Dollar Breaks Critical Support but Doesn’t Collapse…Yet

DailyFX

  • Dollar Breaks Critical Support but Doesn’t Collapse…Yet
  • Euro Refuses to Rally above 1.3000 After EU Takes Greek Rescue Steps
  • Japanese Yen Wavers Despite Risk Trends, Stimulus Expectations
  • British Pound: A Hawk Comes to the Bank of England
  • Canadian Dollar: Will Carney’s Absence Weigh the Currency?
  • Australian Dollar Reflecting a Building Pressure for Breakout
  • Gold’s Slow Advance Doesn’t Have Trend Qualities Just Yet

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Dollar Breaks Critical Support but Doesn’t Collapse…Yet

There was considerable skepticism surrounding the ‘risk on’ effort the capital markets pushed through the end of last week – a serious weight for a safe haven like the US dollar. However, as traders returned to the market after the extended holiday, sentiment would even out and offer the benchmark currency a better read…at least that was the theory. With the start of the new trading week, we have seen neither a commitment in speculative positioning (trend development) in support of or opposition to risky positioning nor a significant rebound in participation (volume). In fact, on the open of the new trading week, we witnessed the benchmark for moral hazard-supported sentiment – the S&P 500 and other US equity market benchmarks – hold near the highs the reached on the surprisingly consistent rally through Thursday. For the Dow Jones FXCM Dollar Index (ticker = USDollar), this persistence translated in a high profile slip below the 200-day moving average 9,970. Yet, just as there was a lack of follow through for a risk build up, dollar selling hast yet to gain traction.

The greenback’s burden is in its unique position as a harbor from uncertainty and/or wide-spread deleveraging. The tame volume and volatility measures from both the Forex and capital markets reflect the lack of panic that would force a wholesale exit from perceived risk. This alone wouldn’t necessarily render the dollar immobile, but the secondary concern in general uncertainty simply hasn’t motivated traders to take out insurance that normally feeds the dollar in the background.

It is remarkable given the market’s top financial headlines nowadays that speculative interest do not at least take ‘insurance’ on their risk exposure (rather than fully unwind). Reducing risk through a partial or full hedge is common practice in uncertain times, but looking to the volatility indexes – ideal measures of insurance premiums through options – we find concern of adverse market movement is holding at five-year lows. There is some justification to this passive stance. Early this morning, the Troika finally agreed to take further steps on Greece’s rescue (more on that below) which alleviates pressure behind the market’s most imminent threat. The other, top risk in the Fiscal Cliff similarly lacks for urgency. Though there is only a month until the world’s largest economy runs headline in to automatic tax increases and spending cuts, the market seems to think that is plenty of time to flesh out a deal. Yet, confidence is a fickle thing. Watch risk trends for dollar direction this week.

Euro Refuses to Rally above 1.3000 After EU Takes Greek Rescue Steps

The Euro’s most pressing fundamental threat was solved just a few hours ago…or at least that is how officials would like us to interpret the outcome of the meeting on Greece. There is little arguing that there were significant steps touted to help stabilize the economic and financial health of the Eurozone’s most wayward member. Topping the list of stated accommodation was the release of a €43.7 billion in add, a debt buyback scheme, SMP profits directed to Greece, reduced interest rates for the country’s original rescue loans (from 150 bps above Euribor to 50 bps), the extension of loan repayments by 15 years and a deferral on paying interest on EFSF loans for 10 years. At first blush, this looks like a comprehensive list. However, we have the same hang up for this hard-fought agreement that we had following the ECB’s announcement of OMT and the vows after the late-July EU Summit: contingencies. If a series of steps are met and national parliaments approve, the Troika will decide to pay Greece’s aid on December 13. And, this doesn’t even take into account the long-term feasibility for Greece and other EU issues…

Japanese Yen Wavers Despite Risk Trends, Stimulus Expectations

There are competing forces pulling on the Japanese yen. Against the repetitive threats made by officials to devalue the currency, we have the constant threat that a wave of risk aversion can drive carry deleveraging and bolster the funding currency once again. This past session, there was a mild risk aversion move through the morning hours, but sentiment kept the pressure in check. Sentiment trends’ influence on the carry trade component will be far more important through the immediate future. The political threat (both both the LDP and DPJ) to adopt new strategies to drive the yen lower are certainly there. Yet, the markets are well aware of the schemes and we 3 weeks out from the election.

British Pound: A Hawk Comes to the Bank of England

In general, the sterling is a reactionary currency – it plays the foil to more fundamentally sensitive counterparts. However, if we were to identify strengths or weaknesses inherent to the pound, one of the biggest questions marks pertains to the BoE’s effort (unsuccessful at that) to use stimulus to offset fiscal austerity. Perhaps that will change come mid-year when Bank of Canada Governor Mark Carney takes the BoE’s helm…

Canadian Dollar: Will Carney’s Absence Weigh the Currency?

News that that the BoC’s head was selected to head up the United Kingdom’s central bank doesn’t come as too much a surprise. However, some over-eager speculators felt this change would lead to a change in monetary policy and thereby currency value (Carney is a hawk going to a dovish policy group). Yet, what we must appreciate is that this transition is months away; and one person won’t likely change group direction.

Australian Dollar Reflecting a Building Pressure for Breakout

Risk trends have held stable through the start of the week, and that will always be a boon to the high-yielding Australian dollar. Yet, whether sentiment rallies or falls, the Aussie currency needs conviction one way or the other. Stuck between a lack of commitment on risk trends and a quiet claim for the currency to take a safe-haven role, AUDUSD is showing the lowest price activity level (ATR read) in over five years.

Gold’s Slow Advance Doesn’t Have Trend Qualities Just Yet

Technically speaking, gold advanced through Monday. On the other hand, the metal’s entire range fit within the high and close from Friday (a fraction of the day’s full range). Unsubstantiated hope that Greece’s problems are behind it and an open threat that the United States’ fiscal solvency is counting down won’t influence this commodity unless the dollar moves first to get it a countermove.

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ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

1:30

CNY

Industrial Profits YTD (YoY) (Oct)

-1.8%

Profits declining on weak market

2:00

NZD

RBNZ 2yr Inflation Expectation (4Q)

2.3%

Slower inflation combined with weaker economy may result in RBNZ cut in near future

7:00

CHF

UBS Consumption Indicator (Oct)

1.07

Rising moderately on confidence

7:45

EUR

French Consumer Confidence Indicator (Nov)

84

Major economy still declining

9:30

GBP

GDP (QoQ) (3Q P)

1.0%

Preliminary 3Q data may show boost from Olympic spending, though investment key data on seeing if Britain could avoid another recession in coming quarters

9:30

GBP

GDP (YoY) (3Q P)

0.0%

9:30

GBP

Private Consumption (3Q P)

-0.2%

9:30

GBP

Government Spending (3Q P)

-1.6%

9:30

GBP

Gross Fixed Capital Formation (3Q P)

-2.7%

9:30

GBP

Exports (3Q P)

-1.1%

9:30

GBP

Imports (3Q P)

1.4%

9:30

GBP

Total Business Investment(QoQ) (3Q P)

0.9%

9:30

GBP

Total Business Investment(YoY) (3Q P)

3.1%

9:30

GBP

Index of Services (MoM) (Sep)

1.0%

Services industries still growing moderately

9:30

GBP

Index of Services (3mth/3mth) (Sep)

0.2%

13:30

USD

Durable Goods Orders (Oct)

-0.5%

9.9%

Slowdown in orders is expected as US economy cools slightly; fiscal cliff still important for future expectations

13:30

USD

Durables Ex Transportation (Oct)

-0.4%

2.0%

13:30

USD

Cap Goods Orders Nondef Ex Air (Oct)

0.0%

13:30

USD

Cap Goods Ship Nondef Ex Air (Oct)

-0.3%

14:00

USD

S&P/CS 20 City (MoM) SA (Sep)

0.49%

Housing prices seeing trend reversal, moving higher as cheap credit and Fed buying encourage real estate purchases

14:00

USD

S&P/CS Composite-20 (YoY) (Sep)

3.1%

2.03%

14:00

USD

S&P/Case-Shiller US HPI (YoY) (3Q)

1.22%

14:00

USD

S&P/CaseShiller Home Price Ind (Sep)

145.87

14:00

USD

S&P/Case-Shiller US HPI (3Q)

132.54

15:00

USD

Richmond Fed Manufact. Index (Nov)

-7

Eastern manufacturing still weak

15:00

USD

Consumer Confidence (Nov)

73.5

72.2

May have post-election boost

15:00

USD

House Price Index MoM (Sep)

0.7%

Prices may lag higher demand in coming months

15:00

USD

House Price Purchase Index QoQ (3Q)

1.8%

17:00

EUR

French Total Jobseekers (Oct)

3057.9k

French labor market expected follow that of German’s

17:00

EUR

French Jobseekers- Net Change (Oct)

46.9

GMT

Currency

Upcoming Events & Speeches

8:00

USD

Fed's Fisher Speaks in Berlin, Germany

10:00

EUR

Eurozone EC OECD November Economic Outlook

10:00

EUR

Portugal Parliament Holds Final Vote on 2013 Budget

19:00

USD

Fed's Beige Book

20:00

USD

NY Fed Releases Q3 Household Debt and Credit Figures

23:00

CAD

Fed's Charles Evans Speaks at Benefactors' Dinner in Canada

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 GMTSCANDIES 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

6.1875

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.7600

5.8575

5.7800

Spot

13.1656

1.7859

8.7089

7.7514

1.2253

Spot

6.6782

5.8526

5.7210

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

1.2853

1.6083

80.09

0.9536

1.0071

1.0489

0.8222

102.41

128.22

Resist. 2

1.2827

1.6057

79.94

0.9517

1.0054

1.0467

0.8203

102.14

127.92

Resist. 1

1.2800

1.6032

79.79

0.9497

1.0038

1.0445

0.8185

101.87

127.63

Spot

1.2746

1.5981

79.49

0.9459

1.0004

1.0402

0.8148

101.32

127.04

Support 1

1.2692

1.5930

79.19

0.9421

0.9970

1.0359

0.8111

100.77

126.44

Support 2

1.2665

1.5905

79.04

0.9401

0.9954

1.0337

0.8093

100.50

126.15

Support 3

1.2639

1.5879

78.89

0.9382

0.9937

1.0315

0.8074

100.23

125.85

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

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