Filed Under:
Forex pairs in this Article » USDOLLAR, EUR/USD, USD/JPY, AUD/USD, GBP/USD
Talking Points:

  • Dollar Extends Longest Drop in a Month, Momentum Still Absent
  • British PoundRallies Sharply after Strong Jobs Data, Yields Unexpectedly Steady
  • Australian Dollar Drops Sharply after Employment Data Shows Surprise Drop
Dollar Extends Longest Drop in a Month, Momentum Still Absent

With equities on the rise and the US 10-year Treasury yield easingback from its Taper-driven surge to 3.00 percent, it comes as little surprise that the USDollar suffered its fourth consecutive daily drop. While this is only the longest series of losses in a month, it is all the more remarkable for the fact that it has made serious progress in tracing its way down from the earl-July highs. The same two, key factors remain for the greenback: risk trends and monetary policy forecasts…and both are working against the currency. For the currency’s safe haven status, the benchmark S&P 500 has advanced four a seventh consecutive trading day. We’ve only experienced four instances of such an aggressive run (seven-or-more day advances) by this index in 7 years – and all of them have occurred this year. Meanwhile, the Taper countdown is now under a week. Yet, yield-assets are pulling back from the fear trade. Unless risk aversion takes on the Fed move, the dollar may be in trouble.

British Pound Rallies Sharply after Strong Jobs Data, Yields Unexpectedly Steady

Through Wednesday’s trading session, the sterling took the top spot amongst the majors. Particularly remarkable amongst the pound crosses was the GBPUSD’s surge above 1.5750 to trade at seven-month highs. The catalyst for this breakout move was key event risk that not only sparked short-term speculators’ interests but would also tap into the more fundamental discussion of the Bank of England’s pace on policy. The August jobless claims surprised the consensus with a 32,600-net decline and a further downward revision to the previous month’s reading. Together, the July-August drop in unemployment claims was the biggest two-month slide since 1997. This is yet another point for rate forecasts to doubt the BoE’s ability to avoid cuts before 2016. We’ll see if they confirm this in upcoming MPC testimony in Parliament.

Euro Traders Face Another Berlusconi Discussion, EU Vote on Syria

The euro is happy to drift between the fundamental headlines as the currency maintains a steady path amidst volatility suffered by many of its counterparts. Capital markets were mixed with the Euro Stoxx equity index posting a 0.4 percent advance to a two-year high while other country-specific indexes meandered. On the newswires, the periphery was once again making waves that the global community paid little attention to. ECB Member Coene suggested in an interview that Greece may actually need to seek more than one additional rescue program and the EU’s Dijsselbloem remarked Greece’s problems wouldn’t be over before the end of 2014. Meanwhile Portugal’s Deputy Prime Minister said they would try to negotiate with the Troika for relaxed targets, dampening hopes that they will be able to return to the market soon. Most threatening though is the outlook for Italy. Clearly from Italian yields and default swaps, there is little fear of the coalition government falling apart in retaliation to a possible removal of former Prime Minister Berlusconi from Parliament on his tax fraud conviction. The level of impact such a development would have alongside its not-insignificant probability demands more respective. The Senate will deliberate again today.

Australian Dollar Drops Sharply after Employment Data Shows Surprise DropAUDNZD – normally one of the most stoic exchange rates – is one of the most active pairs today. This performance is fostered by a particularly strong backdrop for the New Zealand currency (more on that below) and an exceptionally painful move for the Australian dollar. Crowding the morning headlines in Sydney was the report of an unexpected drop in August employment figures (10,800) and uptick in the jobless rate to a four-year high 5.8 percent. Adding a little more pressure to the monetary policy implications this data carries, the September Consumer Inflation Expectation survey dropped to 1.5 percent – the lowest reading in 20 years. As significant as these readings are, they are unlikely to spur the RBA to revive the rate cut regime they have just recently pulled out of. Nevertheless, the benchmark 10-year yield dropped 3 percent.

New Zealand Dollar Rallies after RBNZ Confirms Intention to Hike in 2014

In the wake of key event risk, the New Zealand dollar is up against all of its counterparts through early Thursday trade. The impetus for this kiwi climb was the Reserve Bank of New Zealand (RBNZ) rate decision. Though the central bank did not budge on its 2.50 percent benchmark lending rate – as expected by the broader market – the policy authority did offer fodder for speculators to price in tightening through the foreseeable future. Between the policy statement and Governor Graeme Wheeler’s press conference, the comment that most FX traders honed in on was the admission of plans to raise rates in 2014. While that does not meet the level of speculation that we seen in rates market (swaps are pricing in 90 bps of hikes over 12 months), it acts as vindication for the more aggressive prognostications. Meanwhile, regular lamentations about an overvalued currency are overlooked. Active intervention has failed, so ‘jawboning’ has no hope.

US Oil Finds Support in Risk Elevation to Compensate for Deflated Syria Risks

Supply-and-demand – though important – is only one element to pricing US oil. That aspect of the market was downplayed this past session following the US President Barack Obama’s address in which he agreed to Russia’s offer to broker negotiations to disarm Syria of its chemical weapons – and in doing so avoid escalating tensions in the Middle East. For crude, tame supply risks equates to a reduction in ‘panic premium’. To that point, the CBOE’s oil volatility index collapsed 10.3 percent – the biggest ‘relief’ move for the measure since August 11, 2011. Yet that same relief to the risk bid didn’t translate into a price drop. The US standard WTI futures contract rose a modest 0.2 percent Wednesday – picking up on its other primary market role: a speculative asset that rises alongside equities.

Gold Holds $1,355 as Uncertainty Grows

Gold bugs were offered a temporary reprieve from having to make a potentially painful break at $1,355. The 2.0 percent drop by the precious metal over the opening 48 hours of the week contradicted the growing financial threat that surrounded Syria as well as the benchmark US dollar’s steady drop. With the 0.1 percent advance for gold through Wednesday’s session, we see a moderation borne out of a lack of conviction in the prevailing bear trend. Further progress below $1,350 would reflect conviction in a momentum shift – and the traditional fundamental cues are just as lacking for a move lower as they are for a rally. Where the greenback selloff could vault the appeal of an alternative safe haven, the Taper view is keeping pressure under wraps and the risk is not yet in general currencies. Alternatively, if the benchmark currency were to rebound after its four-day slide, gold could risk a break lower. Looking at trading conditions, volume in the ‘derivative’ space hit its lowest levels in a month. Meanwhile, both realized and expected volatility readings continue to however well above pre-April activity levels.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

1:00

KRW

Bank of Korea Rate Decision

2.50%

2.50%

1:30

AUD

Credit Card Balances (JUL)

$A49.9B

Market participants and those who have brought the Aussi above 92 will be looking to see whether improved data out of China is a barometer of temporary rising sentiment in the East for the near term. With the Aussi at key levels, traders would need some incredible data in order to justify a breakout in the Australian Dollar.

1:30

AUD

Credit Card Purchases (JUL)

$A20.3B

1:30

AUD

Employment Change (AUG)

10.0K

-10.2K

1:30

AUD

Unemployment Rate (AUG)

5.8%

5.7%

1:30

AUD

Full Time Employment Change (AUG)

-6.7K

1:30

AUD

Part Time Employment Change (AUG)

-3.5K

1:30

AUD

Participation Rate (AUG)

65.2%

65.1%

2:00

JPY

Tokyo Average Office Vacancies (AUG)

8.29

The print has been on a steady decline since May of last year.

6:45

EUR

French Consumer Price Index (MoM) (AUG)

0.5%

-0.3%

Following Germany, French CPI has declined from stable 2% levels seen in 2011 and 2012 to lows not seen since early 2010. Certainly the ECB will have to address these declining levels if the trend continues.

6:45

EUR

French Consumer Price Index (YoY) (AUG)

0.9%

1.1%

6:45

EUR

French CPI - EU Harmonised (MoM) (AUG)

0.5%

-0.3%

6:45

EUR

French CPI - EU Harmonised (YoY) (AUG)

1.0%

1.2%

6:45

EUR

French Consumer Price Index Ex Tobacco Index (AUG)

125.93

125.35

8:00

EUR

Italian Industrial Production s.a. (MoM) (JUL)

0.2%

0.3%

Data out of Italy has improved YoY to a noticeable degree, but that has not stopped the bond market from charging Italy more than Spain for debt for the first time since the height of the Euro crisis.

8:00

EUR

Italian Industrial Production w.d.a. (YoY) (JUL)

-2.7%

-2.1%

8:00

EUR

Italian Industrial Production n.s.a. (YoY) (JUL)

-5.1%

9:00

EUR

Euro-Zone Industrial Production s.a. (MoM) (JUL)

-0.3%

0.7%

Despite positive data last month, it may appear as though industrial production figures will disrupt that rising sentiment with a contraction month over month.

9:00

EUR

Euro-Zone Industrial Production w.d.a. (YoY) (JUL)

-0.1%

0.3%

9:00

EUR

Italian CPI FOI Index ex Tobacco (AUG)

107.2

Last month’s print was the single lowest reading since February 2010.

9:00

EUR

Italian CPI - EU Harmonized (YoY) (AUG F)

1.2%

EUR

Greek Unemployment Rate

27.6%

12:30

CAD

New Housing Price Index (MoM) (JUL)

0.1%

0.2%

Canadian homes have not risen in price over 0.50% month over month since 2008. YoY prices have been on the decline all of 2013.

12:30

CAD

New Housing Price Index (YoY) (JUL)

1.9%

1.8%

12:30

USD

Initial Jobless Claims (SEP 7)

330K

323K

Although initial jobless claims have been on a steady decline most of the year, data must not upset the general trend to a large degree or it may risk adding to worries from dovish FOMC members regarding a taper of asset purchases.

12:30

USD

Continuing Claims (AUG 30)

2968K

2951K

12:30

USD

Import Price Index (MoM) (AUG)

0.5%

0.2%

12:30

USD

Import Price Index (YoY) (AUG)

0.4%

1.0%

18:00

USD

Monthly Budget Statement (AUG)

-$150.0B

22:30

NZD

Business NZ PMI (AUG)

59.5

These prints will be on the back of the RBNZ and Wheeler comments. PMI last month was at a level not seen since June of 2004.

22:45

NZD

Food Prices (MoM) (AUG)

0.5%

GMT

Currency

Upcoming Events & Speeches

8:00

EUR

European Central Bank Monthly Report

9:00

GBP

BoE's Carney, Fisher, Miles and McCafferty Testimony

10:00

EUR

EU Parliament Votes on Resolutions for Syria and Egypt

11:40

EUR

ECB President Mario Draghi Speaks on Euro Economy

17:00

USD

US to Sell $13 Bln in 30-Year Bonds

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

13.5900

2.1000

10.7250

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.4800

2.0500

10.5000

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

13.0606

2.0134

9.8882

7.7542

1.2665

Spot

6.5184

5.6009

5.9151

Support 1

12.8900

1.9750

9.3700

7.7490

1.2000

Support 1

6.0800

5.5600

5.8700

Support 2

12.6000

1.9075

8.9500

7.7450

1.1800

Support 2

5.8085

5.4440

5.7400

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.3423

1.5944

100.75

0.9385

1.0388

0.9368

0.8215

134.15

1392.56

Res 2

1.3397

1.5915

100.44

0.9363

1.0370

0.9343

0.8191

133.74

1384.50

Res 1

1.3370

1.5885

100.13

0.9341

1.0352

0.9318

0.8168

133.33

1376.44

Spot

1.3317

1.5826

99.50

0.9297

1.0316

0.9268

0.8120

132.50

1360.33

Supp 1

1.3264

1.5767

98.87

0.9253

1.0280

0.9218

0.8072

131.67

1344.22

Supp 2

1.3237

1.5737

98.56

0.9231

1.0262

0.9193

0.8049

131.26

1384.50

Supp 3

1.3211

1.5708

98.25

0.9209

1.0244

0.9168

0.8025

130.85

1392.56

v

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.

original source
comments powered by Disqus
Trading Center