- Dollar Slide Halted as Risk Trends Unable to Compensate for NFP Forecasting
- Euro Holds Up Well through Portuguese Bond Sale and Ireland Downgrade, ECB Up Next
- British Pound Unexpectedly Strong with Construction and BoE Debate Providing Backdrop
- New Zealand Dollar Tumbles after Unemployment Rises More than Expected
- Japanese Yen Takes an Economic Blow after Government Officials Says Double Taxes
- Australian Dollar Traders Crave Larger Fundamental Catalysts than Trade and Service Sector Data
Dollar Slide Halted as Risk Trends Unable to Compensate for NFP Forecasting
Heading into Thursday’s active trading session, the capital markets are already entering the gravity of Friday’s non-farm payrolls (NFP) report. This is a common occurrence whereby the expected volatility of the indicator discourages market participants from taking significant positions to avoid the potential turbulence expected with its release. Net effect for currency traders in the preceding trading days: a diminished effort to project trends and decelerating volatility. It is this absence of fundamental pressure that allowed the greenback to put in for a modest bounce through Wednesday’s session – rather than offhand suggestions that a deterioration in the Egyptian political crisis led to a meaningful shift towards the harbor of safe haven assets. Taking stock of the market’s bearings heading into the final 48 hours of the trading week, it is clear that the risk appetite drive that began at the start of the week is merely pausing. Our favored benchmark for speculative activity – the S&P 500 – was just slightly off the two-and-a-half year high it set the previous day. Amongst the majors, EURUSD retraced a mere 18 pips; USDJPY moved 25 pips in the dollar’s favor; AUDUSD eased back 10 pips; and GBPUSD actually climbed for a third consecutive day. This is hardly the robust start to a recovery – especially when the dollar is just off a three-month low.
Looking for event risk to work with Wednesday, the fundamental trader looking for activity would come up short. Between the two means for potential activity, neither risk appetite trends nor the economic docket would give much in the way of an impetus. Keeping tabs on investor sentiment (and thereby the dollar’s role as safe haven and funding currency), there was the potential for volatility to be stirred in the European markets. A Portuguese bond sale shoots right to the heart of the financial market’s concerns while the surprise Ireland sovereign downgrade offered an unexpected angle to the scene. Yet, neither of these would significantly pressure the euro and give the dollar the satisfaction of a risk aversion and reserve diversification move. Alternatively, the bullish run following Tuesday’s impressive global manufacturing update proved short-lived, suggesting it is taking more fundamental fuel to generate an equivalent advance from capital markets.
For scheduled event risk, the docket was populated by second tier releases. The 11.3 percent swell in mortgage applications reported by MBA last week (the most since October) and the sharp drop in job cut announcements in the Challenger report were notable; but not meaningful enough to the fundamental picture to generate much interest. What carries a little more clout is the ADP Employment Change report. This series is valuable employment data; but their effort to ‘curve fit’ to more closely match the later-released NFPs inadvertently undermines its individual value and further skews its performance from that of the government report. Using this to benchmark NFPs is not a good idea. In calm before the fundamental storm tomorrow; the event risk picks up significantly. The ISM service sector activity survey, ICSC store sales report, factory orders and jobless claims numbers are all influential. Yet, with the NFPs just around the corner, their sway will be substantially reduced.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Quick GBPAUD and NZDUSD Returns Offset USDCAD Losses
Euro Holds Up Well through Portuguese Bond Sale and Ireland Downgrade, ECB Up Next
For many, the euro’s restrained level of volatility Wednesday was completely unexpected. From the docket, Portugal would unintentionally provide an outlet for the market to cast its vote in confidence for the European financial market and the currency in turn. However, given the rally in the euro and pull back in periphery government bond yields recently, the 1.255 billion euro actual would actually draw healthy demand and lower yields – in effect given an implicit vote of confidence. Standard & Poor’s downgrade of Ireland’s sovereign credit rating was not on the radar; but the repercussions are modest given the nation’s access to emergency funds. Something overlooked that will certainly come up again in the future (perhaps with Friday’s EU policymaker meeting) was a German official’s suggestion that the nation wouldn’t support EFSF bond buying. For the upcoming European session, the ECB rate decision will most likely be a non-event. Trichet already make his slight hawkish shift.
British Pound Unexpectedly Strong with Construction and BoE Debate Providing Backdrop
The sterling’s sensitivity to fundamental developments in its own economic performance leveraged the influence of a bigger-than-expected jump in the construction activity reading for January. A 53.7 reading puts it back into expansionary territory – surprising given the performance of sales data. In other news, BoE members Sentance and Bean squared off over the influence and permanence of inflation. The rate debate is growing.
New Zealand Dollar Tumbles after Unemployment Rises More than Expected
One of the largest moves in the late-US / early-Asian session was the New Zealand dollar’s tumble across the board. Clearly not risk-based, this particularly slide was instigated by the unexpected 0.5 percent drop in employment levels through the fourth quarter that subsequently pushed the unemployment rate up 0.4 percentage points to 6.8 percent. Not a good sign for rate hikes; but neither is it a serious obstacle.
Japanese Yen Takes an Economic Blow after Government Officials Says Double Taxes
Following another round of concerns about the volatility and level of the Japanese yen (which the market happily ignores at this point), we saw a genuine fundamental concern develop out of a proposal that came from Prime Minister Kan’s tax panel. To have an impact on the nation’s unsustainable deficit situation, it was suggested that the consumption tax be doubled from 5 to 10 percent. Good way to slow the economy.
Australian Dollar Traders Crave Larger Fundamental Catalysts than Trade and Service Sector Data
Cyclone Yasi has passed over the populated-dense segment of Queensland; and the damage assessment is ongoing. Given the impact of the torrential floods that preceded the storm, the cumulative effect will be significant; yet it is not exactly a shock. It is big events like this weather incidence that actually helps to curb the influence of regular data. A drop in service activity and a jump in the trade balance just don’t cut it.
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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 |
|
AUD |
22:30 |
AiG Performance of Service Index (JAN) |
46.4 |
Rose last month from 46.2 November reading. |
|
|
USD |
ICSC Chain Store Sales (YoY) (JAN) |
3.1% |
Increased annually in the last 13 months. |
||
|
AUD |
0:30 |
Building Approvals (MoM) (DEC) |
1.3% |
Building approvals fell in November for a third time in four months |
|
|
AUD |
0:30 |
Building Approvals (YoY) (DEC) |
-13.7% |
||
|
AUD |
0:30 |
Trade Balance (Australian dollar) (DEC) |
1600M |
1925M |
Trade surplus narrowed in November as the value of coal exports dropped. |
|
CNY |
1:00 |
Purchasing Manager Index Non-Manufacturing (JAN) |
56.5 |
Posted a below-60 reading the last two months. |
|
|
CHF |
7:15 |
Trade Balance (Swiss franc) (DEC) |
1.93B |
Switzerland’s exports declined in November as a stronger franc made goods less competitive abroad |
|
|
CHF |
7:15 |
Exports (MoM) (DEC) |
-3.4% |
||
|
CHF |
7:15 |
Imports (MoM) (DEC) |
-3.3% |
||
|
EUR |
8:45 |
Italian Purchasing Manager Index Services (JAN) |
50.8 |
50.2 |
The Euro-Zone Purchasing Manager Index Composite reading was 56.3 in January, the highest in six months, as the German economy expanded. ECB President Trichet is optimistic, stating that “strong business confidence could provide more support to domestic activity in the euro area than is expected.” |
|
EUR |
8:50 |
French Purchasing Manager Index Services (JAN F) |
57.1 |
57.1 |
|
|
EUR |
8:55 |
German Purchasing Manager Index Services (JAN F) |
60.0 |
60.0 |
|
|
EUR |
9:00 |
Euro-Zone Purchasing Manager Index Services (JAN F) |
55.2 |
55.2 |
|
|
EUR |
9:00 |
Euro-Zone Purchasing Manager Index Composite (JAN F) |
56.3 |
56.3 |
|
|
GBP |
9:30 |
Purchasing Manager Index Services (JAN) |
51.0 |
49.7 |
Index fell to a 20-month low in December. |
|
GBP |
9:30 |
Official Reserves (Changes) (JAN) |
$976M |
Reserves increased in four of the past 5 months. |
|
|
EUR |
10:00 |
Euro-Zone Retail Sales (MoM) (DEC) |
0.5% |
-0.8% |
Retail sales declined in November for a fourth consecutive month |
|
EUR |
10:00 |
Euro-Zone Retail Sales (YoY) (DEC) |
0.2% |
0.1% |
|
|
EUR |
12:45 |
European Central Bank Interest Rate Decision |
1.00% |
1.00% |
Market implies no chance of a 25 bp rate hike. |
|
USD |
13:30 |
Non-Farm Productivity (4Q P) |
2.0% |
2.3% |
Likely rose in 4Q for a third quarter this year. |
|
USD |
13:30 |
Unit Labor Costs (4Q P) |
0.5% |
-0.1% |
Declined in four of the past five quarters. |
|
USD |
13:30 |
Initial Jobless Claims (JAN 29) |
420K |
454K |
Initial jobless claims rose by 51K last week to 454K, higher than 405K estimated. |
|
USD |
13:30 |
Continuing Claims (JAN 22) |
3991K |
||
|
USD |
15:00 |
ISM Non-Manufacturing Composite (JAN) |
57.0 |
57.1 |
December reading was highest since May 2006. |
|
USD |
15:00 |
Factory Orders (DEC) |
1.0% |
0.7% |
Factory orders rose in November after posting a 0.7% decline the month prior. |
|
NZD |
21:45 |
New Zealand Net Migration s.a. (DEC) |
630 |
November reading was lowest in five months. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
22:30 |
Fed’s Elizabeth Duke Speaks on U.S. Economy |
|
EUR |
13:30 |
ECB President Jean-Claude Trichet Delivers Policy Statement |
|
USD |
18:00 |
Fed Chairman Ben Bernanke 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 |
1.4025 |
1.6420 |
89.00 |
1.0000 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3875 |
1.6300 |
86.00 |
0.9775 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3827 |
1.6145 |
81.43 |
0.9362 |
0.9919 |
1.0118 |
0.7805 |
112.59 |
131.46 |
|
Support 1 |
1.3425 |
1.5750 |
80.00 |
0.9300 |
0.9800 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2900 |
1.5315 |
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 |
13.8500 |
1.6575 |
7.4025 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
12.5000 |
1.6300 |
7.2825 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
11.9935 |
1.5817 |
7.1373 |
7.7916 |
1.2712 |
Spot |
6.3741 |
5.3913 |
5.6961 |
|
Support 1 |
11.7200 |
1.5300 |
6.9900 |
7.7490 |
1.2700 |
Support 1 |
6.2850 |
5.2625 |
5.7030 |
|
Support 2 |
11.4400 |
1.4725 |
6.8000 |
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 |
1.3930 |
1.6251 |
82.46 |
0.9504 |
1.0054 |
1.0262 |
0.7884 |
113.21 |
132.51 |
|
Resist 1 |
1.3879 |
1.6198 |
81.95 |
0.9433 |
0.9987 |
1.0190 |
0.7845 |
112.90 |
131.99 |
|
Pivot |
1.3784 |
1.6104 |
81.63 |
0.9385 |
0.9943 |
1.0077 |
0.7778 |
112.39 |
131.46 |
|
Support 1 |
1.3733 |
1.6051 |
81.12 |
0.9314 |
0.9876 |
1.0005 |
0.7739 |
112.08 |
130.94 |
|
Support 2 |
1.3638 |
1.5957 |
80.80 |
0.9266 |
0.9832 |
0.9892 |
0.7672 |
111.57 |
130.41 |
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 |
1.4005 |
1.6318 |
82.33 |
0.9476 |
1.0019 |
1.0253 |
0.7912 |
114.07 |
133.08 |
|
Resist. 2 |
1.3961 |
1.6274 |
82.10 |
0.9448 |
0.9994 |
1.0219 |
0.7885 |
113.70 |
132.67 |
|
Resist. 1 |
1.3916 |
1.6231 |
81.88 |
0.9419 |
0.9969 |
1.0185 |
0.7858 |
113.33 |
132.27 |
|
Spot |
1.3827 |
1.6145 |
81.43 |
0.9362 |
0.9919 |
1.0118 |
0.7805 |
112.59 |
131.46 |
|
Support 1 |
1.3738 |
1.6059 |
80.98 |
0.9305 |
0.9869 |
1.0051 |
0.7752 |
111.85 |
130.65 |
|
Support 2 |
1.3693 |
1.6016 |
80.76 |
0.9276 |
0.9844 |
1.0017 |
0.7725 |
111.48 |
130.25 |
|
Support 3 |
1.3649 |
1.5972 |
80.53 |
0.9248 |
0.9819 |
0.9983 |
0.7698 |
111.11 |
129.84 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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