- Dollar Strength Requires a Fundamental Shove – Such as a Clear Risk Aversion Move
- Euro’s Future Up in the Air as Politicians Postpone a Much-Anticipated Fix to Financial Troubles
- British Pound at the Top of the Fundamental Heap Next Week with the BoE on Deck
- Canadian Dollar Rallies after Employment Data, Tumbles after Business Activity
- Australian Dollar Traders will Have to Gauge a Jobs Report Reaction against Rate Expectations
- Japanese Yen won’t be able to Hold onto its Premium for Long as Yield Spreads Widen
Dollar Strength Requires a Fundamental Shove – Such as a Clear Risk Aversion Move
Rewind the clock back; and the dollar seems to be in exactly the opposite position it was a month ago. Back then, the greenback was just starting to retrace from near-four month highs even though fundamentals scarcely supported the shift. And, now as we head into a new trading week, the currency is just starting to recover from a month-long tumble – again, without solid support from the speculative backdrop. The precedence for last month’s reversal plays to our human inclination to spot patterns and expect similar results; while a pure look at fundamentals gives us reason to doubt that a meaningful drive for the dollar is feasible. However, if we are to first simply look at the unit’s performance over the last 24 hours of trading this past week; we should at least be open to the risk of bullish follow through. The benchmark pairing for the dollar, EURUSD, slid for its third consecutive session to extend its best run since the opening rally to the new trading year. Taking stock of the risk-appetite angle, AUDUSD would retrace from a high for the month and NZDUSD cleared general declines. Perhaps most remarkable of all, though, was the strong drive against the Japanese yen and Swiss franc (fellow safe-haven currencies). Definitively, a dollar move.
The encouraging move for the greenback over the second half of the week was especially surprising because of the data that crowded the headlines and the uncomplimentary bearing in investor sentiment. Few were in the dark about the release of the January nonfarm payrolls (NFP) report from the Bureau of Labor Statistics. The headline net change figure fell well-short of the consensus forecast with a 36,000 addition; but optimists attributed this weak performance to the unusual weather during the period. The jobless rate would offer the bigger surprise by unexpectedly dropping to 9.0 percent – its lowest level in 21 months. Yet, here too, there was something beneath the surface. Perhaps far more important to the overall picture, labor force participation through the month dropped to its lowest level since March of 1984 (at 64.2 percent) while the number of people that exited the labor force but still wanted a job rose sharply to its highest level on record. For the long-term view, this reminds us that though there is a firm pace of growth, it is founded on dynamics (inventory, trade, business investment) that cannot survive without a hand-in-hand recovery for the US recovery. That said, what was particularly interesting for us traders is that such a disappointing round boosted the dollar but wouldn’t weigh the risk-sensitive S&P 500.
As we head into the new trading week, it will be important to gauge the dollar’s performance against the benchmarks for investor sentiment. Not often do the two diverge for long. However, anyone looking for easily identifiable catalysts to rally or crush optimism will come up short. The economic docket is exceptionally light over the next week; but that doesn’t mean the bigger themes cannot be massaged. Concerns surrounding Europe’s financial stability, China’s asset inflation, Japan’s debt fight, Middle Eastern tensions or the proximity of the US deficit cap quickly block out all other concerns. When equities, commodities, yields and currencies start moving in concert; a bigger move will be upon us.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD Tops the List for Trade Potential Next Week
Euro’s Future Up in the Air as Politicians Postpone a Much-Anticipated Fix to Financial Troubles
The influence that preconceived market expectations can have on price action was demonstrated Thursday when an otherwise unchanged ECB President Trichet statement led the euro to tumble. Perhaps the market learned its lesson and decided to entertain less extraordinary expectations for the meeting for EU officials. There has been considerable interest paid to proposals thrown out by various lawmakers about expanding the EFSF program, using the funds to purchase government debt and lowering emerging fund rates amongst other boons. Yet, more than one person warned that no decisions would be made until the March summit. Indeed, the attendees deferred a meaningful outcome and vowed to revisit the proposals for a draft to bring to vote sometime between March 7th and 24th. That said, they are taking a gamble in assuming the market will simply hold tight until then. In the meantime, next week brings the first of the European fourth quarter GDP readings: Spain.
British Pound at the Top of the Fundamental Heap Next Week with the BoE on Deck
The British pound offered up a mixed performance Friday after the Halifax home price indicator a monthly advance out of diminished supplies and former BoE member Kate Barker called the central bank out for losing credibility in its inflation fight. Next week, sterling traders will have the benefit of dealing with the fullest economic docket of its peers. At the top of the list will be the NIESR GDP estimate for January, industrial production, factory level inflation and the BoE rate decision. There is no change expected in either the stimulus program or the benchmark rate; but the previous 6-2-1 vote (two members calling for a hike) will no doubt encourage speculation before this month’s decision is announced.
Canadian Dollar Rallies after Employment Data, Tumbles after Business Activity
If all of the Canadian dollar’s catalysts lined up, USDCAD may have held onto two-and-half year lows. The Canadian employment figures set a strong tone for the morning. While the jobless rate rose from a two-year low to 7.8 percent, it was more an influx of participation given the 69,200 increase in payrolls. A full on rally was curbed though when the Ivey business activity survey unexpectedly plunged to a two-year low.
Australian Dollar Traders will Have to Gauge a Jobs Report Reaction against Rate Expectations
While the Australian dollar has been fundamentally shaken these past few weeks, the currency’s inclination is still a bullish one. The last update we would have from the economic wellspring was the RBA’s upgrade to growth and inflation forecasts for 2011. That said, these projections will mean little if data keeps chipping away at the economy. As such, Aussie traders will keep a close eye on next week’s employment data.
Japanese Yen won’t be able to Hold onto its Premium for Long as Yield Spreads Widen
It should strike any fundamental trader as unusual that the yen is holding up so well considering the nation was downgraded, policymakers are discussing a sharp increase in taxes and benchmark risk measures are pushing new highs. Another abnormality to watch: the US and Japanese 10-year government bond differential has shifted sharply in the dollar’s favor. USDJPY historically follows this spread very closely.
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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 |
23:30 |
AiG Performance of Construction Index (JAN) |
43.8 |
Construction fell in the last 7 months. |
|
|
JPY |
23:50 |
Official Reserve Assets (JAN) |
$1096.2B |
Reserves fell in the last two months. |
|
|
AUD |
0:30 |
Retail Sales s.a. (MoM) (DEC) |
0.5% |
0.3% |
Retail sales rebounded in November as spending at department stores increased. |
|
AUD |
0:30 |
Retail Sales Ex Inflation(QoQ) (4Q) |
0.1% |
0.7% |
|
|
AUD |
0:30 |
ANZ Job Advertisements (MoM) (JAN) |
2.0% |
Advertisements rose in the last 8 months. |
|
|
JPY |
5:00 |
Leading Index (DEC P) |
101.4 |
100.6 |
Japanese leading index rose to a seven-month high in November. |
|
JPY |
5:00 |
Coincident Index (DEC P) |
103.1 |
102.4 |
|
|
AUD |
5:30 |
Foreign Reserves (Australian dollar) (JAN) |
41.6B |
Last reading was lowest since March. |
|
|
EUR |
9:30 |
Euro-Zone Sentix Investor Confidence (FEB) |
14.0 |
10.6 |
Confidence likely rose for second month. |
|
EUR |
11:00 |
German Factory Orders s.a. (MoM) (DEC) |
-1.5% |
5.2% |
German factory orders probably fell in December after a two-month rise. |
|
EUR |
11:00 |
German Factory Orders n.s.a. (YoY) (DEC) |
21.3% |
20.6% |
|
|
CAD |
13:30 |
Building Permits (MoM) (DEC) |
2.0% |
-11.2% |
Permits fell in 4 of the past five months. |
|
USD |
20:00 |
Consumer Credit (DEC) |
$2.500B |
$1.346B |
Credit likely rose for a 3rd month in Dec. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|||
|
JPY |
3:30 |
BoJ Governor Masaaki Shirakawa Speaks on Japanese Economy |
|||
|
EUR |
14:00 |
ECB’s Axel Weber Speaks on The Euro |
|||
|
EUR |
17:15 |
ECB’s Yves Mersch Speaks on European Financial System |
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 |
1.3581 |
1.6111 |
82.18 |
0.9550 |
0.9873 |
1.0138 |
0.7701 |
111.62 |
132.40 |
|
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 |
11.9863 |
1.5851 |
7.2531 |
7.7860 |
1.2750 |
Spot |
6.4813 |
5.4891 |
5.7558 |
|
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 |
1.3736 |
1.6241 |
83.27 |
0.9673 |
1.0036 |
1.0238 |
0.7784 |
112.76 |
133.93 |
|
Resist 1 |
1.3658 |
1.6176 |
82.73 |
0.9612 |
0.9954 |
1.0188 |
0.7743 |
112.19 |
133.16 |
|
Pivot |
1.3601 |
1.6106 |
81.90 |
0.9531 |
0.9893 |
1.0149 |
0.7704 |
111.48 |
131.97 |
|
Support 1 |
1.3523 |
1.6041 |
81.36 |
0.9470 |
0.9811 |
1.0099 |
0.7663 |
110.91 |
131.20 |
|
Support 2 |
1.3466 |
1.5971 |
80.53 |
0.9389 |
0.9750 |
1.0060 |
0.7624 |
110.20 |
130.01 |
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 |
1.3750 |
1.6280 |
83.08 |
0.9664 |
0.9971 |
1.0273 |
0.7806 |
113.06 |
134.02 |
|
Resist. 2 |
1.3708 |
1.6238 |
82.86 |
0.9636 |
0.9946 |
1.0239 |
0.7780 |
112.70 |
133.62 |
|
Resist. 1 |
1.3666 |
1.6196 |
82.63 |
0.9607 |
0.9922 |
1.0205 |
0.7753 |
112.34 |
133.21 |
|
Spot |
1.3581 |
1.6111 |
82.18 |
0.9550 |
0.9873 |
1.0138 |
0.7701 |
111.62 |
132.40 |
|
Support 1 |
1.3496 |
1.6026 |
81.73 |
0.9493 |
0.9824 |
1.0071 |
0.7649 |
110.90 |
131.59 |
|
Support 2 |
1.3454 |
1.5984 |
81.50 |
0.9464 |
0.9800 |
1.0037 |
0.7622 |
110.54 |
131.18 |
|
Support 3 |
1.3412 |
1.5942 |
81.28 |
0.9436 |
0.9775 |
1.0003 |
0.7596 |
110.18 |
130.78 |
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
