Dollar Hits Three Week High yet EURUSD No Closer to 1.2800 Break

DailyFX

  • Dollar Hits Three Week High yet EURUSD No Closer to 1.2800 Break
  • Euro’s Universal Advance Continues, Is there Expectations of ECB?
  • British Pound: Can the BoE Stall, Accelerate GBPUSD Break?
  • Australian Dollar Takes a Breather Versus Fellow Carry Currencies
  • Japanese Yen Eyes 79 but Yen Selling Difficult to Sustain
  • Oil Collapses Despite Escalating Tension in Syria
  • Gold Showing a Very Different Path than Currency Sentiment Suggests

New to FX? Watch this Video; For live market updates, visitDailyFX’s Real Time News Feed

Dollar Hits Three Week High yet EURUSD No Closer to 1.2800 Break

Once again, we are seeing a wide contrast between the performances of different dollar-based majors. For example, while the EURUSD hovers weightlessly within congestion, AUDUSD extended its decline into support at 1.0175 while GBPUSD marked a long awaited break of 1.6100. For the fundamentally-weighted Dow Jones FXCM Dollar Index (ticker = USDollar), we find an exceptional fourth day to its persistent advance that draws an unusually similar to the S&P 500’s four-day climb. Yet one is a safe haven while the other is a favorite for yield return.

How can two so essentially different players on the risk scale show a consistent trend in the same direction? Negate risk trends as a driver. If we look at the pace of both equity index and currency, both are lacking for progress. Risk trends themselves have been placed on ice, allowing correlations like these to warp. It is difficult to benchmark a particular catalyst that we have on our docket, but the lead in to the NFPs on Friday can certainly dissuade unconvincing moves. Meanwhile, the Fed minutes are due this session, though there is likely little to add to last month.

Euro’s Universal Advance Continues, Is there Expectations of ECB?

The euro managed to third consecutive rally against nearly all of its counterparts through Wednesday. This drive is remarkable not just for its consistency but moreso for the fact that it is so broadly based. An easing of fear that capital markets are on the verge of collapse takes the burden off the fundamentally-questionable future of the euro. That is particularly fortuitous timing for the shared currency given recent headlines that report Spain’s Prime Minister is not on the verge of asking for a full bailout while Greece’s Finance Minister worries a deal with the Troika may not be possible before the EU Summit (made even more concerning by a local news agency warning growth projections top a 5 percent decline in 2013). If risk trends return, the euro will be unable to escape its gravity. In the meantime, the upcoming ECB decision may offer its own influence. Is this advance reflective of a follow up to last month’s OMT? If so, there will most likely be a disappointed crowd.

British Pound: Can the BoE Stall, Accelerate GBPUSD Break?

Like EURUSD and AUDUSD, the cable is a pair that quickly falls into line with broader risk trends. Yet, what are to make of GBPUSD’s drop below 1.6100 when the benchmarks for measuring risk have refused to commit to a clear decline? On the tail of a seven-week advance (last week was a congestion / transition period), there is a speculative sense that this pair is overbought. The deterioration in data that plays into fears that UK budget balancing is cutting into growth, but it would be a stretch to suggest this can stand as a catalyst of its own. The upcoming BoE decision is equally lacking for influence as changes can’t even spur substantive moves. GBPUSD is still overextended, but risk trends are key.

Australian Dollar Takes a Breather Versus Fellow Carry Currencies

The Australian dollar has stood out as the biggest mover amongst the majors so far this week, but the post-RBA rate cut wave seems to have finally let up this past session. Both AUDNZD and AUDCAD have seen a substantial bounce from their initial selloffs. In contrast, AUDUSD extended its own decline. That is interesting considering risk trends were generally bearing higher. If it were a consistency of rate cut concerns for the RBA, we would see the Aussie weaken against comparable investment currencies as well. We are at that point where risk trends need to take over for the more yield-heavy pairs. Beware of tentative breaks on AUDUSD and AUDJPY that aren’t accompanied by a selloff in equities.

Japanese Yen Eyes 79 but Yen Selling Difficult to Sustain

For those that have been watching USDJPY’s rise, the pair is now working on its fifth consecutive advance with an early Asia session climb. What carries a pair that is made of two safe havens with sizable debt issues? Risk trends don’t show through in the standard way, but a market-wide unwinding of the yen certainly bolsters the case for a bullish USDJPY. Something to add a fundamental slant to the yen’s weakness with this pair this morning, we learned from the Ministry of Finance that Japanese investors bought a net 1.542 trillion yen worth of foreign bonds this past week. That is the biggest outflow of capital through foreign bond purchases since August 2010. It is difficult to connect the current week’s move to last week’s capital flows, but that is the kind of formula officials will have to consider for the upcoming BoJ rate decision (Friday morning). Do they have the will and ability to feed sizable outflows of capital and thereby convince the market of its commitment?

Oil Collapses Despite Escalating Tension in Syria

There are a lot of contradictions in the markets this week, and gold is no exception. There is certainly an element of risk appetite trends withdrawing their overpowering grip over the speculative commodity market, but that doesn’t necessarily mean that crude should have tumbled when released by investor sentiment. Nevertheless, oil prices plummeted 4.1 percent Wednesday (the biggest drop since June 21 and second largest this year). What is particularly unusual about this aggressive move is that it sustained itself despite news that shelling had crossed the Syrian-Turkey boarder – a definite escalation of Middle Eastern tensions that could have made the typically anxious oil market nervous. Yet, before fears could be soothed by diplomatic talk, the market didn’t really react. Investors are seemingly more interested in downgrades for growth forecasts seen in data from US to China as well as the DoE’s report that crude output hit its highest level since 1996 in the US.

Gold Showing a Very Different Path than Currency Sentiment Suggests

The chop on gold’s daily chart is painful for traders to see. The 5-day average true range (ATR) is just off of the lowest level in 14 months set back in early August. This is a dramatic change of pace when we compare the pace and activity level of the commodity between the second half of August and first half of September. The law of norms would suggest to us that this unusually quiet activity level will correct itself which leads to a breakout one way or another. Whether that break has meaningful direction to it likely depends on the catalyst. Of course, the metal can break on its own, but that would likely translate into little or no follow through. It’s interesting to note that a flatline for gold is a direct fundamental contrast to gold’s steady advance. Typically the greenback stands in as a proxy for currencies in general – and when the masses fear FX manipulation, they move to the metal. A stalled gold may reflect a reticence to cave to bearish demands. ECB and FOMC minutes will weigh.

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

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

23:50

JPY

Japan Buying Foreign Bonds (Yen) (SEP 28)

-

-61.7B

At the foundation of exchange rate changes is currency flow. Can the private sector gain traction where the MoF can’t?

23:50

JPY

Japan Buying Foreign Stocks (Yen) (SEP 28)

-

-66.8B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (SEP 28)

-

-651.1B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (SEP 28)

-

59.0B

1:30

AUD

Building Approvals (MoM) (AUG)

4.7%

-17.3%

Growth readings from the domestic economy. The market is more focused here as export hopes fade post RBA.

1:30

AUD

Building Approvals (YoY) (AUG)

-14.3%

-10.6%

1:30

AUD

Retail Sales s.a. (MoM) (AUG)

0.4%

-0.8%

7:15

CHF

Industrial Production (YoY) (2Q)

-

1.4%

8:30

GBP

BoE Housing Equity Withdrawal (Pounds) (2Q)

-8.5B

-8.8B

11:00

GBP

Bank of England Interest Rate Decision

0.50%

0.50%

Expectations are for no change to policy and a disinterested market

11:00

GBP

Bank of England Asset Purchase Target

375B

375B

11:30

USD

Challenger Job Cuts (YoY) (SEP)

-

-36.9%

11:45

EUR

European Central Bank Interest Rate Decision

0.75%

0.75%

The ECB introduced OMT last month, not much room or will to expand which could translate into a hit to recent euro optimism

12:30

USD

Initial Jobless Claims (SEP 29)

370K

359K

The last round of employment data before NFPs

12:30

USD

Continuing Claims (SEP 22)

-

3271K

14:00

CAD

Ivey Purchasing Managers Index s.a. (SEP)

-

62.5

Factory activity to follow up on the weak manufacturing figures seen around the globe earlier this week

14:00

USD

Factory Orders (AUG)

-2.5%

2.8%

The ISM manufacturing and -durable goods orders set this series up for a decline

23:30

AUD

AiG Performance of Construction Index (SEP)

-

32.2

Is talk of a housing bubble in Australia realistic?

-:-

JPY

Bank of Japan Interest Rate Decision

0.10%

0.10%

Will the BoJ act to push the yen lower? Can they?

GMT

Currency

Upcoming Events & Speeches

08:30

USD

Spain to Sell 2,3 and 5-Year Bonds

12:30

EUR

ECB Draghi Delivers Policy Statement

18:00

USD

Federal Open Market Committee Meeting Minutes

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

5.6625

6.1150

Resist 1

15.0000

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

12.8137

1.8063

8.4274

7.7551

1.2308

Spot

6.6803

5.7676

5.7558

Support 1

12.5000

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.4295

7.7450

1.1800

Support 2

5.8085

4.9115

4.9410

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

1.3046

1.6208

79.23

0.9457

0.9938

1.0317

0.8297

102.83

127.83

Resist. 2

1.3016

1.6181

79.10

0.9436

0.9920

1.0292

0.8276

102.54

127.54

Resist. 1

1.2987

1.6153

78.96

0.9415

0.9901

1.0267

0.8254

102.26

127.24

Spot

1.2928

1.6099

78.68

0.9373

0.9865

1.0216

0.8212

101.70

126.66

Support 1

1.2869

1.6045

78.40

0.9331

0.9829

1.0165

0.8170

101.14

126.07

Support 2

1.2840

1.6017

78.26

0.9310

0.9810

1.0140

0.8148

100.86

125.78

Support 3

1.2810

1.5990

78.13

0.9289

0.9792

1.0115

0.8127

100.57

125.49

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

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com.

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

View Comments (0)