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Forex pairs in this Article » AUD/USD, EUR/JPY, EUR/USD, GBP/JPY, GBP/USD, NZD/USD, USD/CAD, USD/CHF, USD/JPY
  • Dollar Advances as Risk Cools, Is this an AUDUSD Reversal?
  • Japanese Yen: BoJ Increases Stimulus, Market Not Impressed
  • Euro Climb Slowing, Heavy Event Risk Ahead
  • British Pound Edges Up, Retreats after BoE Minutes
  • New Zealand Dollar Dropping Well Before Disappointing 3Q GDP
  • Australian Dollar Correlation to Risk Trends Rebounding from Two Year Low
  • Gold Threatens to Break 1665 Floor Despite Thinning Trade
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Dollar Advances as Risk Cools, Is this an AUDUSD Reversal?

Though the developments of the past weeks certainly support the running of a relief rally in speculative positioning, the climb that has ensued arguably outlived its fundamental basis long ago. Risk appetite and grounded fundamentals can and diverge, but eventually the two will reconverge. And, we may have very well seen that shift towards convergence this past session. A thematic 'risk' based trend is one of the most influential fundamental forces in the market; and considering it is the foundation of every trading decision made, it very often carries systemic, cross market trends. During Wednesday's session, equity indexes, bond yields, EURUSD, AUDUSD and yen crosses offered a coordinated reversal. The gravity of this slip in risk trends naturally bolstered the FX market's favored safe haven: the US dollar. The greenback advanced against every one of its counterparts through the session and the Dow Jones FXCM Dollar Index (ticker = USDollar) posted a 0.2 percent advance. Yet, this is a tentative and unconfirmed move. A reversal may require more tending than the market can provide.

With technicals showing a break in the fever of building risk, there is a chance that the discrepancy between market levels and fundamentals can be closed. However, there is a serious hang up to this equation in the quickly dwindling window for liquidity. Next week, a significant portion of the market will be offline for the holiday; and the ability to generate a serious and lasting trend during such conditions is extremely limited. So, we only have between now and the weekend to establish a meaningful push before volatility and directionless chop take over. In that short time span, a committed risk aversion drive (opening positions to speculate on a decline of overextended currencies / assets) is less likely. On the other hand, a move to book profit or unwind precarious exposure is far more likely. And, given the considerable trend over the previous four weeks, that would denote a natural correction that can support the dollar. That is, as long as a major development doesn't spark last minute speculative appetites - like a Fiscal Cliff deal. Of course, a resolution is the baseline assumption; so even that driver's influence is tempered.

Japanese Yen: BoJ Increases Stimulus, Market Not Impressed

Many of the most carry- and risk-sensitive yen crosses have finally put on for a pull back - the first in a long time for many of these pairs. For reference, the USJDPY is in the red for the first time in four days, AUDJPY in seven and EURJPY in eight trading days. Japanese policy officials have worked diligently to forestall the inevitable correction after the massive 20 percent surge from pairs like EURJPY over the past five months. This week started off with the election that ushered the stimulus-friendly LDP party back to power offered a late push to multi-month and multi-year highs. That could have very well proven an exhaustion gap leading into a reversal had income Prime Minister Abe not scrapped the budget spending cap and reiterated his demands for the BoJ to increase its stimulus efforts - good timing ahead of the rate decision.

Central bank Governor Shirakawa heeded the government's call this morning with a decision this morning to increase the asset purchase program by 10 trillion yen to 76 trillion (making for a 101 trillion stimulus program with the credit loan facility). This is a notable step, but one that the market had expected well in advance. And, as for the downgrade in growth forecasts and inflation consideration in January, it doesn't forestall a natural inclination to take profit on the short-term carry trades that were looking only for capital gains.

Euro Climb Slowing, Heavy Event Risk Ahead

While EURUSD broke its longest bull run (a seven-day advance) since April 2011, the euro itself was showing surprising strength elsewhere. In fact, the shared currency managed gains against every one of its other major counterparts. That said, progress is diminishing. The headlines from this past session were once again light in content. News that Greece's debt can be used as collateral to top ECB loans is a write off after its rating was restored after the second restructuring. More influential perhaps is the upcoming Eurozone consumer confidence, Spanish housing permits and Spain, Greece and Portuguese current account balance data. The relief rally needs to be backed up by real encouragement.

British Pound Edges Up, Retreats after BoE Minutes

Rarely do FX traders act on the Bank of England's rate decision because the central bank is silent when it doesn't change policy. So, we wait for the minutes of the meeting. This past session, the details of the gather revealed there was a lone call for 25 billion pounds in additional stimulus that was voted down 8-1. More interest was a near-term inflation concern and a concern that a high sterling would hurt the economy.

New Zealand Dollar Dropping Well Before Disappointing 3Q GDP

Maintaining positive growth may seem a feat when compared with the Eurozone, but it is essential for those investment currencies that are riding on the sanctity of their yields. That said, the 0.2 percent 3Q GDP reading early this morning drew the bears out as it was half the market consensus. As if that wasn't enough, the previous quarter's 0.6 percent growth reading was cut in half through revision.

Australian Dollar Correlation to Risk Trends Rebounding from Two Year Low

The Australian dollar is one of the FX markets favorite investment currencies; and through that role, it should advance when 'risk appetite' climbs. However, that relationship has broken down considerably over recent months. In fact, the AUDUSD's correlation (20 day) to the S&P 500 (another favored risk gauge) dropped to its lowest level since in two years. Though with the early risk pullback, we see it tightening again.

Gold Threatens to Break 1665 Floor Despite Thinning Trade

Following Tuesday's aggressive breakdown for gold, it would be a reasonable assumption to see the precious metal bounce. That is particularly true given the lack of follow through on the dollar and tepid risk aversion sentiment - two factors that are typically treated as key gold catalysts. And yet, the metal hovers just above its 200-day moving average and mid-point of its 2012 range at 1665. If the dollar were to make a serious push higher before week's end, gold could clear out a serious level of support.

ECONOMIC DATA

Next 24 Hours

GMT
Currency
Release
Survey
Previous
Comments
JPY
Bank of Japan Rate Decision
0.10%
0.10%
Abe wants more aggressive stimulus. It\'s unclear whether the BoJ will deliver this time.
2:00
CNY
Conference Board China Leading Economic Index
According to many economists, the Chinese slowdown has stabilized. Look for a favorable print to indicate strong growth going forward.
7:00
CHF
Trade Balance (Swiss franc)
2.23B
2.73B
The European slowdown may weigh heavily on Swiss exports. However, the data is in a bullish trend.
7:00
CHF
Exports (MoM)
-
-16.50%
7:00
CHF
Imports (MoM)
-
-8.20%
9:30
GBP
Retail Sales (MoM)
0.40%
-0.70%
Both monthly and yearly figures have shown recent weakness indicating consumer spending may have softened, which is not bullish for the U.K. economy.
9:30
GBP
Retail Sales (YoY)
2.20%
1.10%
13:30
CAD
Retail Sales (MoM)
0.20%
0.10%
Definitely not the strong point in the Canadian economy (flat growth), but may not move the currency unless there\'s a large surprise.
13:30
CAD
Retail Sales Less Autos (MoM)
0.20%
0.00%
13:30
USD
Gross Domestic Product (Annualized)
2.80%
2.70%
The final GDP reading is expected to draw little change, though the Personal consumption historically can offer significant last minute revisions
13:30
USD
Personal Consumption
1.40%
1.40%
13:30
USD
Core Personal Consumption Expenditure (QoQ)
1.10%
1.10%
13:30
USD
Gross Domestic Product Price Index
2.70%
2.70%
13:30
USD
Initial Jobless Claims
360K
343K
Need claims to drop if unemployment goal is met. Weekly data is not likely to move the markets.
13:30
USD
Continuing Claims
3200K
3198K
15:00
EUR
Euro-zone Consumer Confidence
-26.5
-26.9
Trending strong bearish. A great print, however could surprise markets and cause EUR strength.
15:00
USD
Philadelphia Fed.
-3
-10.7
Other regions have shown very weak performances
15:00
USD
Existing Home Sales
4.90M
4.79M
US housing market finally looks to be making its recovery. The data appears to have turned higher and the Fed has targeted this area with stimulus. Look for continued improvements which could lead to "risk-on".
15:00
USD
Existing Home Sales (MoM)
2.30%
2.10%
15:00
USD
House Price Index (MoM)
0.30%
0.20%
15:00
USD
Leading Indicators
-0.20%
0.20%
Consensus calls for weak figures. A strong print would be risk supportive. (Corporate Profit and Equity prices are influential inputs) Profit Index is at historical highs and Equities have made a rebound from the recent selloff.
GMT
Currency
Upcoming Events & Speeches
AUD
Reserve Bank Board - Bulletin - December
EUR
ECB holds governing council meeting
SUPPORT AND RESISTANCE LEVELS

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

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

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT
SCANDIES CURRENCIES 18:00 GMT
Currency
USDMXN
USDTRY
USDZAR
USDHKD
USDSGD
Currency
USDSEK
USDDKK
USDNOK
Resist 2
15.5900
2.0000
9.2080
7.8165
1.3650
Resist 2
7.5800
6.1875
6.1150
Resist 1
15.0000
1.9000
9.1900
7.8075
1.3250
Resist 1
6.8155
5.9190
5.8200
Spot
12.7877
1.7850
8.4967
7.7500
1.2201
Spot
6.5502
5.6418
5.5754
Support 1
12.5000
1.6500
8.5650
7.7490
1.2000
Support 1
6.0800
5.5840
5.6000
Support 2
11.5200
1.5725
6.5575
7.7450
1.1800
Support 2
5.8085
5.3350
5.3040
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
1.3326
1.6353
84.86
0.9201
0.9947
1.0555
0.8423
112.48
138.15
Resist. 2
1.3301
1.6329
84.68
0.9184
0.9933
1.0536
0.8405
112.18
137.82
Resist. 1
1.3275
1.6306
84.50
0.9167
0.9919
1.0516
0.8387
111.87
137.48
Spot
1.3224
1.6260
84.14
0.9133
0.9891
1.0477
0.8350
111.27
136.80
Support 1
1.3173
1.6214
83.78
0.9099
0.9863
1.0438
0.8313
110.67
136.13
Support 2
1.3147
1.6191
83.60
0.9082
0.9849
1.0418
0.8295
110.36
135.79
Support 3
1.3122
1.6167
83.42
0.9065
0.9835
1.0399
0.8277
110.06
135.45
v

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

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

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