- Dollar Recovers from a Short-Lived Burst of Optimism following G20, Housing Data
- British Pound Top Fundamental Volatility Trade Tuesday with 3Q GDP Data Due
- Euro Garners Little Support from S&P 500’s Forecast for Rates, Weber’s Time Frame for Stimulus Exit
- Japanese Yen Surges to fresh 15-Year High after Toyota Revises Forecast, ‘Surprise’ added to Intervention
- Australian Dollar Rallies to a Fresh Post-Float Record as Risk Appetite Surges, Inflation Accelerates
- Swiss Franc Appeal Slowly Undermined by Deals to Offshore Banking Records
Dollar Recovers from a Short-Lived Burst of Optimism following G20, Housing Data
The US dollar lost ground early Monday morning as investor sentiment turned positive on questionable fundamentals and ambitious traders attempted to interpret G20 commentary as meaningful policy adoption. However, neither of these fronts was rooted in reality; and the ultimate outcome was a sharp retracement that would leave the greenback little changed against its benchmark counterpart – the euro. That being said, with today’s fundamental interpretation and market volatility, we would see something interesting. Looking across the financial markets, there was a notable rally from the S&P 500 to a five-month high, the iShares Investment Grade Bond gapped higher and the dollar was forced to a weekly low through the morning hours. From this cross correlation (which can be more closely tracked on an intraday basis), we can derive the influence of risk appetite trends on for the questionable safe haven currency. This means that should investor sentiment surge or collapse, the greenback is likely to fall back into line with its role as a favored cove to stormy financial seas. What’s more, we can reference gold’s parallel advance to establish that there is a growing skepticism behind the stability of optimism that happens to be fueled by the hope for stimulus.
Where was the market’s budding optimism emanating from early Monday morning? The most perceptible catalyst was the afterglow of the G20 meeting. In a grand gesture, the collective vowed to avoid “competitive devaluation” of their respective currencies in an effort to bolster their individual exports. What does this mean to the speculative ranks? Upon review, it is clear that the group’s assurance is vague – and for good reason. Each of the individual complaints various leaders were voicing heading into this meeting were summarily ignored at the close of the meeting. There is little chance that Japan will abstain for further intervention should the yen continue to appreciate, that China will continue to manipulate its exchange rate or that the US will abandon its extremely loose monetary policy stance. These are engrained economic policies and/or are targeted towards sustaining a critical node of activity. So, while smaller economic players may avoid devolving into an outright selling war (which would theoretically benefit the US dollar), the foundation for the imbalance remains. However, the mere fact that the financial media has offered such a simplistic interpretation of the event gave it some weight. The same doubt would also enter the picture when we analyze the macro event risk for the day. The 10 percent surge in September existing home sales from the NAR could certainly be hailed as a remarkable reading as it is the biggest percentage jump on record. On the other hand, a substantial percentage increase is rather easy to accomplish when it happens from a record low – which this series is only two months removed from. The housing market is still in considerable trouble. An overlooked report was the Chicago Fed’s national activity index. A good proxy for growth, this indicator hit a seven-month low.
Looking ahead to Tuesday’s event risk, the fundamental-importance and volatility quotients will rise substantially. The UK GDP reading may not be directly related to the US performance; but it is a good benchmark for Friday’s GDP release. Look within the confines of the dollar’s docket, housing data is secondary to the Conference Board’s consumer confidence survey. This particular group is vital to a meaningful recovery.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPUSD Short is on the Books, Potential in GBPJPY and EURGBP
British Pound Top Fundamental Volatility Trade Tuesday with 3Q GDP Data Due
If we ignore the performance of GBPUSD, the sterling’s performance was decidedly bearish for the session. For events risk, the only thing on the docket was the BBA’s home loan figures for September. An 18-month low of 31,104 contracts actually beat the consensus; but the general implications would be further massaged by the a few sidebar figures. The BBA would also report that consumer spending was “subdued” while Rightmove reported that those survey respondents that believed housing prices would fall outpaced those that believed it would rise for the first time since 2009. The housing market is a growing burden. We may actually see how much of a burden tomorrow in the advanced reading of the UK’s 3Q GDP report. This is a critical release coming one week after the government’s massive spending cuts. If growth stalled before the cut; how bad will it be after? We will take a particularly close look at government spending’s 3Q contribution.
Euro Garners Little Support from S&P 500’s Forecast for Rates, Weber’s Time Frame for Stimulus Exit
The euro wasn’t particularly robust Monday (drawing much of its early strong and later weakness from the performance of its primary counterpart), but there were a few fundamental catalysts. In an interesting turn for a cautious policy group, the S&P suggested a strong German economy may force the ECB to hike sooner rather than later. Also, the ECB’s Weber said discussion for a stimulus exit was on the table for 1Q.
Japanese Yen Surges to fresh 15-Year High after Toyota Revises Forecast, ‘Surprise’ added to Intervention
Is anyone in the FX market concerned about Japanese intervention nowadays? After so much posturing and threatening, the mystique has been lost in the threat. With that in mind, a vice finance minister suggested that intervention made with a sense of “surprise” would be most effective. In other news, auto-manufacturer Toyota revised its second half USDJPY forecast to 80 – the market is starting to adjust.
Australian Dollar Rallies to a Fresh Post-Float Record as Risk Appetite Surges, Inflation Accelerates
With risk appetite rising, which currency would we assume is rising in turn? Naturally, we go to the Australian dollar; and that would be a correct sentiment. The high yield appeal certainly helped the currency higher; but the promise of further rate hikes is supplying much of its oomph now. Early Monday, data showed factor-level inflation jumped to a 2.2 percent clip – setting us up for an interesting CPI reading.
Swiss Franc Appeal Slowly Undermined by Deals to Offshore Banking Records
The Swiss franc is still one of the strongest currencies in the FX market; but its fundamental appeal continues to deteriorate (eventually speculative expectations will meet reality). News today suggests the UK and Switzerland are in talks to creating a tax on British offshore accounts in Switzerland such that they can maintain a level of privacy. The clout of a Swiss bank account continues to fade.
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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 |
|
JPY |
23:50 |
Corporate Service Price (YoY) (SEP) |
-1.0% |
-1.1% |
Declined annually in last 23 months. |
|
AUD |
0:30 |
NAB Business Confidence (3Q) |
3 |
Sits at lowest level since 2Q 2009. |
|
|
EUR |
6:00 |
German GfK Consumer Confidence Survey (NOV) |
5.1 |
4.9 |
Sits at highest level since May ’08. |
|
EUR |
6:00 |
German Import Price Index (MoM) |
0.2% |
0.2% |
Import prices rose annually in August for an eighth straight month. |
|
EUR |
6:00 |
German Import Price Index (YoY) |
9.7% |
8.6% |
|
|
CHF |
6:00 |
UBS Consumption Indicator (SEP) |
1.954 |
Sits at highest level since June ’08. |
|
|
EUR |
6:45 |
French Consumer Confidence Indicator (OCT) |
-37 |
-35 |
Consumer confidence likely fell in France and Italy in October. |
|
EUR |
7:30 |
Italian Consumer Confidence Index s.a. (OCT) |
106.5 |
107.2 |
|
|
GBP |
8:30 |
Gross Domestic Product (QoQ) (3Q A) |
0.4% |
1.2% |
Growth likely slowed in 3Q to a third of the 2Q pace on lower spending. |
|
GBP |
8:30 |
Gross Domestic Product (YoY) (3Q A) |
2.4% |
1.7% |
|
|
GBP |
8:30 |
Index of Services (MoM) |
0.2% |
-0.2% |
U.K. service industries contracted for a second month in July. |
|
GBP |
8:30 |
Index of Services (3Mo3M) (AUG) |
0.4% |
0.5% |
|
|
USD |
13:00 |
S&P/Case-Shiller Home Price Index (AUG) |
148.91 |
S&P/Case-Shiller index rose annually in July for a sixth consecutive month. |
|
|
USD |
13:00 |
S&P/Case-Shiller 20 City (MoM) SA |
-0.20% |
-0.13% |
|
|
USD |
13:00 |
S&P/Case-Shiller Composite-20 (YoY) (AUG) |
2.10% |
3.18% |
|
|
USD |
14:00 |
Consumer Confidence (OCT) |
49.9 |
48.5 |
Fell more than forecast in Sept. |
|
USD |
14:00 |
House Price Index (MoM) (AUG) |
-0.2% |
-0.5% |
Declined in the last two months. |
|
USD |
14:00 |
Richmond Fed Manufacturing Index (OCT) |
0 |
-2 |
Negative for first time since January. |
|
EUR |
16:00 |
French Total Jobseekers Change (SEP) |
15.9 |
French jobless claims rose for the first time in three months in August. |
|
|
EUR |
16:00 |
French Total Jobseekers (SEP) |
2692.5 |
||
|
USD |
21:00 |
ABC Consumer Confidence (OCT 24) |
-46 |
Average reading of -46 in October. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
21:15 |
Former Fed Governor Donald Kohn Speaks on Financial Regulation |
|
USD |
0:00 |
Fed’s Thomas Hoenig Speaks on Economic Outlook |
|
USD |
20:30 |
Fed’s William Dudley Speaks on The National and Regional 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 |
1.4500 |
1.6375 |
89.00 |
1.0460 |
1.0922 |
1.0100 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4000 |
1.6000 |
86.00 |
0.9950 |
1.0750 |
1.0000 |
0.7650 |
120.00 |
140.00 |
|
Spot |
1.3979 |
1.5749 |
80.83 |
0.9702 |
1.0186 |
0.9918 |
0.7534 |
113.00 |
127.30 |
|
Support 1 |
1.3685 |
1.5500 |
80.00 |
0.9500 |
0.9950 |
0.9100 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3500 |
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 |
12.3367 |
1.4156 |
6.8987 |
7.7582 |
1.2922 |
Spot |
6.5752 |
5.3354 |
5.7835 |
|
Support 1 |
12.0500 |
1.4070 |
6.6950 |
7.7490 |
1.2900 |
Support 1 |
6.4500 |
5.3000 |
5.7030 |
|
Support 2 |
11.7200 |
1.3665 |
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 |
1.4155 |
1.5842 |
81.99 |
0.9837 |
1.0330 |
1.0055 |
0.7617 |
114.34 |
128.47 |
|
Resist 1 |
1.4067 |
1.5796 |
81.41 |
0.9770 |
1.0258 |
0.9986 |
0.7576 |
113.67 |
127.89 |
|
Pivot |
1.3992 |
1.5726 |
80.91 |
0.9716 |
1.0206 |
0.9906 |
0.7520 |
113.11 |
127.17 |
|
Support 1 |
1.3904 |
1.5680 |
80.33 |
0.9649 |
1.0134 |
0.9837 |
0.7479 |
112.44 |
126.59 |
|
Support 2 |
1.3829 |
1.5610 |
79.83 |
0.9595 |
1.0082 |
0.9757 |
0.7423 |
111.88 |
125.87 |
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 |
1.4175 |
1.5937 |
81.84 |
0.9832 |
1.0312 |
1.0074 |
0.7652 |
114.66 |
129.20 |
|
Resist. 2 |
1.4126 |
1.5890 |
81.59 |
0.9799 |
1.0281 |
1.0035 |
0.7622 |
114.24 |
128.72 |
|
Resist. 1 |
1.4077 |
1.5843 |
81.33 |
0.9767 |
1.0249 |
0.9996 |
0.7593 |
113.83 |
128.25 |
|
Spot |
1.3979 |
1.5749 |
80.83 |
0.9702 |
1.0186 |
0.9918 |
0.7534 |
113.00 |
127.30 |
|
Support 1 |
1.3881 |
1.5655 |
80.33 |
0.9637 |
1.0123 |
0.9840 |
0.7475 |
112.17 |
126.35 |
|
Support 2 |
1.3832 |
1.5608 |
80.07 |
0.9605 |
1.0091 |
0.9801 |
0.7446 |
111.76 |
125.88 |
|
Support 3 |
1.3783 |
1.5561 |
79.82 |
0.9572 |
1.0060 |
0.9762 |
0.7416 |
111.34 |
125.40 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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