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

  • Dollar Ready for NFPs Volatility
  • British Pound Prone to Reversal as BoE Minutes Closes In
  • Australian Dollar Facing Expected Cooling in 3Q Inflation Figure
Dollar Ready for NFPs Volatility

Both the dollar and capital markets were stoic through Monday’s session as the speculative ranks await the release of a particularly important US employment report. Looking beyond the normal preoccupation with this series and the volatile reactions to ‘surprises’ (deviations from the consensus), this particular update will be uniquely market moving. Typically, this data prints on a Friday which both curbs trend development in the leads up and dampens follow through due to the weekend drain. This Tuesday report, suffers neither disadvantage. Where the September labor report really shines though is not in its shock value, but its implications for important monetary policy assumptions. Following the FOMC’s surprise decision to defer its Taper in September and the tone of uncertainty from Committee members since the US Government shutdown and shaved down growth amid delayed key data, we have seen economists’ forecasts for the first QE3 reduction pushed all the way out until March. The market is likely on the same page. That sets a very dovish, risk-on tone. Yet, that also establishes a heavy bias that can reverse.

British Pound Prone to Reversal as BoE Minutes Closes In

For GBPUSD traders, the focus over the coming 24 hours is clear: a significant change in expectations for US policy bearings and underlying risk trends can stir volatility and a heavy swing for the pair. Yet, individually, the sterling doesn’t have a particularly remarkable exposure to these more dominant themes of ‘risk’ and dollar fitness for reserve status. What guides this currency against its range of pairings is the other benchmark for FX fundamentals: interest rates. Last week, Bank of England Chief Economists Spencer Dale reinforced one of the market’s most aggressive rate forecasts by suggesting that 2015 was a like time frame for the central bank to tighten – despite the forward guidance stating explicitly 2016. BoE member Ben Broadbent made a modest effort Sunday to balance the ship when he said he doubted a hike before the forecast, but the market was unconvinced. The true weigh in comes with Wednesday’s BOE minutes. Will the tone soften?

Australian Dollar Facing Expected Cooling in 3Q Inflation Figure

A day before the Australian Bureau of Statistics releases the third quarter Consumer Price Index (CPI) stats, the market has pulled back on its expectations for a timely RBA rate hike. Looking at swaps, the probability of a 25bp rate hike over the next year has pulled back to 30 percent. The first full hike isn’t expected until well into 2015 according to the curve. While the Aussie dollar maintains a yield advantage over most majors, an aggressive forecast for policy tightening is key to building premium in a market already extended on its exposure to historically-low carry. As such, Wednesday’s CPI data is particularly important. Not a good position for an expected slowing in the headline figure…

Euro Follows Capital Markets, Unconcerned About German and Greek Warnings for Now

There were a few unflattering fundamental updates through the open of the week for the Euro. Aside from the in-line, record 90.6 percent Eurozone government-debt-to-GDPreading for 2012, there was more timely and unaccounted-for headlines. From the Bundesbank (the central bank of Germany), the monthly report repeated its warning that 3Q GDP likely slowed from the previous period’s robust performance while simultaneously issuing a warning that areas of the country’s housing sector may be as much as 20 percent overvalued. From the ‘core’ to the ‘periphery’, there were many unsettling headlines from the more troubled cadre of Eurozone members. Reports that Troika leadership was readying demands for more austerity from Greece amid doubts over primary surplus forecasts were met by accounts that Greek policymakers were going to rebuff further cuts and ask for further debt relief. Elsewhere, Portugal’s Economy Minister said no precautionary credit line was being prepped for its return to the market and Slovenia was told it can solve its own banking issues.

Japanese Yen Stumbles on Record Trade Deficit, More Stimulus?

It isn’t difficult to encourage Japanese policy officials to ever greater levels of stimulus. Yet, they are starting to run out of effective policy room…at the same time that exchange rates and economic data are flagging. From the data front, the calendar opened with Japan’s September trade figures. While better than expected, the ¥1.09 trillion deficit on the month was nevertheless a record. For a county that is struggling to generate growth domestically, this is a troubling trend. Meanwhile the yen crosses have notably struggled to find traction in drive further highs beyond the April peaks immediately following the BoJ’s stimulus induction. Momentum following the unprecedented $70 billion-per-month stimulus program is less influential for follow through than an appetite for carry that finds the yen feeding yield demand. Therein lies the problem for a market already over-reaching for tepid yield.

Canadian Dollar Traders Absorb Retail Sales Before BoC Decision

Ten-year Canadian sovereign bond yields dropped two a two-month low this past Friday. Still above 2.50 percent, it would seem that there is plenty of buoyancy to this yield. However, this currency falls far short of the carry trade clout that its Aussie and Kiwi counterpartsflaunts. In fact, using 10-year Treasury yields as a benchmark, the US provides a higher yield than Canada. And, it has maintained that premium for 110 consecutive trading days. That is the longest stretch since November 2007. While short-term rates are still significantly in the loonie’s favor, the relative carry strength of the currency is apparent. Despite a benchmark rate of 1.00 percent, the Canadian dollar is still short on meaningful yield while investors are scrambling for any return they can make. An outlook for rate hikes that precedes counterparts can potentially reverse this disadvantage. Before Wednesday’s BoC rate decision, we will look for economic strength in August retail sales.

Gold Ready for NFPs Turbulence Following Quietest Day in Six Months

The daily range for gold through Monday’s session was a mere $11.03. That is exceptionally quiet – in fact, the most reserved trading session since April 1. The comparison should stand out to metal traders. Conditions changed dramatically for gold on April 12 when it began a two-day, 14 percent plunge. Since that remarkable stumble, both actual and expected volatility have carried a trace of tension seen both in an elevated daily range and medium-term implied volatility (from the CBOE’s Gold ETF Volatility measure) above 20 percent. It is no coincidence that this return to silence comes just after a meaningful trendline break and before an important US-based event risk. Given the NFPs’ ability to tap into Fed monetary policy expectations, this data is particularly important for commodities traders. Should we see confirmation of a topped off QE3 for the next five months, the low-yield environment and fiscal uncertainties push more capital towards gold.

**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

1:30

CNY

Property Prices (SEP)

With property prices in tier one cities rising in excess of 10% MoM, market participants may begin to grow wary of this unsustainable trend.

2:00

CNY

Conference Board Leading Economic Index (SEP)

6:00

CHF

Trade Balance (Swiss franc) (SEP)

1.85B

Switzerland has had a healthy trade balance for the past decade, but it is prone to Franc strength as has been the case over the past month.

6:00

CHF

Exports (MoM) (SEP)

0.8%

6:00

CHF

Imports (MoM) (SEP)

-4.5%

8:30

GBP

Public Finances (PSNCR) (Pounds) (SEP)

-3.0B

Public sector borrowing has been slow to react to government vows of austerity

8:30

GBP

Public Sector Net Borrowing (Pounds) (SEP)

10.0B

11.5B

8:30

GBP

Public Sector Net Borrowing ex Interventions (SEP)

11.2B

13.2B

8:30

GBP

Public Sector Net Borrowing ex Royal Mail, APF (SEP)

11.4B

13.2B

12:30

CAD

Retail Sales (MoM) (AUG)

0.3%

0.6%

Retail Sales Less Autos have only been above 1% once since 2010.

12:30

CAD

Retail Sales Less Autos (MoM) (AUG)

0.2%

1.0%

12:30

USD

Change in Non-Farm Payrolls (SEP)

180K

169K

This data has the potential to ignite new trends and possible Dollar strength if NFPs come in better than expected. If the critical NFPs data disappoints, USD weakness may prevail, although the extent to which more downside moves could be extended is limited following the greenback’s broad decline during the government shutdown.

12:30

USD

Unemployment Rate (SEP)

7.3%

7.3%

12:30

USD

Labor Force Participation Rate (SEP)

63.2%

12:30

USD

Change in Private Payrolls (SEP)

183K

152K

12:30

USD

Change in Manufacturing Payrolls (SEP)

5K

14K

12:30

USD

Underemployment Rate (SEP)

13.7%

12:30

USD

Two-Month Payroll Net Revision (SEP)

-74K

12:30

USD

Average Hourly Earnings (MoM) (SEP)

0.2%

0.2%

12:30

USD

Average Hourly Earnings (YoY) (SEP)

2.1%

2.2%

12:30

USD

Average Weekly Hours (SEP)

34.5

34.5

12:30

USD

Change in Household Employment (SEP)

-115

14:00

USD

Richmond Fed Manufacturing Index (OCT)

0

0

23:00

AUD

Conference Board Leading Index (AUG)

0.3%

GMT

Currency

Upcoming Events & Speeches

8:00

EUR

EU General Affairs Ministers Hold Meeting

8:00

GBP

BoE's Charles Bean Speaks on U.K. Economy

13:00

EUR

ECB's Nowotny to Speak

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

13.4800

2.0500

10.7250

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.2400

2.0100

10.5000

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.9984

1.9808

9.8447

7.7526

1.2425

Spot

6.4018

5.4589

5.9243

Support 1

12.6000

1.9140

9.3700

7.7490

1.2000

Support 1

6.0800

5.4440

5.7450

Support 2

12.4200

1.9000

8.9500

7.7450

1.1800

Support 2

5.8085

5.3350

5.5655

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

1.3762

1.6236

99.29

0.9113

1.0367

0.9731

0.8528

135.66

1343.91

Res 2

1.3738

1.6208

99.05

0.9093

1.0352

0.9711

0.8507

135.34

1336.51

Res 1

1.3713

1.6179

98.82

0.9074

1.0337

0.9690

0.8486

135.02

1329.10

Spot

1.3664

1.6121

98.35

0.9035

1.0306

0.9649

0.8444

134.38

1314.30

Supp 1

1.3615

1.6063

97.88

0.8996

1.0275

0.9608

0.8402

133.74

1299.50

Supp 2

1.3590

1.6034

97.65

0.8977

1.0260

0.9587

0.8381

133.42

1336.51

Supp 3

1.3566

1.6006

97.41

0.8957

1.0245

0.9567

0.8360

133.10

1343.91

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.

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

original source
comments powered by Disqus
Trading Center