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

  • Dollar’s Smallest Range in 7 Months Warns of Volatility
  • British Pound: CPI Data Round One for Breakout Risk
  • Euro Bests All Majors after Greece Avoids No Confidence Problems
Dollar’s Smallest Range in 7 Months Warns of Volatility

The Dow Jones FXCM Dollar Index (ticker = USDollar) traded in an incredibly tight 18.8-point daily range Monday – the lowest level of activity in seven months and the second most restrained reading in six years. Extremes don’t last by their very nature and this is certainly a severe reading of inactivity. There is plenty of thematic, fundamental fodder for FX traders to use to put the currency back on pace; but a meaningful trend may be out of reach of anything short of a clear risk trend move or obvious shift in the timing of the Fed’s stimulus wind down. The opening session for the week was light on such high-level catalysts. Over the coming session, we have a few indicators and Fed speeches that will offer small sparks. The NFIB small business optimism report for October along with Kocherlakota’s and Lockhart’s talks is top event risk.

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British Pound: CPI Data Round One for Breakout Risk

The British pound was lower against all but the Australian dollar through the opening day of the trading week. Yet, as wide as the decline was, it pace was tepid. The sterling’s docket was empty of major releases Monday, two days of heavy event risk begins with the inflation data due London time today (specifically 9:30 GMT). With a market transfixed on the bearings for monetary policy and proactively contradicting the Bank of England’s forward guidance for low rates through 2016, sterling traders are battening down the hatches. In the wave of data, we will have factory, housing, retail and consumer-based inflation readings. For market influence, the CPI data will be the beacon for news traders and yield forecasters alike. Looking at the positioning for GBPUSD and EURGBP, the sterling is still pricing in an optimistic time frame (2015 versus 2016 first hike). If price pressure ease, the 8.5 bps priced in though the next 12 months can quickly evaporate…and the sterling drop.

Euro Bests All Majors after Greece Avoids No Confidence Problems

There wasn’t much data on the Euro’s calendar this past session, but there were plenty of headlines for the market to work with. Perhaps the most synopsis-worthy was Greek Prime Minister Antonis Samaras surviving a No-Confidence vote in Parliament called by leader of anti-Euro party Syriza, Alexis Tsipras. There was little worry in the market that this vote would send the country into another power struggle that threatened its participation in the Eurozone. Yet, a market that has selective attention for ‘positive’ outcomes may have helped this news gain more traction against its major counterparts than it would have otherwise. Meanwhile, there were other financial headlines that were not as favorable to the shared currency. Portugal’s rescue program was under discussion with the EU saying the country was on course, while the country’s Foreign Affairs Minister suggestion a yield below 4.5 percent was needed from the market to fund the country going forward.

Yen Crosses Jump, USDJPY Nears 100 as Amari Talks Down Intervention

The Japanese yen took a spill Tuesday morning (yen crosses rose) as the Nikkei 225 climbed as much as 1.9 percent through the early hours of the session. The medium-term (60-day, rolling) correlation between the Japanese equity index and USDJPY isstill positive but it is also at its lowest level in 12 months. This diminished risk connection is a side effect of a market in congestion. Both yen crosses and the Index have carved out broad ranges that carry a sense of eventual conclusion to them. The question facing yen traders is two-fold: what direction will the initial break present and will it offer follow through? Two prominent powers are vying for control over these outcomes – risk trends and Japanese policy officials. While risk trends are still buoyant, skepticism is now the norm rather than the exception. A move to deleverage risky positions would hit the yen-based carry as hard as any other market. That said, there is limited upside on risk trends alone given those same anemic returns. Yen cross bulls’ greatest hope going forward is further stimulus. Japanese Economy Minister Amari today remarked that he would reassure US Treasury Secretary Jack Lew that Abenomics is not targeting exchange rates. But a weaker yen may depend on that.

Australian Dollar Drops as Local Data Fails to Offset China Numbers, Risk

The economic docket was heavy with event risk that would compel the Aussie dollar – though much of the most market-moving event risk wasn’t even Aussie based. On a market-wide drop against its major counterparts Monday (between 0.6 percent versus the euro to 0.1 percent against the pound), the Australian currency was faced with rather solid data. Investment and home loans grew in September. Yet, those trading the high-yield currency were perhaps more absorbed in the Chinese data. Australia’s largest trade partner reported near-inline retail sales, fixed investment and industrial productive figures over the weekend. Yet, the ChineseOctober new loans figures hit a 10 month low and aggregate financing posted its second weakest reading since October 2011. Meanwhile, the Deutsche Carry Harvest index is trying to recover from a serious drop at the end of last week and the ASX50 struggled to recover from a morning loss Monday.

New Zealand Dollar Rate Outlook Rising Again Ahead of RBNZ Stability Report

Two indicators have crossed the New Zealand wires over the opening 24 hours of the trading week, but their influence over the kiwi is likely minimal. October card spending increased the most in 14 months and the REINZ’s read of housing start cooled to the second most temperate pace since April 2011. Both are readings that give a little more room for the RBNZ to return to its unencumbered hawkish policy lean. After dropping back to below 60 bps, the 12-month interest rate forecast for the country is now back to 92 bps and just off the highest level in two-and-a-half years. Interest rate forecasts are key to the New Zealand dollar which has been battered by a diminished appetite for anemic carry in general. If the upcoming RBNZ Financial Stability Reports signals strength, it can further lift NZ interest rates and thereby the kiwi.

Gold Down 9 of Past 10 Trading Days – A Rare Occurrence

In the past 10 trading days (2 full weeks), gold has closed in the red nine times. That is an unusual occurrence. In fact, over the past six years, we have only seen four instances of that degree of consistency. And, for each of these instances, a short-term bounce was found. The problem is that each of these bull waves proved extremely short-lived with deeper corrections awaiting the commodity soon after the relief was found. This current pattern of unusual circumstances has a similar technical and fundamental backdrop. In the current bear wave, the market has dropped a tame 6 percent as the Gold Volatility Index has dropped to a 7-month low (19.2 percent). The spark here is the fundamental picture. Gold was little supported this past week by the ECB’s rate cut and the BoJ’s lean towards more QE. The BoE Quarterly Inflation report on Wednesday is another possible spark this week, but the true verdict on trend may rest with the FOMC’s Taper timing.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:01

GBP

RICS House Price Balance (OCT)

58%

54%

0:30

AUD

NAB Business Conditions (OCT)

-4

Even if this data beats estimates, it will be overshadowed by event risk surrounding China’s third plenum this week.

0:30

AUD

NAB Business Confidence (OCT)

12

0:30

AUD

Credit Card Balances (SEP)

$A48.9B

0:30

AUD

Credit Card Purchases (SEP)

$A21.8B

5:00

JPY

Consumer Confidence Index (OCT)

45.4

Just below 6-year high

6:00

JPY

Machine Tool Orders (YoY) (OCT P)

-6.3%

Machine Tool Orders has not been positive since April of 2012.

7:00

EUR

German Consumer Price Index (YoY) (OCT F)

1.2%

1.2%

A sharp drop in EZ inflation spurred the recent slump in the euro as rate cuts and QE programs possibilities were revived

7:00

EUR

German CPI - EU Harmonised (YoY) (OCT F)

1.3%

1.3%

7:00

EUR

German Wholesale Price Index (YoY) (OCT)

-2.2%

9:00

EUR

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

0.7%

0.7%

9:30

GBP

Consumer Price Index (YoY) (OCT)

2.4%

2.7%

BoE has said it would like to see unemployment below 7.0% and inflation above 2% for 12-18 months before it would consider a rate hikes. This round of inflation data will be particularly important to this equation before the BoE Quarterly Inflation report

9:30

GBP

Core Consumer Price Index (YoY) (OCT)

2.0%

2.2%

9:30

GBP

Retail Price Index (YoY) (OCT)

2.9%

3.2%

9:30

GBP

Retail Price Index Ex Mort Int.Payments (YoY) (OCT)

3.0%

3.2%

9:30

GBP

Producer Price Index Input n.s.a. (YoY) (OCT)

0.1%

1.1%

9:30

GBP

Producer Price Index Output n.s.a. (YoY) (OCT)

1.0%

1.2%

9:30

GBP

Producer Price Index Output Core n.s.a. (YoY) (OCT)

0.6%

0.7%

9:30

GBP

DCLG UK House Prices (YoY) (SEP)

3.8%

12:30

USD

NFIB Small Business Optimism (OCT)

93.8

93.9

Small businesses account for the majority of US jobs

13:30

USD

Chicago Fed National Activity Index (SEP)

0.15

0.14

A more timely reading of US economic activity

23:30

AUD

Westpac Consumer Confidence (NOV)

-2.10%

Domestic demand has fell short of export hopes for growth

23:30

AUD

Westpac Consumer Confidence Index (NOV)

108.3

23:50

JPY

Machine Orders (MoM) (SEP)

-2.0%

5.4%

Note that volatility in Yen crosses may remain muted ahead of Wednesday’s GDP print.

23:50

JPY

Machine Orders (YoY) (SEP)

12.5%

10.3%

23:50

JPY

Domestic Corporate Goods Price Index (MoM) (OCT)

-0.2%

0.3%

23:50

JPY

Domestic Corporate Goods Price Index (YoY) (OCT)

2.5%

2.3%

23:50

JPY

Loans & Discounts Corp (YoY) (SEP)

2.38%

GMT

Currency

Upcoming Events & Speeches

8:25

EUR

ECB's Ewald Nowotny Speaks on Monetary Policy

10:00

EUR

ECB's Jens Weidmann Speaks on Euro Economy

10:10

EUR

ECB's Ewald Nowotny Speaks on Monetary Policy

16:00

EUR

ECB's Joerg Asmussen Speaks on Monetary Policy

18:00

USD

Fed's Narayana Kocherlakota Speaks on Monetary Policy

18:50

USD

Fed's Dennis Lockhart Speaks on U.S. Economy

20:00

NZD

Reserve Bank of New Zealand Publishes Finacial Stability Report

23:00

NZD

RBNZ Governor Graeme Wheeler Delivers Annual Report

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

2.0850

10.7250

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.2400

2.0450

10.5000

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

13.2257

2.0342

10.2978

7.7517

1.2448

Spot

6.5405

5.5576

6.0544

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

1.3524

1.6193

98.90

0.9237

1.0524

0.9535

0.8406

132.79

1332.29

Res 2

1.3498

1.6164

98.66

0.9217

1.0508

0.9513

0.8383

132.44

1325.43

Res 1

1.3472

1.6135

98.41

0.9197

1.0491

0.9491

0.8360

132.10

1318.57

Spot

1.3420

1.6077

97.92

0.9158

1.0458

0.9446

0.8314

131.41

1304.86

Supp 1

1.3368

1.6019

97.43

0.9119

1.0425

0.9401

0.8268

130.72

1291.15

Supp 2

1.3342

1.5990

97.18

0.9099

1.0408

0.9379

0.8245

130.38

1325.43

Supp 3

1.3316

1.5961

96.94

0.9079

1.0392

0.9357

0.8222

130.03

1332.29

v



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