support 2

1.3071

1.5449

83.15

0.9844

0.9953

0.9647

0.7461

109.55

129.25

Support 3

1.3023

1.5403

82.91

0.9814

0.9925

0.9610

0.7431

109.12

128.76

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