Filed Under:
  • Dollar Ready for Fed, GDP with EUR/USD at 1.3500
  • Euro Eases Ahead of Spain 4Q GDP Despite EFSF Auction
  • New Zealand Dollar: Poor Inflation Data to be Weighed by RBNZ
  • British Pound Advance Comes on BoE Reports of Fading Currency Use
  • Japanese Yen Crosses Climb as Stimulus Meets Risk Trends
  • Australian Dollar Rebounds as Rate Expectations Jump
  • Gold: Best Measure for Market's Reaction to Fed Stimulus Call
New to FX?Watch thisVideo; For live market updates, visitDailyFX's Real Time News Feed

Dollar Ready for Fed, GDP with EUR/USD at 1.3500

The Dow Jones FXCM Dollar Index (ticker = USDollar) finally backed off its run to six-month highs, the day before the 4Q US GDP and the Federal Reserve's rate decision is due. Prior to Wednesday's slide for the greenback, the currency managed to drive a four-day consecutive rally - matching the strongest run for the Index in three months. The pullback is appropriate in reverence to the considerable influence the upcoming event risk carries over, not only the US dollar, but the entire financial sector. Perhaps this round of event risk will be influential to remedy the fundamental divergence in the dollar's gains against key counterparts (Japanese Yen, British pound and Australian Dollar) at the same the benchmark capital market's conviction measures (the S&P 500 and other equity indexes) push higher. In other words: perhaps this is the catalyst that finally reinstates general risk appetite trends - whether supportive of or resistant to speculative sentiment.

Heading into the big ticket headline fodder, the first piece of event risk to hit the wires will be the advanced (first) reading of fourth quarter GDP. The consensus estimate for annualized growth measure is calling for a substantial cooling of the previous reading's 3.1 percent pace of growth to a much more reserved 1.1 percent clip. That would mark the slowest measure of growth for the US since the first quarter of 2011. Yet, how market moving would an in-line reading prove? We have to assume that the economist forecast has been priced in by the market (especially after the IMF and World Bank downgraded their respective growth forecasts for the country). A substantial miss is likely necessary to spur risk aversion - which counterintuitively would generate demand for the safe haven dollar. More likely, a reading near the consensus will sideline the capital markets and benchmark currency as the focus (and hopes) turns to the Federal Open Market Committee's (FOMC) rate decision.

In theory, relative growth should be a vital pricing mechanism for the value of a currency; but we find that is far from the case in practice nowadays. Relative stimulus has both the effects of guiding market-wide risk taking as well as creating an environment where currencies are (perhaps unintentionally) devalued by expansive policies. Amongst the major banks, the Federal Reserve is the most liberal (the BoJ won't move until 2014) in its efforts - a reality that has no doubt contributed to EURUSD's advance as the ECB withdrawals LTRO and is ignored by the USDJPY at multi-year highs. The $85-billion-per-month effort that the US central bank has adopted along with economic guidelines (6.5 percent jobless and 2.5 percent inflation rates) was put into place only last month. Therefore a material change in January is highly unlikely. That said, the market will be open to any nuanced change in language that spells an end (or reduction) to stimulus before the end of 2013.

Euro Eases Ahead of Spain 4Q GDP Despite EFSF Auction

All market participants will be tuned into the far-reaching implications of the United States' GDP reading and FOMC rate decision. And, even if these two fundamental sparks come off without a distinctive shift in current expectations; they may nevertheless dampen the influence of key event risk on the Euro's docket. Early in the European session (08:00 GMT), Spain's preliminary (first) reading of 4Q GDP is due. This will be the first the major core and periphery Eurozone members to report its economic performance - and will thereby carry a lot of weight to further expectations. Beyond the 'first plunge' position, Spain remains one of the key threats to a steady Euro-area recovery through 2013 (along with Cyprus and Greece); so its health will be particularly important. In the meantime, it is worth noting that this past session; the EFSF rescue fund sold ¬5 billion in 5-year bonds at a rate of 1.25 percent. A large sale of longer-dated paper denotes confidence and funding.

New Zealand Dollar: Poor Inflation Data to be Weighed by RBNZGiven the growth readings and the FOMC rate decision earlier in the day, it may be easy to forget that there is a Reserve Bank of New Zealand (RBNZ) rate decision on deck. It will be a boon for those looking for volatility that all the US data will have cleared by the time that this particular event risk is met. Like the Fed outlook, the New Zealand policy meeting is expected to end with no significant change to bearing. However, there is greater expectation behind this meeting and sensitivity to subtle language changes. At the last (4Q) CPI reading, we found a serious shortfall on inflation pressures which led the kiwi to a quick tumble. Will this easing turn RBNZ Governor Wheeler dovish? If he holds, is it kiwi bullish?

British Pound Advance Comes on BoE Reports of Fading Currency Use

The sterling advanced against key counterparts this past session (dollar, euro and yen). This strength in particularly is interesting given a report that was released by the Bank of England at the same time. According to their twice-a-year Forex report, the pound was a component to only 16.6 percent of FX transactions through October versus 17.2 percent in April. To play a reserve currency, the sterling needs more traction&

Japanese Yen Crosses Climb as Stimulus Meets Risk Trends

We have seen various deviations in the influence of risk trends that has seen specifically the yen crosses march forward at the same time there has been a lack of consistency for the appetite of yield (something seen with AUDUSD's decline). Yet, that correlation was returned this past session when most risk benchmarks were realigned. Watch USDJPY's reaction to the Fed's moves after the BoJ committed to 2014.

Australian Dollar Rebounds as Rate Expectations Jump

Where Japanese officials have confidence that they can manipulate their currency, Australian Prime Minister Gillard remarked this past session that her government can't alter the Aussie dollar. This could be considered a reflection of reality to most; but yen cross bulls, it may stand as an open invitation to bid the cross higher as officials won't intervene near these levels.

Gold: Best Measure for Market's Reaction to Fed Stimulus Call

There is a 'competitive currency devaluation' effort at work amongst the world's largest central banks - whether they admit to it or not. Seeing one currency advance over the other because its central bank is less proactive on stimulus is one way to measure this factor. To see the bigger picture (how influential overall stimulus is), gold's value is a good measure. If a steady Fed isn't impressive, gold will fail to gain traction.

ECONOMIC DATA

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

GMT
Currency
Release
Survey
Previous
Comments
0:00
AUD
DEWR Internet Skilled Vacancies (MoM)
-3.50%
Has declined in a faster pace since 01/12.
7:00
CHF
UBS Consumption Indicator
1.23
Showed weaker momentum in 2012 compared with last 2 years.
8:00
CHF
KOF Swiss Leading Indicator
1.2
1.28
Has rebounded from a dip reached on 01/12 when at -0.15.
9:30
GBP
Net Consumer Credit
0.2B
0.1B
Easing credit was seen on 09/12.
9:30
GBP
Net Lending Sec. on Dwellings
0.5B
-0.2B
Has remained below 2 since 08/08.
9:30
GBP
M4 Money Supply (YoY)
-2.80%
Showed stronger momentum since 06/12, without retracement.
9:30
GBP
Mortgage Approvals
54.5K
54.0K
Strongly resembles to M4 money supply (YoY) since 06/12.
9:30
GBP
M4 Money Supply (MoM)
-0.20%
Constituted three peaks in 2012.
9:30
GBP
M4 Ex IOFCs 3M Annualised
3.40%
4.30%
Three year average at 2.7.
10:00
EUR
Euro-Zone Economic Confidence
88.2
87
Has rebounded from it low on 10/12 after sliding for 2 years. Sentiment was strongly correlated in these sectors as they moved in the same direction. The abating Eurozone concerns lifted up the overall sentiment recently.
10:00
EUR
Euro-Zone Business Climate Indicator
-1
-1.12
10:00
EUR
Euro-Zone Industrial Confidence
-13.5
-14.4
10:00
EUR
Euro-Zone Consumer Confidence
-23.9
-23.9
10:00
EUR
Euro-Zone Services Confidence
-9
-9.8
12:00
USD
MBA Mortgage Applications
7.00%
Large swings in data set.
13:15
USD
ADP Employment Change
165K
215K
One year average at 156.1.
13:30
USD
Gross Domestic Product Price Index
1.50%
2.70%
Has clawed back previous decline when on 12/11.
13:30
USD
Core Personal Consumption Expenditure (QoQ)
1.00%
1.10%
Large swings in data set.
13:30
USD
Gross Domestic Product (Annualized)
1.10%
3.10%
Increased from 1.3 to 3.1 from 06/12-09/12.
13:30
USD
Personal Consumption
2.10%
1.60%
Showed less strength to the upside than core personal consumption.
15:30
USD
DOE U.S. Crude Oil Inventories
2500K
2813K
Notable tumble on 12/28/2012.
15:30
USD
DOE Cushing OK Crude Inventory
-471K
Large swings in data set.
15:30
USD
DOE U.S. Gasoline Inventories
1000K
-1738K
Large volatility from 11/12 to 01/13.
19:15
USD
Federal Open Market Committee Rate Decision
0.25%
0.25%
Expected to remain unchanged.
20:00
NZD
Reserve Bank of New Zealand Rate Decision
2.50%
2.50%
A slight change in rate on 10/12
23:50
JPY
Industrial Production (MoM)
4.10%
-1.40%
Mostly fluctuate between -0.4 to 2.. One year average at -0.6
23:50
JPY
Japan Buying Foreign Bonds (Yen)
-¥35.2B
Large swings in data set.
23:50
JPY
Japan Buying Foreign Stocks (Yen)
-¥235.3B
Low preference for foreign stock as it has remained below 0.
23:50
JPY
Foreign Buying Japan Bonds (Yen)
¥485.7B
Showed solid demand since 12/12.
23:50
JPY
Foreign Buying Japan Stocks (Yen)
¥196.2B
Strong demand on 12/12 but reversed on 01/13.
23:50
JPY
Loans & Discounts Corp (YoY)
0.44%
Trending higher since 02/2011.
23:50
JPY
Industrial Production (YoY)
-5.60%
-5.50%
One year average at 0.4.
GMT
Currency
Upcoming Events & Speeches
-:-
EUR
Early Repayment of ECB\'s LTRO Loans Begins
19:00
EUR
Italy\'s Monti Speaks in Brussels
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
15.5900
2.0000
9.2080
7.8165
1.3650
Resist 2
7.5800
5.8300
6.1150
Resist 1
15.0000
1.9000
9.1900
7.8075
1.3250
Resist 1
6.8155
5.7350
5.8200
Spot
12.7175
1.7679
9.0280
7.7584
1.2347
Spot
6.3742
5.5300
5.4971
Support 1
12.5000
1.6500
8.5650
7.7490
1.2000
Support 1
6.0800
5.4440
5.5000
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
1.3598
1.5870
92.03
0.9292
1.0083
1.0550
0.8457
124.48
145.19
Resist. 2
1.3571
1.5842
91.76
0.9274
1.0066
1.0530
0.8437
124.05
144.73
Resist. 1
1.3544
1.5813
91.50
0.9256
1.0050
1.0509
0.8417
123.61
144.27
Spot
1.3490
1.5756
90.98
0.9219
1.0016
1.0468
0.8378
122.73
143.35
Support 1
1.3436
1.5699
90.46
0.9182
0.9982
1.0427
0.8339
121.85
142.43
Support 2
1.3409
1.5670
90.20
0.9164
0.9966
1.0406
0.8319
121.41
141.97
Support 3
1.3382
1.5642
89.93
0.9146
0.9949
1.0386
0.8299
120.98
141.51
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.

Additional Content:Money Management Video

Trading the News Video

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.

comments powered by Disqus
Trading Center