Dollar Reverses Against Aussie, EURUSD 1.2650 Key for NFPs

DailyFX

  • Dollar Reverses Against Aussie, EURUSD 1.2650 Key for NFPs
  • Euro Reaction to ECB Stifled by Well Priced Expectations
  • British Pound Pushed Around by Euro and Risk, 1.6000 Is A Long Way’s Off
  • Australian Dollar Wins Remarkable Reversal, Too Bad it Could Easily Fail
  • Canadian Dollar Will Look to Capitalize Rally with Employment Data
  • Swiss Franc: EURCHF Finally Taking the Pressure Off of SNB?
  • Gold is a Favored Anti-Stimulus Asset, So Why Did We Stick at 1700?

Dollar Reverses Against Aussie, EURUSD 1.2650 Key for NFPs

The markets stirred over the past 24 hours with the crash of the ECB’s new bond purchasing agenda stoking risk appetite trends. A swell in risk appetite trends was good for a four-year high in S&P 500 and AUDUSD reversal, but EURUSD was notably restrained. Perhaps August NFPs can rectify that situation. To understand the stakes moving forward, we have to appreciate the quality of the fundamental shift through this past trading session. There was certainly an increase in both volatility and speculative interest (one does not necessarily lead to the other). The benchmark US stock index surged to a fresh four-year high above 1425 and volume on equities and FX futures top one-month highs. For tight congestion (like the S&P 500 was facing) and over-extended assets at high risk of a correction (like the Australian dollar), a lacking and expected outcome from the European policy authority can force moves. However, to truly unite speculators to a genuine risk appetite-based trend, we need to significantly tip the scales and change investment efforts. And, with that sizable task in mind; my doubts for the NFPs are set.

There is little doubt that the monthly, US labor report is one of the most recognizable economic releases to cross the wires. Yet, its market impact has long held an ambiguous impact on price action. Perhaps its most consistent impact is curbing volatility in the hours / days preceding its release. The chance of a significant surprise that can spark volatility against your position is reason enough for many to steer clear of building exposure ahead of the data (effectively killing trends). Yet, after its release, we have seen few instances of notable market reaction from the EURUSD afterwards. To understand why this isn’t a trend-level event we have to remember what truly matters fundamentally. A return of higher yields is a side effect of growth recovery and thereby something employment can contribute to – but it is far from supporting such a change. More appropriately for current markets is the labor data’s influence over stimulus expectations. Yet, this series has done little to alter the market’s accepted time frame for more QE. Speaking of QE, there is another distraction on hand: the Fed Rate Decision next week.

Euro Reaction to ECB Stifled by Well Priced Expectations

The European Central Bank (ECB) laid the outlines for a new, unorthodox stimulus effort to help snuff out the Euro-area’s ongoing financial crisis. So, then why didn’t the Euro break higher across the board? There were two general problems with the news from the policy authority this past session: the outcome was heavily expected and the market is fully aware of the trouble with implementation without details. As for the effort itself, the ECB bypassed any decisions on changing rates (though member Coene suggested this was a possibility next meeting) and went straight for the stimulus efforts that feed speculators’ short-term appetites. The result was a program (OMT) to purchase government bonds to pull yields from their painful heights and remove one facet of the broad financial crisis. An unlimited version of the SMP program was exactly as expected…and so too was the conditionality and lack of detail on implementation. Investors have become anesthetized to open-ended promises and crave either a serious fix or monetary influx. This is neither. The euro run we have seen seems more the reaction to a swell in general risk appetite. If sentiment retreats on their own, expect headlines to blame doubts over the effectiveness of ECB efforts.

British Pound Pushed Around by Euro and Risk, 1.6000 Is A Long Way’s Off

If the Euro-area is one step closer to a resolution on its long-lasting financial crisis, wouldn’t the sterling be free to rally? GBPUSD showed little of that strength this past session however, and the 1.6000 level looks very far away even with the event risk on tap for the final trading session this week. The euro’s lack of response to its own policy decision means the pound had little hope of borrowing strength (and it certainly wouldn’t find any drive from the BoE). The relief rally from Euro connections may already be played out. Watch GDP and inflation updates tomorrow.

Australian Dollar Wins Remarkable Reversal, Too Bad it Could Easily Fail

Looking beyond the bombastic headlines, the true standout Thursday was the Australian dollar. The currency wrestled for a bullish performance against all of its major counterparts - though the risk connections of the kiwi and loonie kept pretty good pace. An unaware trader would try to fit an explanationto the August employment figures, but the experienced would recognize it as a reaction to risk appetite trends by a currency that was heavily oversold through previous weeks. Risk trends had left the Aussie to react to rate expectations (which were deteriorating), but the S&P 500 rally wrested back control. That presents a problem. If risk trends struggle to take root, so too will the Aussie’s reversal.

Canadian Dollar Will Look to Capitalize Rally with Employment Data

Though its yield is woefully lacking compared to its Aussie and New Zealand counterparts, the Canadian dollar still enjoys its place as an investment currency. As such, Thursday’s risk rally was a strong catalyst for the currency – a much needed move after the disappointing reaction to the Bank of Canada’s hawkish language. With USDCAD winning a remarkable reversal and notable break below 0.9845 (to a fresh four-month low), we are looking for a catalyst. I am skeptical of the NFPs and risk trends, but Canadian employment data can supply.

Swiss Franc: EURCHF Finally Taking the Pressure Off of SNB?

Most traders have banished the EURCHF chart from their desktop because of its months of hovering just above 1.2000. However, things are starting to look interesting. The pair put in for its biggest advance (0.24 percent) in nearly six months Wednesday and has held this elevation in a very remarkably deviation from what we are used to seeing form this pair. Is this it? Is this the natural trend that the SNB has been waiting for? Well, considering the ECB’s efforts are unlikely immediate, permanent fixes; I wouldn’t grow to comfortable with holding passive longs.

Gold is a Favored Anti-Stimulus Asset, So Why Did We Stick at 1700?

US equities, the 10-year Treasury yield and US dollar are all good measures of stimulus influence and hopes. Yet, there is perhaps no better measure than gold. The manipulation of the vary value of money and debt via policy efforts can skew the accuracy of these assets as measures of market expectations. Gold, on the other hand, is an international asset that is better insulated from central bank manipulation. What’s more, it is treated as an alternative store of wealth to regular fiat. That said, the ECB’s vows didn’t propel us beyond 1700. Do we wait for the Fed now?

**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

1:30

AUD

Trade Balance (JUL)

-300M

9M

July balance expected to fall into deficit on slower China

5:00

JPY

Leading Index (JUL P)

91.6

93.2

Indicators still showing weaker economy on weak exports

5:00

JPY

Coincident Index (JUL P)

93.2

94.1

5:45

CHF

Unemployment Rate (AUG)

2.8%

2.7%

Swiss labor market remaining resilient, focus remains on rest of Europe

5:45

CHF

Unemployment Rate s.a. (AUG)

2.9%

2.9%

6:00

EUR

German Exports s.a. (MoM) (JUL)

-0.5%

-1.5%

German trade expected to continue decline in weak July in all major economies. Recovery may be seen pending peripheral developments

6:00

EUR

German Imports s.a. (MoM) (JUL)

-0.3%

-3.0%

6:00

EUR

German Trade Balance (euros) (JUL)

15.3B

17.9B

6:00

EUR

German Current Account (euros) (JUL)

13.5B

16.5B

7:00

CHF

Foreign Currency Reserves (AUG)

-

406.5B

Falling back as SNB purchasing European debt, other instruments

8:30

GBP

PPI Input n.s.a. (MoM) (AUG)

1.7%

1.3%

British producer prices mixed, but somewhat higher, may indicate rising inflation. BoE position may become difficult as stagflation possible

8:30

GBP

PPI Input n.s.a. (YoY) (AUG)

1.5%

-2.4%

8:30

GBP

PPI Output n.s.a. (YoY) (AUG)

1.9%

1.7%

8:30

GBP

PPI Output Core n.s.a. (YoY) (AUG)

1.2%

1.3%

8:30

GBP

BoE/GfK Inflation Next 12 Mths (AUG)

-

3.7%

Inflation rate still expected to remain above target 2%

8:30

GBP

Industrial Production (MoM) (JUL)

1.5%

-2.5%

British manufacturing expected to continue decline on a yearly basis, confirming magnitude of double dip recession

8:30

GBP

Industrial Production (YoY) (JUL)

-2.8%

-4.3%

8:30

GBP

Manufacturing Production (MoM) (JUL)

1.7%

-2.9%

8:30

GBP

Manufacturing Production (YoY) (JUL)

-2.4%

-4.3%

12:30

CAD

Building Permits (MoM) (JUL)

-

-2.5%

Canadian real estate market seen as resilient despite drops

12:30

CAD

Labor Productivity (QoQ) (2Q)

-

0.1%

Canadian labor market continues to improve, could result in more hawkish central bank commentary in coming meetings

12:30

CAD

Unemployment Rate (AUG)

7.3%

7.3%

12:30

CAD

Net Change in Employment(AUG)

11.0K

-30.4K

12:30

USD

Change in Non-farm Payrolls (AUG)

127K

163K

NFPs expected to show another month of gains as growing labor market seen to sap need for additional monetary easing

12:30

USD

Av Hourly Earnings All Employees (YoY) (AUG)

1.8%

1.7%

12:30

USD

Unemployment Rate (AUG)

8.3%

8.3%

12:30

USD

Average Weekly Hours All Employees (AUG)

34.5

34.5

12:30

USD

Change in Household Employment (AUG)

-

-195

12:30

USD

Underemployment Rate (U6) (AUG)

-

15.0%

14:00

CAD

Ivey Purchasing Managers Index s.a. (AUG)

59.0

62.8

Business confidence may weaken

14:00

GBP

NIESR Gross Domestic Product Estimate (AUG)

-

-0.2%

British economy continues to be in double dip recession

-:-

USD

ICSC Chain Store Sales (YoY) (AUG)

-

1.9%

US retail growing moderately

GMT

Currency

Upcoming Events & Speeches

-

-

-

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

13.0900

1.8085

8.2993

7.7563

1.2432

Spot

6.7518

5.8997

5.8513

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

1.2754

1.6051

79.50

0.9638

0.9895

1.0407

0.8108

100.86

126.94

Resist. 2

1.2723

1.6021

79.35

0.9614

0.9878

1.0380

0.8087

100.56

126.63

Resist. 1

1.2692

1.5991

79.20

0.9590

0.9860

1.0353

0.8065

100.26

126.32

Spot

1.2630

1.5931

78.90

0.9542

0.9825

1.0299

0.8023

99.65

125.70

Support 1

1.2568

1.5871

78.60

0.9494

0.9790

1.0245

0.7981

99.04

125.08

Support 2

1.2537

1.5841

78.45

0.9470

0.9772

1.0218

0.7959

98.74

124.77

Support 3

1.2506

1.5811

78.30

0.9446

0.9755

1.0191

0.7938

98.44

124.46

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.

Rates

View Comments (0)