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Forex pairs in this Article » AUD/USD, EUR/USD, GBP/USD, NZD/USD, USD/CAD, USD/CHF, USD/JPY, GOLD, USD
Talking Points:

  • Dollar Rebounds as S&P 500 Threatens to Jump
  • New Zealand Dollar Outlook Has Grown Far More Bullish
  • Australian Dollar Fails to Leverage Jobs Data
Dollar Rebounds as S&P 500 Threatens to Jump

Where monetary policy speculation falls shorts for the dollar, risk trends can provide it seems. Despite the growing speculation and support for the near-term (perhaps even January) Taper from the Fed, the currency has remained on its back foot. Yet, one – albeit heavy – drop in the S&P 500, and the USDollar retraces all its losses from the previous day. The US benchmark equity index dropped 1.1 percent for its biggest decline in five weeks. Adding to the active ‘risk off’ picture, the VIX Volatility Index jumped 1.5 vols to 15.4 percent for the highest close in two months, the yen crosses dropped across the board and emerging market ETFs slid. As tantalizing as this may be for a volatility- and trend-starved market, the implications for something more prolific so close to the year-end drain are limited.

To establish a realistic forecast for risk trends, we should first identify the driving force behind this past session’s risk aversion move. More than a few headlines defer to speculation of a Fed Taper. This theme certainly does carry more than its fair share of influence, but there was no particular catalyst to feed that hawkish concern. The rumor of former Bank of Israel Governor Stanley Fischer (historically a hawk) leading the candidate pool for the Fed’s Vice Chairmanship came well after the drop was established. Furthermore, the timing of this fundamental theme is likely to curb the development of a sentiment trend as it is to spur it. Having already accounted for a robust round of employment data, optimistic group of Fed officials and close to an impending budget crisis; there aren’t many high-level catalysts to rally the rate hikes to the cause. Furthermore, we often see the period leading up to major event risk like next Wednesday’s FOMC decision dissuades major repositioning. A risk break is certainly a possibility, and it would be supportive of the dollar. Yet, establishing a lasting trend is a tall order.

New Zealand Dollar Outlook Has Grown Far More Bullish

With the Bank of Japan expected to deliver an upgrade to its open-ended stimulus program and the European Central Bank seen introducing a third LTRO-like scheme, there is a growing dovish lean. In a market that is seeking return in the traditional capital asset classes, that would mean the higher-yielding currencies (as well as those that have a hawkish outlook) should be in heavy demand. And yet, the New Zealand and Australian dollars continue to lag in key pairings like the yen and dollar crosses. This lack of strength is likely a side effect of risk-trend based distractions and will likely clear up in the first quarter. Meanwhile, the bullish pressure is growing especially intense for the kiwi. This morning, the RBNZ held its benchmark lending rate at 2.50 percent, but the commentary that came along with it was perhaps more incredible. Though Governor Wheeler suggested the exchange rates are not sustainable at current levels for the long-term, the market was focusing on his outlook for rates. Wheeler remarked that rates need to rise 225bps (2.25 percent) through the first quarter of 2016. This is very unique.

Australian Dollar Fails to Leverage Jobs Data

The Australian docket carried the exact combination of indicators to offer a complete picture of a major central bank’s typical mandate for monetary policy: employment and inflation factors. The December Consumer Inflation Expectation survey was the first release with a lift to 2.1 percent – further lifting the indicator from the 20-year low set in September. Meanwhile, the November labour report printed a 21,000-net increase in payrolls, which was more than twice the forecast. Yet, on both accounts, there is reason for pause. As much as the inflation figure improved, it is still very low. For the jobs report, an uptick in the unemployment rate to 5.8 percent curbs enthusiasm.

British Pound: 55% of Households Expected a BoE Hike in the Next Year

We know that interest rate forecasts amongst market participants have soared, and that has helped leverage an otherwise low yielding sterling against most of its counterparts. Yet, the extent of those expectations may be far more aggressive than many have suspected – leaving both consensus and currency open to normalization. According to a survey conducted by Markit of households, 78 percent of those that took part expected the BoE to begin hiking within two years and a remarkable 55 percent believe it will happen within the next year. While expectations don’t determine policy, the aggressive expectations and their influence on the sterling are worthy of reflection for traders.

Euro Ready for Draghi Speech, ECB Monthly Update

As the Fed debates Taper, the ECB looks to be heading closer to an inevitable stimulus upgrade. According to a Reuters poll conducted this week, over 60 percent of market participants believe a third Long-Term Refining Operation (LTRO) program will be introduced sometime early in 2014. That would be a dovish turn of events, but the scope of its bearishness is not clear. We will watch to see the likelihood of this Taper contrast in the upcoming session as ECB President Draghi testifies to the EU parliament on policy, and the ECB releases its monthly report.

Swiss Franc: What to Expect for the SNB Rate Decision

The Swiss National Bank is scheduled to announce its quarterly monetary policy decision at 8:30 GMT today. As has been the case through the 2013 meetings, this particular gathering is expected to yield no change in the benchmark nor in the central bank’s vow to ensure the 1.2000 EURCHF floor. However, a recent return to inflation, improved growth prospects and stable EU are lifting the costs of a zero-rate policy.

US Oil Drops Despite Second Largest Drop in US Inventories on Record

According to the Department of Energy’s figures, US crude oil inventories plunged 10.6 million barrels last week – a drop nearly four times what was expected and the second largest tumble on record. This reading is most likely season – but the severity is nevertheless extraordinary. Meanwhile, implied demand eased back only slightly from the previous period’s record high. And yet, oil dropped 1.1 percent.

Gold Mirrors the Dollar, $1,250 Now Support

As helpful as the dollar was to gold when it posted its impressive rally Tuesday, the correlation can work against the metal as well as we see this past session. With the dollar’s general advance – mainly against high-yielding currencies – the precious metal slipped 0.8 percent. We are still well enough above the $1,200 level that represents the floor to a more severe bear leg, but the immediate $1,250 support doesn’t present itself to be particularly robust. Taper speculation will be used a lot in this market going forward, so a view of the dollar, Treasuries and stocks is useful.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:00

AUD

Consumer Inflation Expectation (Dec)

1.90%

With the Aussi having failed to breach December highs on Tuesday, a fifth consecutive miss in employment change figures could add to further selling pressure.

0:30

AUD

Credit Card Balances (Oct)

$A48.8B

0:30

AUD

Credit Card Purchases (Oct)

$A22.0B

0:30

AUD

Employment Change (Nov)

10.0K

1.1K

0:30

AUD

Unemployment Rate (Nov)

5.8%

5.70%

0:30

AUD

Full Time Employment Change (Nov)

-27.9K

0:30

AUD

Part Time Employment Change (Nov)

28.9K

0:30

AUD

Participation Rate (Nov)

64.8%

64.80%

2:00

JPY

Tokyo Avg Office Vacancies (Nov)

7.56

October’s YoY print saw the worst reading since 2009.

7:45

EUR

France CPI EU Harmonized MoM (Nov)

0.0%

-0.10%

7:45

EUR

France CPI EU Harmonized YoY (Nov)

0.8%

0.70%

7:45

EUR

France CPI MoM (Nov)

0.0%

-0.10%

7:45

EUR

France CPI YoY (Nov)

0.7%

0.60%

7:45

EUR

France CPI Ex-Tobacco Index (Nov)

125.5

125.4

8:30

CHF

SNB 3-Month Libor Target Rate (Dec 12)

0.00%

0.00%

9:00

EUR

Italy CPI FOI Index Ex Tobacco (Nov)

107.1

9:00

EUR

Italy CPI EU Harmonized YoY (Nov F)

0.6%

0.6%

10:00

EUR

Industrial Production SA MoM (Oct)

0.3%

-0.5%

10:00

EUR

Industrial Production WDA YoY (Oct)

1.1%

1.1%

13:30

CAD

Capacity Utilization Rate (3Q)

81.0%

80.6%

13:30

CAD

New Housing Price Index MoM (Oct)

0.1%

0.0%

13:30

CAD

New Housing Price Index YoY (Oct)

1.5%

1.6%

13:30

USD

Retail Sales Advance MoM (Nov)

0.6%

0.4%

If the MoM Retail Sales Advance print comes in at 0.6% estimates, it will be the best print since June.

13:30

USD

Retail Sales Ex Auto MoM (Nov)

0.2%

0.20%

13:30

USD

Import Price Index MoM (Nov)

-0.7%

-0.70%

13:30

USD

Import Price Index YoY (Nov)

-2.00%

13:30

USD

Initial Jobless Claims (Dec 7)

320K

298K

13:30

USD

Continuing Claims (Nov 30)

2764K

2744K

14:00

CAD

Teranet/National Bank HPI MoM (Nov)

-0.1%

0.10%

14:00

CAD

Teranet/National Bank HPI YoY (Nov)

3.3%

3.10%

15:00

USD

Business Inventories (Oct)

0.3%

0.60%

21:30

NZD

BusinessNZ Manufacturing PMI (Nov)

55.70

GMT

Currency

Upcoming Events & Speeches

1:00

JPY

Bloomberg Japan Economic Survey (DEC)

7:30

EUR

Bloomberg Eurozone Economic Survey (DEC)

7:35

EUR

Germany Bloomberg Germany Economic Survey (DEC)

7:40

EUR

France Bloomberg France Economic Survey (DEC)

7:45

EUR

Italy Bloomberg Italy Economic Survey (DEC)

9:00

EUR

ECB Publishes Monthly Report

13:45

USD

Bloomberg United States Economic Survey (DEC)

14:00

CAD

Bloomberg Canada Economic Survey (DEC)

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

2.1000

10.7250

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.2400

2.0850

10.5000

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

13.0406

2.0427

10.3858

7.7540

1.2526

Spot

6.5484

5.4125

6.1443

Support 1

12.6000

1.9140

9.3700

7.7490

1.2000

Support 1

6.0800

5.3350

5.7450

Support 2

12.4200

1.9000

8.9500

7.7450

1.1800

Support 2

5.8085

5.2715

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

1.3886

1.6481

103.73

0.8942

1.0664

0.9120

0.8370

143.06

1281.06

Res 2

1.3860

1.6452

103.46

0.8924

1.0646

0.9096

0.8346

142.66

1274.48

Res 1

1.3834

1.6423

103.19

0.8905

1.0628

0.9072

0.8323

142.26

1267.91

Spot

1.3783

1.6365

102.64

0.8867

1.0592

0.9025

0.8276

141.47

1254.76

Supp 1

1.3732

1.6307

102.09

0.8829

1.0556

0.8978

0.8229

140.68

1241.61

Supp 2

1.3706

1.6278

101.82

0.8810

1.0538

0.8954

0.8206

140.28

1274.48

Supp 3

1.3680

1.6249

101.55

0.8792

1.0520

0.8930

0.8182

139.88

1281.06



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