- Dollar Steady Through Strong and Weak Data, Primed for a Potentially Dramatic GDP Reaction
- Euro May have Exhausted its Sentiment Reversal, In Need of Genuine Fundamental Encouragement
- Japanese Yen: Why Does the Yen See Only a Modest Drop after a Sovereign Downgrade?
- British Pound Holds Fast Through Disappointing Confidence, Housing and Sales Data
- New Zealand Dollar Unfazed by RBNZ Governor Bollards Dovish Follow Up
- Swiss Franc Unresponsive to Intervention Threats, What about Growth Threats?
Dollar Steady Through Strong and Weak Data, Primed for a Potentially Dramatic GDP Reaction
Through the past few trading days, the dollar has maintained its restrained bearish bearing despite otherwise encouraging fundamental developments. Interestingly enough, the greenback would show the same moderation in pace through Thursday despite a round of discouraging economic event risk. This tells us that traditional fundamentals have had limited influence over the benchmark currency; while speculative interests have defined the market’s expectations. As it happens, this is the perfect scenario for the dollar to stage the beginning of a meaningful recovery through the end of the week. Now in the final 24 hours of this trading week, we are approaching the top event risk for the week: the advanced reading on 4Q GDP. This is the ideal setup for EURUSD considering the pair’s rally over these past three weeks has decelerated to the point that progress has virtually stalled. Fading momentum points to evaporating confidence in the stability of the move; and thereby investor sentiment requires a fundamental catalyst to carry over the next prominent move. The natural tendency for the market’s most liquid currency pair is a natural correction of the significant ground covered this month on the foundation of questionable recovery for the euro. Yet, there are a couple of hitches to a dramatic dollar rally: other majors are not as primed for a breakout and the growth report can side with risk trends.
From a technical perspective, a significant movement from the dollar is best established when there is little to impede trend development and there is meaningful demand across the spectrum (rather than seeing a bid develop with a single pair). That could be problematic considering the other majors are not as tension-racked as EURUSD – though a number of them (GBPUSD, AUDUSD, USDCHF) can initiate notable corrections in the greenback’s favor. The bigger complication is in the initiation of volatility. At this point, we wouldn’t need a dramatic change from the US GDP figures to revive activity levels that are at 9 month lows (according to the currency-based VIX). However, as it often is for meaningful US event risk; the market will have to judge whether the data is more influential as a risk-appetite driver or as a benchmark for health relative to its global counterparts. In fact, is probably more important than the outcome of the data itself. That said, the S&P 500 (our benchmark for risk appetite) is overextended by any reasonable measure; and thereby anything that supports confidence will generate little surprise. And, as for a relative activity measure; we should recall the 0.5 percent contraction in the UK economy through the same period and the reserved forecasts for growth in both the Euro Zone and Japan from the IMF early this week. Therefore, a disappointment could leverage the dollar on a risk aversion move while an improvement has greater influence over economic benchmarking rather than sentiment. As long as we avoid a fully in-line print.
And, though the market has clearly shown its disinterest in conventional economic indicators; it is important to take note of these second tier releases for long-term forecasts and establishing expectations for major event risk later down the line. The Chicago Fed National Activity Index is a opportune growth reading ahead of the official GDP release. That said, the report that pending home sales in 2010 dropped to their lowest levels in 13 years and initial jobless claims surged to a three-month high ground expectations of a struggling recovery.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD a GDP Play while EURCAD is a Euro Approach
Euro May have Exhausted its Sentiment Reversal, In Need of Genuine Fundamental Encouragement
The euro has charged higher while the fundamental support for the move has deteriorated. The initial, speculative recovery was instigated by suggestions by European Union officials that the region’s bailout efforts would be significantly ramped up; while the ECB revived its inflation concerns to excite interest rate speculation. However, since this optimism swept over the shared currency; there has been little back up either belief. Sure, ECB member Lorenzo Bin Smaghi voiced a warning of important inflation and German inflation hit a 2.0 percent clip; but these developments hardly move up a hike. And, as for Euro Zone’s financial health, Standard & Poor’s said it sees a high probability of Greece, Ireland, Spain and Portugal recessions through the immediate future. It seems what we need is a definitive measure of market confidence – and Portugal may provide just that. The nation’s debt agency announced its intentions to sell 1.25 billion euros of debt next Wednesday.
Japanese Yen: Why Does the Yen See Only a Modest Drop after a Sovereign Downgrade?
It would seem that the first sovereign downgrade in nine years for Japan would lead to a dramatic tumble for the yen (simply look at the effect the first downgrade from Greece had on the euro). And yet, the Japanese currency would suffer little after Standard & Poor’s announced it was lowering the nation’s credit rating to AA- from AA. This disconnect here is the meaning behind the downgrade. The ratings agency noted there was a tremendous debt burden and little ‘coherent plan’ to rein it in. Yet, the market has been well aware of this state of affairs for some time.
British Pound Holds Fast Through Disappointing Confidence, Housing and Sales Data
Though the docket was not necessarily populated with top-tier releases, the British pound was still confronted with a remarkable deterioration in fundamentals Thursday. Top of the list was the GfK Consumer Confidence survey for January which marked its biggest monthly drop since 1992 on growth concerns and in the face of a VAT tax hike. Furthermore, the Hometrack housing price indicator fell a seventh month and the CBI sales report cooled more than expected. Still in a hangover from the 4Q GDP disappointment, this data is muted now but will weigh later.
New Zealand Dollar Unfazed by RBNZ Governor Bollards Dovish Follow Up
Just a day ago, RBNZ Governor Bollard announced that the benchmark lending rate would be held at 3.00 percent. Yet, in follow up commentary this morning; the central banker wanted to reiterate his stance. Bollard noted that the recovery has been patch and inflation was “comfortably” within bounds. Though looking for carry will overlook these comments; but speculators should note his neutral stance as carry trends develop.
Swiss Franc Unresponsive to Intervention Threats, What about Growth Threats?
Though they may have very little influence over the franc’s exchange rate (proven by repeated failures at moving the currency with intervention), the SNB policymakers must still make the effort. Perhaps they should take a different tack. President Hildebrand noted that growth could slow in 2011 due to the currency and the risks of a crisis are evident on their balance sheet. Make Switzerland look less attractive to euro savings?
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
23:30 |
Tokyo Consumer Price Index (YoY) (JAN) |
-0.2% |
-0.2% |
Japanese consumer prices excluding fresh food fell 0.5% in November from a year earlier, less than the 0.6% drop expected by surveyed economists. Overall, YoY core CPI has decreased in the last 21 months. |
|
JPY |
23:30 |
Tokyo Consumer Price Index Ex-Fresh Food (YoY) (JAN) |
-0.3% |
-0.4% |
|
|
JPY |
23:30 |
Tokyo Consumer Price Index Ex Food, Energy (YoY) (JAN) |
-0.5% |
-0.5% |
|
|
JPY |
23:30 |
National Consumer Price Index (YoY) (DEC) |
-0.1% |
0.1% |
|
|
JPY |
23:30 |
National Consumer Price Index Ex-Fresh Food (YoY) (DEC) |
-0.5% |
-0.5% |
|
|
JPY |
23:30 |
National Consumer Price Index Ex Food, Energy (YoY) (DEC) |
-0.8% |
-0.9% |
|
|
JPY |
23:30 |
Jobless Rate (DEC) |
5.1% |
5.1% |
Unemployment rate held above 5.0% in November for a ninth month. |
|
JPY |
23:30 |
Job-To-Applicant Ratio (DEC) |
0.58 |
0.57 |
|
|
JPY |
23:30 |
Household Spending (YoY) (DEC) |
-0.6% |
-0.4% |
Last YoY increase was August 2010. |
|
JPY |
23:50 |
Retail Trade s.a. (MoM) (DEC) |
-1.4% |
2.1% |
Japanese retail trade increased by over 2% in November, following a two-month decline. |
|
JPY |
23:50 |
Retail Trade (YoY) (DEC) |
0.6% |
1.5% |
|
|
JPY |
23:50 |
Large Retailers’ Sales (DEC) |
-0.5% |
0.1% |
|
|
EUR |
8:30 |
Italian Consumer Confidence Index s.a. (JAN) |
109.0 |
109.1 |
Rose to 11-month high in December. |
|
EUR |
9:00 |
Euro-Zone M3 s.a. (3M) (DEC) |
1.6% |
1.3% |
November’s YoY M3 growth was the largest since August 2009. |
|
EUR |
9:00 |
Euro-Zone M3 s.a. (YoY) (DEC) |
1.9% |
1.9% |
|
|
EUR |
9:00 |
Italian Hourly Wages (MoM) (DEC) |
0.2% |
0.2% |
Italian hourly wages likely rose in December for a 3rd time in 4 months. |
|
EUR |
9:00 |
Italian Hourly Wages (YoY) (DEC) |
1.7% |
1.7% |
|
|
CHF |
10:30 |
KOF Swiss Leading Indicator (JAN) |
2.05 |
2.10 |
November reading lowest in 7 months. |
|
USD |
13:30 |
Employment Cost Index (4Q) |
0.5% |
0.4% |
3Q rise was smallest in a year. |
|
USD |
13:30 |
Gross Domestic Product (Annualized) (4Q A) |
3.5% |
2.6% |
U.S. economic growth probably picked up in the fourth quarter, driven by the biggest gain in consumer spending in four years. |
|
USD |
13:30 |
Personal Consumption (4Q A) |
4.0% |
2.4% |
|
|
USD |
13:30 |
Gross Domestic Product Price Index (4Q A) |
1.6% |
2.1% |
|
|
USD |
13:30 |
Core Personal Consumption Expenditure (QoQ) (4Q A) |
0.4% |
0.5% |
|
|
USD |
14:55 |
U. of Michigan Confidence (JAN F) |
73.3 |
72.7 |
Fell in January from six-month high. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|||
|
– |
– |
– |
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 |
1.3885 |
1.6420 |
89.00 |
1.0000 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3750 |
1.6034 |
86.00 |
0.9775 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3733 |
1.5928 |
82.82 |
0.9456 |
0.9935 |
0.9923 |
0.7732 |
113.74 |
131.92 |
|
Support 1 |
1.3425 |
1.5312 |
80.00 |
0.9300 |
0.9800 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2900 |
1.5186 |
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 |
1.6755 |
7.2790 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
12.5000 |
1.5931 |
7.1750 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.0324 |
1.5810 |
7.0549 |
7.7914 |
1.2791 |
Spot |
6.4338 |
5.4276 |
5.7868 |
|
Support 1 |
11.7200 |
1.4724 |
6.4000 |
7.7490 |
1.2750 |
Support 1 |
6.2850 |
5.2625 |
5.7030 |
|
Support 2 |
11.4400 |
1.3475 |
5.9200 |
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 |
1.3830 |
1.6043 |
83.89 |
0.9535 |
1.0010 |
1.0060 |
0.7792 |
114.96 |
133.83 |
|
Resist 1 |
1.3782 |
1.5986 |
83.35 |
0.9495 |
0.9972 |
0.9991 |
0.7762 |
114.35 |
132.87 |
|
Pivot |
1.3709 |
1.5933 |
82.69 |
0.9443 |
0.9950 |
0.9934 |
0.7717 |
113.40 |
131.73 |
|
Support 1 |
1.3661 |
1.5876 |
82.15 |
0.9403 |
0.9912 |
0.9865 |
0.7687 |
112.79 |
130.77 |
|
Support 2 |
1.3588 |
1.5823 |
81.49 |
0.9351 |
0.9890 |
0.9808 |
0.7642 |
111.84 |
129.63 |
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 |
1.3905 |
1.6094 |
83.70 |
0.9568 |
1.0034 |
1.0054 |
0.7838 |
115.19 |
133.50 |
|
Resist. 2 |
1.3862 |
1.6053 |
83.48 |
0.9540 |
1.0009 |
1.0021 |
0.7811 |
114.83 |
133.10 |
|
Resist. 1 |
1.3819 |
1.6011 |
83.26 |
0.9512 |
0.9984 |
0.9989 |
0.7785 |
114.46 |
132.71 |
|
Spot |
1.3733 |
1.5928 |
82.82 |
0.9456 |
0.9935 |
0.9923 |
0.7732 |
113.74 |
131.92 |
|
Support 1 |
1.3647 |
1.5845 |
82.38 |
0.9400 |
0.9886 |
0.9857 |
0.7679 |
113.02 |
131.13 |
|
Support 2 |
1.3604 |
1.5803 |
82.16 |
0.9372 |
0.9861 |
0.9825 |
0.7653 |
112.65 |
130.74 |
|
Support 3 |
1.3561 |
1.5762 |
81.94 |
0.9344 |
0.9836 |
0.9792 |
0.7626 |
112.29 |
130.34 |
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
