• Dollar Rally to Eight Month High on European Fears and Korean Troubles May be Soon to Stall
  • Euro Traders Show Little Relief in Irish Bailout as Fear of Contagion Spreads to Spain
  • British Pound Suffers a Critical Break against the Dollar as GDP Revisions Come into View
  • Canadian Dollar Suffers Against Safe Havens, Rallies Against Fellow Risky Currencies
  • Japanese Yen Charges Volatility against the Dollar but Direction Still Lacking
  • New Zealand Dollar Finds Confirmation from Moody’s but Doubt from the Market

Dollar Rally to Eight Month High on European Fears and Korean Troubles May be Soon to Stall

Traditionally, major trends do not develop before speculative liquidity is scheduled to evaporate or before the release of major event risk. This is a custom that is typically observed by traders who are more interested in self-preservation rather than breaking any unspoken decorum. The risk that a serious reversal in risk could send positions hurtling against them or a drop in speculative participation warps volatility is usually enough to keep market participants on the fence. Yet, we can see that the market isn’t falling back to these habits with risk aversion picking up its pace. Though we are less than 24 hours away from the US market packing it up for extended holiday weekend, we have seen benchmark assets mark critical breaks across the board. From the FX market, this drive is well-reflected in the performance of the US dollar. The trade-weighted Dollar Index rallied 1.3 percent – its best performance since October 19th – to an eight-week high. The same meaningful performance was reproduced in EURUSD’s dive below 1.35, GBPUSD’s break of a multi-month rising trend channel and reversal progress for AUDUSD and NZDUSD. For a more rudimentary gauge of risk appetite, it is worth noting that both the S&P 500 and Dow Jones Industrial Average produced their biggest declines in a week and threatened bigger reversals. That said, both indexes have held up critical support levels (1,175 and 11,000 respectively) that could prevent the adoption of a larger trend in risk aversion. It will be important to watch these levels tomorrow.

For fundamental activity Tuesday; the dollar and broader financial markets were once again deferring to the bigger themes rather than any specific event risk. Carrying over its influence from the previous session, risk appetite was once again the primary driver for the day. For lasting influence, European financial concerns were once against crowding out headlines. A figure was agreed upon for Ireland’s bailout; but clearly, the investment community’s fears run deeper than just this one EU member. With a second country being forced to seek aid by the market; a big step has been taken so that a once-isolated threat with Greece’s troubles now has a regional tone. Officials are now struggling to stem the bleeding, which first sending investment capital from Europe to the US (among other destinations) and the threat of crisis is depressing sentiment globally. On the one hand, this has the sense of being a natural loss of confidence which is leading to the critical drain on liquidity; but the speculative effort is growing at the same time. Short positions on European government debt is lamented for its very real-world financial and economic impact; but passing regulation on this point is not something that would be easy. And, though it is not needed, geopolitical tensions have further supplemented the threat of financial instability. With South and North Korea trading fire early Tuesday, economic and political ties threaten to drag the US and China into a very messy situation. It is very likely that officials will try to force a clean resolution to this situation; but it is best to keep on our toes.

Moving from the thematic fundamental concerns to concerns that are a little more tangible; the FOMC minutes was just one highlight on a stocked economic docket. As expected, there was a discord on the future of policy amongst Governors; but more interesting was the increase on the 2011 jobless forecast (8.9 to 9.1 percent) and negative revision on the GDP outlook (3.0 to 3.6 percent). This gives a better benchmark than the GDP and existing home sales updates on the day. Tomorrow’s round of data is dense but questionable for actual market-moving impact.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Taking Profit on EURUSD and GBPJPY, Trade Opportunities Balloon

Euro Traders Show Little Relief in Irish Bailout as Fear of Contagion Spreads to Spain

There was a range of notable, scheduled event risk on the euro’s docket Tuesday including the second reading of German 3Q GDP (revised higher, Euro Zone PMI figures (rose for the first time in four months) and German GfK consumer confidence (hitting a three-year high). However, this data only furthers concerns over the disparity between the region’s best performers (Germany) and its worst performers. The EU and IMF sketched an 85 billion euro rescue figure for the ailing member; but Standard & Poor’s downgrade was more representative of the market’s assessment. It is very concerning to see Greece fear it won’t get an extension on repaying its loans and Spanish yields hitting record highs.

British Pound Suffers a Critical Break against the Dollar as GDP Revisions Come into View

The British pound has performed well against the euro. However, against the dollar and yen, we see the currency align itself in the risk scheme. With heavy exposure to Ireland, the UK is leveraging the weight already set by its own austerity measures. In the event that these broader concerns ease up; scheduled event risk could once again weigh in. Revisions to the 3Q GDP figures can carry notable surprises.

Canadian Dollar Suffers Against Safe Havens, Rallies Against Fellow Risky Currencies

Though policy officials and data have worked hard to play down the Canadian dollar’s association to high-yield currency; it nonetheless plays the part of a risky currency. So, whereas the Canadian dollar would find strength against fellow risky currencies on a 0.6 percent rise in retail sales and 2.4 percent clip on CPI; it once again stumbled against the dollar and yen as risk trends swept over the market.

Japanese Yen Charges Volatility against the Dollar but Direction Still Lacking

We have defined the argument against the Japanese yen and dollar playing the role of safe haven. However, in a market where all value and market functions are relative; a plunge in risk appetite is going to override stimulus efforts by the BoJ and troubled credit markets. That said, USDJPY has held off from marking a clear path. Watch this pair specifically to see which currency holds the rank of key safe haven.

New Zealand Dollar Finds Confirmation from Moody’s but Doubt from the Market

The New Zealand was one of the biggest losers through Tuesday thanks to the combination of the sovereign downgrade and the general deterioration in risk trends. However, without follow through on these larger trends, follow through on individual assets like NZDUSD will stall. Aside from the S&P 500 holding its ground (for now), we saw Moody’s respond to ratings questions by saying the country was “relatively strong.”

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ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

EUR

9:00

German IFO – Business Climate (NOV)

107.5

107.6

German business confidence unexpectedly climbed in October to the highest level in over three years.

EUR

9:00

German IFO – Expectations (NOV)

104.7

105.1

EUR

9:00

German IFO – Current Assessment (NOV)

110.4

110.2

EUR

9:00

Italian Retail Sales s.a. (MoM) (SEP)

0.1%

0.0%

Italian retail sales were unchanged in August after a two-month rise.

EUR

9:00

Italian Retail Sales (YoY) (SEP)

0.7%

0.3%

GBP

9:30

Total Business Investment (QoQ) (3Q P)

0.8%

0.7%

Total U.K. business investment likely rose for a third quarter.

GBP

9:30

Total Business Investment (YoY) (3Q P)

5.6%

1.9%

GBP

9:30

Gross Domestic Product (QoQ) (3Q P)

0.8%

0.8%

Britain’s economy grew at double the pace expected by economists during 3Q as services and construction helped boost the economic recovery. GDP rose 0.8% in the third quarter, after increasing 1.2% in the quarter prior.

GBP

9:30

Gross Domestic Product (YoY) (3Q P)

2.8%

2.8%

GBP

9:30

Private Consumption (3Q P)

0.6%

0.7%

GBP

9:30

Gross Fixed Capital Formation (3Q P)

1.3%

1.4%

GBP

9:30

Exports (3Q P)

1.5%

2.3%

GBP

9:30

Imports (3Q P)

1.2%

2.4%

GBP

9:30

Government Spending (3Q P)

0.4%

1.0%

GBP

9:30

Index of Services (MoM) (SEP)

0.5%

0.6%

Services rose in August after contracting in the prior two months.

GBP

9:30

Index of Services (3Mo3M) (SEP)

0.6%

0.3%

EUR

10:00

Euro-Zone Industrial New Orders s.a. (MoM) (SEP)

-2.5%

5.1%

Industrial new orders rose in August by the most since at least 1994.

EUR

10:00

Euro-Zone Industrial New Orders (YoY) (SEP)

15.3%

24.7%

USD

12:00

MBA Mortgage Applications (NOV 19)

-14.4%

Fell last week by most since 2009.

USD

13:30

Durable Goods Orders (OCT)

0.1%

3.5%

Durable goods orders rose last month by the most since January.

USD

13:30

Durable Goods Orders ex Transportation (OCT)

0.7%

-0.4%

USD

13:30

Cap Goods Orders Non-Def ex Aircrafts (OCT)

0.5%

-0.2%

Capital goods orders declined in two of the past three months.

USD

13:30

Cap Goods Shipments Non-Def ex Aircrafts (OCT)

1.0%

USD

13:30

Personal Income (OCT)

0.4%

-0.1%

Consumer spending rose less than forecast in September as incomes declined for the first time in more than a year.

USD

13:30

Personal Spending (OCT)

0.5%

0.2%

USD

13:30

PCE Deflator (YoY) (OCT)

1.3%

1.4%

USD

13:30

PCE Core (MoM) (OCT)

0.0%

0.0%

USD

13:30

PCE Core (YoY) (OCT)

1.0%

1.2%

USD

13:30

Initial Jobless Claims (NOV 20)

435K

439K

Initial jobless claims were likely below 440K for a third week.

USD

13:30

Continuing Claims (NOV 13)

4275K

4295K

USD

14:55

U. of Michigan Confidence (NOV F)

69.5

69.3

Rose to 5-month high in November.

USD

15:00

New Home Sales (MoM) (OCT)

1.6%

6.6%

New home sales in October were probably the highest in six months.

USD

15:00

New Home Sales (OCT)

312K

307K

USD

15:00

House Price Index (MoM) (SEP)

0.0%

0.4%

U.S. home prices rose in August for just the fourth time this year.

USD

15:00

House Price Purchase Index (QoQ) (3Q)

-1.1%

0.9%

USD

15:30

DOE U.S. Crude Oil Inventories (NOV 19)

-2000K

-7286K

U.S. crude refinery inputs last week were 217K barrels per day above the prior week’s average.

USD

15:30

DOE U.S. Gasoline Inventories (NOV 19)

-1250K

-2657K

USD

15:30

DOE U.S. Distillate Inventory (NOV 19)

-1500K

-1110K

Currency

GMT

Upcoming Events & Speeches

GBP

12:20

BoE’s Andrew Sentance Speaks on U.K. 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

1.6715

89.00

1.0460

1.0922

1.0600

0.8230

127.60

146.05

Resist 1

1.3700

1.6420

86.00

1.0000

1.0750

1.0200

0.8000

120.00

140.00

Spot

1.3378

1.5783

83.15

0.9964

1.0232

0.9724

0.7586

111.23

131.23

Support 1

1.3335

1.5650

80.00

0.9500

0.9950

0.9640

0.6850

103.80

125.00

Support 2

1.2925

1.5500

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

12.4745

1.4833

7.1115

7.7582

1.3137

Spot

6.9722

5.5730

6.1021

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

1.3731

1.6042

84.32

1.0055

1.0319

0.9955

0.7785

114.80

134.36

Resist 1

1.3554

1.5912

83.74

1.0010

1.0275

0.9840

0.7685

113.02

132.80

Pivot

1.3458

1.5836

83.26

0.9929

1.0221

0.9774

0.7633

111.88

131.82

Support 1

1.3281

1.5706

82.68

0.9884

1.0177

0.9659

0.7533

110.10

130.26

Support 2

1.3185

1.5630

82.20

0.9803

1.0123

0.9593

0.7481

108.96

129.28

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

1.3573

1.5964

84.09

1.0096

1.0352

0.9877

0.7707

112.91

133.20

Resist. 2

1.3524

1.5918

83.86

1.0063

1.0322

0.9838

0.7677

112.49

132.71

Resist. 1

1.3475

1.5873

83.62

1.0030

1.0292

0.9800

0.7647

112.07

132.22

Spot

1.3378

1.5783

83.15

0.9964

1.0232

0.9724

0.7586

111.23

131.23

Support 1

1.3281

1.5693

82.68

0.9898

1.0172

0.9648

0.7525

110.39

130.24

Support 2

1.3232

1.5648

82.44

0.9865

1.0142

0.9610

0.7495

109.97

129.75

Support 3

1.3183

1.5602

82.21

0.9832

1.0112

0.9571

0.7465

109.55

129.26

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