- Dollar on the Verge of Reversal as the Intensity in Fed Speculation Eases and Earnings Heats Up
- Euro Suffers its Biggest Decline in Two Weeks as the Dollar Perks Up
- British Pound Traders Prepare for Financial, Interest Rate and Economic Updates Next Week
- Canadian Dollar Little Moved by Manufacturing Sales Data but Upcoming BoC Decision is another Matter
- Australian Dollar will have to Pay for its High-Yield Appeal with Scrutiny over Risk Trends and the RBA
- Swiss Franc: A Safe Haven and Alternative as Reliable as Gold?
Perhaps a sign that the deeply engrained fundamental and technical trends are near a point of exhaustion, the dollar put in for its first advance in four days which also happened to be the biggest rally in over five weeks. That said, neither the benchmark currency nor the drivers that have put it into its tailspin have taken that critical step to confirm a reversal. For the greenback, we see that the trade-weighted index slipped low enough to test an obvious, rising trendline connecting lows from March 2008 to November 2009 and extending to 76. However, the subsequent reversal would fall short of breaking the consistent, descending trend channel that has confined the benchmark to a steady selloff that has held sway for more than a month now. Translating this performance to the majors, EURUSD would slip below 1.40, GBPUSD slid under 1.60 and AUDUSD fell 1 percent after nicking parity. And yet, all these liquid pairs are still under the stewardship of their anti-dollar trends. The same can be said of the benchmarks of the other major asset classes. The 10-year Treasury note is still holding up its steady six month rising trend (with support at 120), gold has yet to back of a pattern of acceleration into its record highs, and the S&P 500 continues to chug along.
This pseudo-bullish trend (pseudo because key safe haven securities are joining in the climb with their risk-based counterparts) is being fed by both risk appetite and Fed speculation. However, in Friday’s session, we can perhaps perceive a shift in influence between these two major catalysts. Over the past month, the fundamental interest has clearly centered on speculation surrounding the potential for the Federal Reserve to inject another round of stimulus into the US markets following the decision in August to put a floor under the current $2 trillion program. That being said, speculation can only reach so far before the market has priced in the more extreme scenarios and a reasonable level of fair value has been reached. As evidence that the influence of additional policy expansion has been accounted for, we saw Friday that Fed Chairman Ben Bernanke’s comments were met with indifference. The highlights from the central banker’s remarks on monetary policy includes the suggestion that he sees a “case for further action” given a too low level of inflation and persistently high unemployment rate. Despite the seeming decisiveness in this assessment, it isn’t anything the market hasn’t heard from him before. The same passive appraisal was made of the high-level event risk on the docket. Headline inflation held at 1.1 percent, retail sales offered a slightly better-than-expected 0.6 percent advance and the October University of Michigan consumer sentiment survey slipped to its July low.
If the influence of stimulus speculation has reached a point over oversaturation, next week’s long list of Fed speeches may ultimately fall on deaf ears. That being said, there is a scenario in which it is easy to imagine where the market could produce a violent reaction: should the group give reason to believe they actually plan on waiting to evaluate conditions rather than act in November. Does this mean that the dollar is most likely fated to a week of congestion with a modest dovish drift? Not necessarily. Risk appetite, a somewhat ignored aspect of the greenback lately could come back into play as the 3Q earnings season really gets rolling. If bank profits collapse, financial risk may override stimulus hopes.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Dollar the Top Opportunity Next Week, Aussie Dollar a Close Second
Euro Suffers its Biggest Decline in Two Weeks as the Dollar Perks Up
Scheduled event risk was exceptionally light for the euro Friday; but that isn’t necessarily a sentence to inactivity these days. In fact, the shared currency was pitched into a significant selloff through the end of the week. If we were to attribute this move to a neat and tidy fundamental source, we could say that the final reading of the Eurozone’s September CPI numbers was disappointing in its stay at 1.8 percent or that ECB member Stark’s comments held some dovish edge. Yet, the truth of the matter is that the euro’s ties to dollar would weigh the currency down as the greenback itself put in for an aggressive advance. Going forward, this relationship shouldn’t be underestimated. With sizable moves in EURUSD, there is frequently spillover to other euro crosses. Crosswinds aside, the economic data could have a significant bearing on direction and momentum. Along with investor and business sentiment surveys, the market will have the GDP-proxy PMI numbers to work with.
British Pound Traders Prepare for Financial, Interest Rate and Economic Updates Next Week
The fundamental front was quiet for the British pound Friday; but that didn’t prevent high volatility in a 1.61 test for GBPUSD or a notable advance against the euro. Looking ahead to next week, we once again have the perfect mix of growth, interest rate and fiscal speculation. For growth, we have retail sales, mortgages and business activity. Interest rates will go by the BoE minutes. And, public borrowing will key finances.
Canadian Dollar Little Moved by Manufacturing Sales Data but Upcoming BoC Decision is another Matter
The 2 percent jump in Canadian manufacturing sales may have been the biggest pickup in 13 months; but this particular indicator doesn’t have much sway over the bigger themes guiding the loonie. Next week’s Bank of Canada rate decision will be far more influential. While no change to policy is expected, the market is still pricing in some kind of hawkish lean. Should the bank squash this hope, the currency could step back.
Australian Dollar will have to Pay for its High-Yield Appeal with Scrutiny over Risk Trends and the RBA
There are certainly benefits to being one of the most consistent high-yield and growth currencies; but you have to take the good with the bad. The more aggressive and consistent the run, the greater the risk of reversal. From a fundamental perspective, the Aussie could easily find its future wrapped up in the RBA’s minutes. If the assessment is more neutral than traders assessed from Stevens, the trend will looked taxed.
Swiss Franc: A Safe Haven and Alternative as Reliable as Gold?
Analyzing the fundamentals behind the Swiss franc has essentially become a practice of futility recently. An ideal safe haven for European capital, the franc is a natural sponge. Yet, there may be something beyond just the European connection. According to Bloomberg, private banks managed to draw in over 50 billion francs worth of capital since 2007 despite bank privacy issues. Is this also an ideal dollar alternative?
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**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
| Currency | GMT | Release | Survey | Previous | Comments |
| NZD | 21:30 | Performance Services Index (SEP) | 51.4 | Sits below 2010 average of 53.8. | |
| NZD | 21:45 | Consumer Prices Index (QoQ) (3Q) | 1.0% | 0.3% | New Zealand consumer prices rose less than expected in 2Q. |
| NZD | 21:45 | Consumer Prices Index (YoY) (3Q) | 1.5% | 1.8% | |
| GBP | 23:01 | Rightmove House Prices (MoM) (OCT) | -1.1% | U.K. home prices fell in September, erasing half of the 2010 gains. | |
| GBP | 23:01 | Rightmove House Prices (YoY) (OCT) | 2.6% | ||
| JPY | 23:50 | Tertiary Industry Index (MoM) (AUG) | -0.5% | 1.6% | Index rose in July for second month. |
| AUD | 0:30 | New Motor Vehicle Sales (MoM) (SEP) | 0.3% | New motor vehicle sales increased in August following 3-month drop. | |
| AUD | 0:30 | New Motor Vehicle Sales (YoY) (SEP) | 10.5% | ||
| JPY | 5:30 | Tokyo Department Store Sales (YoY) (SEP) | -3.4% | Tokyo department store sales fell annually in the last thirty months. | |
| JPY | 5:30 | Nationwide Department Store Sales (YoY) (SEP) | -3.2% | ||
| EUR | 9:00 | Italian Current Account (euros) (AUG) | 535M | July was first surplus in a year. | |
| CAD | 12:30 | International Securities Transactions (C$) (AUG) | 6.000B | 5.480B | Likely increased for second month. |
| USD | 13:00 | Total Net TIC Flows (AUG) | $63.7B | Demand for long-term financial assets beat forecasts in July. | |
| USD | 13:00 | Net Long-term TIC Flows (AUG) | $61.2B | ||
| USD | 13:15 | Industrial Production (SEP) | 0.2% | 0.2% | Industrial production rose in each of the past six months. |
| USD | 13:15 | Capacity Utilization (SEP) | 74.8% | 74.7% | |
| USD | 14:00 | NAHB Housing Market Index (OCT) | 14 | 13 | Held at 13 in the last 2 months. |
| Currency | GMT | Upcoming Events & Speeches |
| EUR | 8:00 | ECB President Jean-Claude Trichet Speaks on Global Economy |
| EUR | 14:00 | ECB’s Carlos Costa Speaks on Financial Literacy |
| JPY | 15:00 | Japan Cabinet Office Monthly Economic Report |
| USD | 16:55 | Fed’s Dennis Lockhart Speaks on Economy |
CLASSIC SUPPORT AND RESISTANCE – 18:00 GMT
| Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
| Resist 2 | 1.4500 | 1.6375 | 89.00 | 1.0460 | 1.0922 | 1.0100 | 0.8230 | 127.60 | 146.05 |
| Resist 1 | 1.4200 | 1.6000 | 86.00 | 0.9950 | 1.0750 | 1.0000 | 0.7650 | 120.00 | 140.00 |
| Spot | 1.3964 | 1.5983 | 81.43 | 0.9595 | 1.0135 | 0.9883 | 0.7538 | 113.71 | 130.15 |
| Support 1 | 1.3800 | 1.5500 | 80.00 | 0.9500 | 0.9950 | 0.9100 | 0.6850 | 103.80 | 125.00 |
| Support 2 | 1.3500 | 1.5300 | 75.00 | 0.9000 | 0.9700 | 0.8100 | 0.6585 | 100.00 | 119.00 |
| Currency | USD/MXN | USD/TRY | USD/ZAR | USD/HKD | USD/SGD | Currency | USD/SEK | USD/DKK | USD/NOK | |
| Resist 2 | 14.4500 | 1.6755 | 8.7915 | 7.8165 | 1.4945 | Resist 2 | 7.7500 | 5.7800 | 6.2750 | |
| Resist 1 | 13.8500 | 1.4865 | 8.3675 | 7.8075 | 1.4655 | Resist 1 | 7.5800 | 5.5400 | 6.1150 | |
| Spot | 12.4454 | 1.4161 | 6.8435 | 7.7573 | 1.2975 | Spot | 6.6251 | 5.3398 | 5.8039 | |
| Support 1 | 12.0500 | 1.4070 | 6.6950 | 7.7490 | 1.2900 | Support 1 | 6.4500 | 5.3000 | 5.7030 | |
| Support 2 | 11.7200 | 1.3665 | 6.4300 | 7.7450 | 1.2500 | Support 2 | 6.1250 | 5.1000 | 5.5200 |
| Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
| Resist 2 | 1.4242 | 1.6156 | 82.05 | 0.9672 | 1.0223 | 1.0058 | 0.7649 | 115.22 | 131.01 |
| Resist 1 | 1.4103 | 1.6070 | 81.74 | 0.9634 | 1.0179 | 0.9970 | 0.7594 | 114.47 | 130.58 |
| Pivot | 1.4020 | 1.6020 | 81.31 | 0.9559 | 1.0096 | 0.9917 | 0.7564 | 114.01 | 130.30 |
| Support 1 | 1.3881 | 1.5934 | 81.00 | 0.9521 | 1.0052 | 0.9829 | 0.7509 | 113.26 | 129.87 |
| Support 2 | 1.3798 | 1.5884 | 80.57 | 0.9446 | 0.9969 | 0.9776 | 0.7479 | 112.80 | 129.59 |
\
| Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
| Resist. 3 | 1.4156 | 1.6169 | 82.46 | 0.9721 | 1.0265 | 1.0032 | 0.7653 | 115.38 | 132.08 |
| Resist. 2 | 1.4108 | 1.6122 | 82.20 | 0.9690 | 1.0232 | 0.9995 | 0.7624 | 114.97 | 131.60 |
| Resist. 1 | 1.4060 | 1.6076 | 81.94 | 0.9658 | 1.0200 | 0.9957 | 0.7595 | 114.55 | 131.12 |
| Spot | 1.3964 | 1.5983 | 81.43 | 0.9595 | 1.0135 | 0.9883 | 0.7538 | 113.71 | 130.15 |
| Support 1 | 1.3868 | 1.5890 | 80.92 | 0.9532 | 1.0070 | 0.9809 | 0.7481 | 112.87 | 129.18 |
| Support 2 | 1.3820 | 1.5844 | 80.66 | 0.9500 | 1.0038 | 0.9771 | 0.7452 | 112.45 | 128.70 |
| Support 3 | 1.3772 | 1.5797 | 80.40 | 0.9469 | 1.0005 | 0.9734 | 0.7423 | 112.04 | 128.22 |
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