- Dollar Sees More Volatility than Direction on Risk Response to Ireland, Fed Growth Outlook Up Next
- Euro Relief Rally Short Lived after Ireland’s Bid for Help as the Market Looks to the Next Problem
- Canadian Dollar Set for a Data Shock as Growth and Financial Concerns Start to Gain Traction
- British Pound at the Mercy of Euro’s Financial Health for the Time Being
- New Zealand Dollar Tumbles after Standard & Poor’s Downgrades Sovereign Rating Outlook
- Japanese Yen Reveals its Fundamental Stripes as Risk Appetite Trends Pick Up
Dollar Sees More Volatility than Direction on Risk Response to Ireland, Fed Growth Outlook Up Next
If we were to pick out the top fundamental theme that could spur the dollar to its next definitive trend, it would be a heavily one-sided argument in favor of risk appetite trends. It is true that the dollar isn’t the safe haven it once was. In fact, that same assessment could have been levied against the currency back during the collapse of investor sentiment during the worst of the financial crisis through the final months of 2008. Yet, if you were to have traded against the greenback’s reserve appeal back then, the resulting losses would have been considerable. The US currency has significant long-term headwinds against it for months and years to come – not the least of which is the effort to diversify global central bank reserves into baskets rather than just dollar-based holding. That said, the greenback is still on one side of a huge percentage of the world’s currency trades, the US Treasuries are still considered cash equivalents for many margin requirements and there is even a positive capital flow in carry unwinding as many speculators have taken advantage of the exceptionally cheap loans and leverage to be found in the US. All of this will help to maintain the currency’s negative correlation to risk appetite trends – especially when the move in sentiment is strong. This said, with the S&P 500 diving through the opening New York trading hours Monday, the dollar’s rally should have caught no one off guard.
The stimulus that the Fed has pumped into the system (and speculation of its approval) has a clearly detrimental influence on the value of the greenback in its distortion of the money supply (the more dollars that are flowing through the system, the less each dollar is worth). And yet, oddly enough, this same weight helps leverage the dollar’s rallies when risk aversion kicks in through carry channels. That is where the dollar could trace its Monday gains back to. News that Ireland had finally asked for financial aid from the ECB and IMF helped stir fears of a global financial crisis in the making. And, for the US dollar, the effort to unwind the carry positions that were initially funded by the stimulus injections of the past weeks and months was only further leveraged by the fact that it is the euro’s primary alternative. That said, the S&P 500’s losses through the end of the day were limited and so to was the dollar’s gains. While this may facilitate the sense of uncertainty in the market, it also wasn’t much of a surprise. In truth, market participants have been waiting for just such an outcome since Ireland refused to request support at the EU’s monthly meeting this past Tuesday. This translates into volatility but ultimately a lack of sustainable momentum. Going forward, risk trends still hold the greatest sway over the dollar – and there are plenty of catalysts to rile investors’ emotions. However, with the US speculative crowd set to drain for the extended holiday weekend officially starting Thursday, it is going to fundamental drive versus speculative liquidity lull.
Another interesting aspect of the truncated trading week is that we get a heavy concentration of scheduled event risk over just a few days. Monday’s session brought us only one, secondary readings – the Chicago Fed’s National Activity Index for October. The timeliness of the report and actual improvement are noteworthy; but it just doesn’t carry the necessary weight ahead of the upcoming session’s second reading of 3Q GDP. Though revisions, the second round of this data can see significant changes from the initial print. Existing homes sales is another good indicators; but the real focus of the day is FOMC minutes. New forecasts will be released with this statement; and many analysts, economists and market participants believe they will be revised down in light of the stimulus effort. Will this be a direct dollar effect or have a risk angle?
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Taking on Considerable Risk with EURUSD, GBPJPY, GBPUSD
Euro Relief Rally Short Lived after Ireland’s Bid for Help as the Market Looks to the Next Problem
There was little doubt that Irish policy officials would have to breakdown and ask the EU for assistance. While the government may be funded through the middle of 2011, the nation’s banking system is struggling and subsisting on ECB loans. Waiting on the particulars (it was just pegged at below 100 billion euros), we have the tricky reaction to filter through. There was an initial but brief relief rally from the euro as the threat of an immediate collapse was avoided. The reality of a second EU member having to seek aid six months after the first suggests a third (Portugal?) will come in quick step. Furthermore, both Ireland and Greece are heading towards certain recessions and possible societal upheaval.
Canadian Dollar Set for a Data Shock as Growth and Financial Concerns Start to Gain Traction
In an already packed fundamental docket through Tuesday’s trading session, the Canadian dollar likely stands out for event risk. On deck for the loonie are the September retail sales and October CPI data. The implications for interest rate and growth expectations are clear. But, what makes this truly noteworthy data is the clear shift in perception whereby the BoC is warning of financial and economic troubles ahead.
British Pound at the Mercy of Euro’s Financial Health for the Time Being
The British pound’s own economic is relatively light over the coming 24 hours. The BBA mortgage applications for October is a good step up to a report by Rightmove Monday that showed a net 42 percent of Brits expect rent levels to rise – another sign that housing is a major problem for the UK. But, if we are looking for real impact, Ireland’s bailout is significant. Given the level of exposure UK banks have to Ireland, it is a concern.
New Zealand Dollar Tumbles after Standard & Poor’s Downgrades Sovereign Rating Outlook
There are two concerns when working with a currency at one of the extremes of the risk spectrum: the underlying trend of speculative trends and the permanence of the correlation. Monday, both aspects were working against the kiwi. Not only did risk appetite sour after the Irish bailout announcement; but Standard & Poor’s warned that it had lowered its outlook for New Zealand to ‘negative.’ A cut is still a ways off though.
Japanese Yen Reveals its Fundamental Stripes as Risk Appetite Trends Pick Up
It may seem the natural order of things to see the yen appreciate as risk appetite eases. However, we need to keep an eye on the Japanese currency’s correlation to this particular fundamental driver – especially with USDJPY. Near record or multi-year highs, we have seen doubts about the unit’s safe haven appeal catalyze; but we have yet to really put this theory to the test. We may soon enough.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
2:00 |
RBNZ 2-Year Inflation Expectation (4Q) |
2.6% |
3Q lowest since 2009. |
|
|
EUR |
7:00 |
German GDP s.a. (QoQ) (3Q F) |
0.7% |
0.7% |
German economic growth slowed in the third quarter, falling short of 0.8% growth expected. |
|
EUR |
7:00 |
German GDP w.d.a. (YoY) (3Q F) |
3.9% |
3.9% |
|
|
EUR |
7:00 |
German GDP n.s.a. (YoY) (3Q F) |
3.9% |
3.9% |
|
|
EUR |
7:00 |
German Private Consumption (3Q F) |
0.3% |
0.6% |
The German economy continued to expand in the third quarter, as trade and investment as well as household and government spending contributed to growth. From a year earlier, GDP increased 3.9%. |
|
EUR |
7:00 |
German Capital Investment (3Q F) |
1.6% |
4.7% |
|
|
EUR |
7:00 |
German Government Spending (3Q F) |
0.4% |
0.4% |
|
|
EUR |
7:00 |
German Domestic Demand (3Q F) |
1.4% |
||
|
EUR |
7:00 |
German Construction Investment (3Q) |
-0.5% |
5.2% |
|
|
EUR |
7:00 |
German Exports (3Q F) |
3.2% |
8.2% |
|
|
EUR |
7:00 |
German Imports (3Q F) |
2.1% |
7.0% |
|
|
EUR |
7:00 |
German GfK Consumer Confidence (DEC) |
5.1 |
4.9 |
Seen hitting 2-year high in Dec. |
|
EUR |
7:45 |
French Own-Company Production Outlook (NOV) |
15 |
16 |
French business confidence rose in October to the highest level since June 2008. |
|
EUR |
7:45 |
French Production Outlook Indicator (NOV) |
10 |
9 |
|
|
EUR |
7:45 |
French Business Confidence Indicator (NOV) |
102 |
102 |
|
|
EUR |
8:00 |
French PMI Manufacturing (NOV P) |
55.0 |
55.2 |
French manufacturing probably declined in November for 2nd month. |
|
EUR |
8:00 |
French PMI Services (NOV P) |
54.8 |
54.8 |
|
|
EUR |
8:30 |
Italian Consumer Confidence Index s.a. (NOV) |
107.4 |
107.7 |
Likely above 107 for 3rd month. |
|
EUR |
8:30 |
German PMI Manufacturing (NOV A) |
56.8 |
56.6 |
German manufacturing likely rose in November for a second month. |
|
EUR |
8:30 |
German PMI Services (NOV A) |
55.8 |
56.0 |
|
|
EUR |
9:00 |
Euro-Zone PMI Index Composite (NOV A) |
53.6 |
53.8 |
Europe’s composite index expanded faster than expected in November, led by surging output in Germany. |
|
EUR |
9:00 |
Euro-Zone PMI Manufacturing (NOV A) |
54.4 |
54.6 |
|
|
EUR |
9:00 |
Euro-Zone PMI Services (NOV A) |
53.2 |
53.3 |
|
|
GBP |
9:30 |
BBA Loans for House Purchase (OCT) |
31000 |
31104 |
Fell to 18-month low in September. |
|
12:00 |
Consumer Price Index (MoM) (OCT) |
0.2% |
0.2% |
Canada’s annual inflation rate quickened in September to the fastest pace since January on energy and shelter costs. |
|
|
CAD |
12:00 |
Consumer Price Index (YoY) (OCT) |
2.2% |
1.9% |
|
|
CAD |
12:00 |
Bank Canada CPI Core (MoM) (OCT) |
0.1% |
0.2% |
|
|
CAD |
12:00 |
Bank Canada CPI Core (YoY) (OCT) |
1.5% |
1.5% |
|
|
CAD |
13:30 |
Retail Sales (MoM) (SEP) |
0.7% |
0.5% |
Canadian retail sales increased in August for a second month. |
|
CAD |
13:30 |
Retail Sales Less Autos (MoM) (SEP) |
0.3% |
0.4% |
|
|
USD |
13:30 |
Gross Domestic Product (Annualized) (3Q S) |
2.4% |
2.0% |
U.S. economy grew at a 2% annual rate in 3Q as consumer spending climbed the most in nearly four years. |
|
USD |
13:30 |
Personal Consumption (3Q S) |
2.5% |
2.6% |
|
|
USD |
13:30 |
Gross Domestic Product Price Index (3Q S) |
2.3% |
2.3% |
|
|
USD |
13:30 |
Core PCE (QoQ) (3Q S) |
0.8% |
0.8% |
|
|
USD |
15:00 |
Existing Home Sales (MoM) (OCT) |
-1.1% |
10.0% |
Existing home sales rose in September by the most on record. |
|
USD |
15:00 |
Existing Home Sales (OCT) |
4.48M |
4.53M |
|
|
USD |
15:00 |
Richmond Fed Manufacturing Index (NOV) |
6 |
5 |
Likely rose for second month in Nov. |
|
USD |
22:00 |
ABC Consumer Confidence (NOV 21) |
-47 |
Fell from -46 to -47 last week. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
GBP |
16:30 |
BoE’s Adam Posen Speaks on U.K. Economy |
|
USD |
19:00 |
Federal Open Market Committee Meeting Minutes |
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 |
1.4450 |
1.6715 |
89.00 |
1.0460 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3840 |
1.6420 |
86.00 |
1.0000 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3627 |
1.5963 |
83.29 |
0.9898 |
1.0178 |
0.9891 |
0.7743 |
113.50 |
132.95 |
|
Support 1 |
1.3465 |
1.5650 |
80.00 |
0.9500 |
0.9950 |
0.9640 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3310 |
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 |
12.2976 |
1.4529 |
6.9988 |
7.7556 |
1.2971 |
Spot |
6.8807 |
5.4714 |
6.0049 |
|
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 |
1.3872 |
1.6168 |
83.70 |
0.9969 |
1.0267 |
1.0020 |
0.7900 |
115.58 |
134.83 |
|
Resist 1 |
1.3750 |
1.6066 |
83.50 |
0.9933 |
1.0223 |
0.9955 |
0.7822 |
114.54 |
133.89 |
|
Pivot |
1.3663 |
1.5982 |
83.36 |
0.9906 |
1.0172 |
0.9890 |
0.7758 |
113.90 |
133.26 |
|
Support 1 |
1.3541 |
1.5880 |
83.16 |
0.9870 |
1.0128 |
0.9825 |
0.7680 |
112.86 |
132.32 |
|
Support 2 |
1.3454 |
1.5796 |
83.02 |
0.9843 |
1.0077 |
0.9760 |
0.7616 |
112.22 |
131.69 |
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 |
1.3815 |
1.6143 |
84.22 |
1.0024 |
1.0294 |
1.0039 |
0.7861 |
115.12 |
134.85 |
|
Resist. 2 |
1.3768 |
1.6098 |
83.99 |
0.9993 |
1.0265 |
1.0002 |
0.7831 |
114.71 |
134.37 |
|
Resist. 1 |
1.3721 |
1.6053 |
83.76 |
0.9961 |
1.0236 |
0.9965 |
0.7802 |
114.31 |
133.90 |
|
Spot |
1.3627 |
1.5963 |
83.29 |
0.9898 |
1.0178 |
0.9891 |
0.7743 |
113.50 |
132.95 |
|
Support 1 |
1.3533 |
1.5873 |
82.82 |
0.9835 |
1.0120 |
0.9817 |
0.7684 |
112.69 |
132.00 |
|
Support 2 |
1.3486 |
1.5828 |
82.59 |
0.9803 |
1.0091 |
0.9780 |
0.7655 |
112.29 |
131.53 |
|
Support 3 |
1.3439 |
1.5783 |
82.36 |
0.9772 |
1.0062 |
0.9743 |
0.7625 |
111.88 |
131.05 |
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
