Dollar Run Cools with EURUSD at 1.2825 Support Despite Dow Plunge

John Kicklighter
  • Dollar Run Cools with EURUSD at 1.2825 Support Despite Dow Plunge
  • Euro Drop Against Franc, Pound Most Telling after Spain Downgrade
  • Australian Dollar Climbs after Questionable Jobs Data, Continues on Risk
  • British Pound: What Does BoE King’s Rates and QE Remarks Mean with GBPUSD at 1.60?
  • Swiss Franc Posts Another Volatile Swing with EURCHF Below 1.2100
  • Japanese Yen: Officials Trade off Currency Responsibility, Yen Allowed to Run
  • Gold Closes First Four-Day Decline in Two Months, Is this a True Reversal Before 1800?



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Dollar Run Cools with EURUSD at 1.2825 Support Despite Dow Plunge

Risk aversion seemed to be running in high gear this past session. My favored benchmark for investor sentiment, US equities (carrying an extra level of resilience to negative flutters by heavy amounts of Fed stimulus), suffered heavy selling through the day. In fact, the Dow Jones Industrial Average found closed out its worst daily decline in three months. Yet, this otherwise convincing drive didn’t translate into a proportionate rally for the safe haven dollar. In fact, the Dow Jones FXCM Dollar Index (ticker = USDollar) closed Wednesday in the red. Looking across the majors, we see the proximity of significant resistance for the benchmark (1.2825 for EURUSD, 1.0150 for AUDUSD) which mirrors nicely the serious 13,325 and 1425 support levels for the DJIA and S&P 500 respectively. The slump in stocks was a low-resistance move that carried us to much more significantly levels. From here we need commitment. If not Friday’s earnings, watch five-year low volatility readings.


Euro Drop Against Franc, Pound Most Telling after Spain Downgrade

Through much of the active trading session Wednesday, the fundamentals behind the euro were relatively tame. Headlines like those that reported IMF Director Lagarde didn’t see a need to participate in a Spain bailout (if one was sought) and ECB’s Noyer’s suggestion that further rate cuts were unnecessary can set off a sensitive market, but traders seem more stolid to these low lapping waves. A little more shocking for a currency that always has a cloud over its head was the Standard & Poor’s downgrade of Spain’s sovereign rating (with a negative outlook). The move from ‘BBB+’ to ‘BBB-‘ doesn’t yet tip us over the threshold into junk bond status. What would that mean to the euro? If enough of the rating agencies label a country’s debt below investment grade, it cannot use its own bonds as collateral to borrow from the ECB. Provisions have been made in the past to bend the rules (like Greece), but such a move would be a clear escalation to the region’s crisis.


Australian Dollar Climbs after Questionable Jobs Data, Continues on Risk

The most active currency in the opening hours of Thursday’s session is without doubt the Australian dollar. The currency has managed to overtake 1.0250 against the dollar, extend heavy rallies against the New Zealand and Canadian counterparts, while just recently threatening meaningful trend reversals with EURAUD and GBPAUD. For that extra push for breaks on pairs like AUDUSD, the spark can be tied back to the Australian employment data. The net 14,500 increase in total payrolls through September handily outpaced expectations and was based on a 32,100-person surge in full-time positions. The offset, however, was a 2.5 year high jobless rate. So what kept it moving? Latent risk appetite.


British Pound: What Does BoE King’s Rates and QE Remarks Mean with GBPUSD at 1.60?

The British pound is a mixed bag. Where the sterling has stumbled against the Aussie and Kiwi dollars, it has climbed against the euro. What does this tell us about the individual currency: that it is essentially the sounding board for more active currencies. For those watching the pound, GBPUSD should be top concern as it follows what the most critical factor behind the single currency happens to be: the UK’s growth/fiscal balance, Eurozone crisis spillover or risk trends. The choppy decline from this benchmark pair down to 1.6000 seems to be a mix of all three, but speculative trends are pulling more than their own weight. An interesting factor that may finding its way into sterling price action moving forward are stimulus expectations (long a restrained influence). BoE Governor King remarked that rates were at ‘rock bottom’ but QE had no limit.


Swiss Franc Posts Another Volatile Swing with EURCHF Below 1.2100

Earlier this week, the Swiss franc suffered its biggest intraday tumble this year – not on the basis of official intervention efforts by policymakers but rather on the news that banks would charge for franc-based deposits. This was the same kind of tax on safe haven flows that the SNB had contemplated yet never pursued. This could prove a lasting and effective curb for the Swiss currency if risk trends didn’t slump. In the event of a sentiment collapse or significant aggravation to the Euro-area financial crisis, the modest charge wouldn’t stop the flood. Heat from the latter catalyst started to pick up this past session. Spain’s downgrade generated a quick drop a clear break below 1.2100 for EURCHF. Be wary.


Japanese Yen: Officials Trade off Currency Responsibility, Yen Allowed to Run

When it comes to the yen, there is a consistent debate as to if and when the officials will once again intervene on behalf of the Japanese yen. Both the Ministry of Finance and Bank of Japan have separately vowed to arrest the surge behind the nation’s currency one way or another, yet time has proven both parties ultimately incapable of having a lasting effect (so far). For those plotting out their next yen trade around policy officials’ next dip into the market, it is important to understand how they how they will move and their level of effectiveness. Despite recent comments made by the new Japanese Finance Minister and other politicians, the BoJ does not have a mandate to directly intervene on behalf of the exchange rate. Therefore, with the exception of an explicit responsibility change, we should expect the central bank’s influence to come through its stimulus programs – which are conducted almost exclusively during known policy gatherings. The Fin Min is the greater unknown with no clear times. That said, we know their track record, so the eventual fade after the yen slump carries with it its own potential. To manipulate the yen lower, we need to see an SNB-style move. Otherwise, don’t turn from traditional risk trends.


Gold Closes First Four-Day Decline in Two Months, Is this a True Reversal Before 1800?

Though Wednesday’s 0.1 percent drop from gold was the smallest we’ve seen since this most recent bear leg began, it is nevertheless the fourth consecutive decline from the commodity. This is the first series of declines of this magnitude since the run through August 2. And to provide more history, we haven’t seen a five-day run through the red since January 2011. This historical relevancy doesn’t speak to fundamentals, but it does coincide nicely with the Dollar Index struggling at the upper end of its downward-sloping trend channel. This precious metal is not very sensitive to traditional risk trends, but its performance is heavily dependent on the greenback (which invariably shows the greatest level of momentum when the markets are committed to wholesale risk aversion). In the meantime, the CBOE’s volatility measure for gold continues to ease back (now at 15.5 percent). The balance between a ‘calm’ and ‘extreme’ reading from this measure is a fine line.


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ECONOMIC DATA


Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

-:-

CNY

New Yuan Loans (SEP)

680.0B

703.9B

Fall expected from tightness, though state attempting to balance

-:-

CNY

Money Supply - M0 (YoY) (SEP)

10.0%

9.7%

Supply growth expected to be seasonal, largely originating in long term deposits as government tries to slowly ease again

-:-

CNY

Money Supply - M1 (YoY) (SEP)

4.8%

4.5%

-:-

CNY

Money Supply - M2 (YoY) (SEP)

13.6%

13.5%


-:-

CNY

Foreign Exchange Reserves (SEP)

$3228.0B

$3240.0B

May grow in coming months from AU, EU, US easing

-:-

NZD

REINZ Housing Price Index (MoM) (SEP)

-

1.3%

NZ’s recent increase in prices seem to be tapering

-:-

NZD

REINZ House Sales (YoY) (SEP)

-

16.2%

0:00

AUD

Consumer Inflation Expectation (OCT)

-

2.4%

Downside may induce easing, though space for cuts limited

1:00

NZD

ANZ Consumer Confidence Index (OCT)

-

111.9

May continue to slow as Chinese slowdown amplifying across trade partners

1:00

NZD

ANZ Consumer Confidence (MoM) (OCT)

-

-1.9%


1:30

AUD

Employment Change (SEP)

5.0K

-8.8K

Australian market expected to add jobs, though weakness still expected as mining industries hit hard

1:30

AUD

Full Time Employment Change(SEP)

-

0.6K

1:30

AUD

Part Time Employment Change (SEP)

-

-9.3K


1:30

AUD

Unemployment Rate (SEP)

5.3%

5.1%


5:00

JPY

Consumer Confidence (SEP)


40.5

Additional downside expected

6:00

EUR

German CPI (YoY) (SEP F)

2.0%

2.0%

German inflation expected to be stable; may open up more rate cut-based easing as price stability kept

6:00

EUR

German CPI - EU Harmonized (YoY) (SEP F)

2.1%

2.1%

12:30

USD

Initial Jobless Claims (OCT 6)

365K

367K

Weekly data may improve following NFPs, recovery expectations

12:30

USD

Continuing Claims (SEP 29)

-

3281K


12:30

CAD

International Merchandise Trade (AUG)

-1.80B

-2.34B

Trade balance seen improving as energy demand rises

12:30

USD

Import Price Index (MoM) (SEP)

0.7%

0.7%

US trade balance widening moderately; September price index expected stable despite dollar weakness

12:30

USD

Import Price Index (YoY) (SEP)

-

-2.2%

12:30

USD

Trade Balance (AUG)

-$44.0B

-$42.0B


12:30

CAD

New Housing Price Index (MoM) (AUG)

-

0.1%

House price indices expected to rise slower following new housing permits report

12:30

CAD

New Housing Price Index (YoY) (AUG)

-

2.3%

14:30

USD

EIA Natural Gas Storage Change (OCT 5)

-

77

Crude and gasoline inventories expected to rise as lower prices indicate reduced demand

15:00

USD

DOE U.S. Crude Oil Inventories (OCT 5)

-

-482K

18:00

USD

Monthly Budget Statement (SEP)

-$65.0B

-$62.8B

Budget deficit continues to widen

23:50

JPY

Tertiary Industry Index (MoM) (AUG)

0.4%

-0.8%

Services continues improvement

23:50

JPY

Domestic Corporate GPI (MoM) (SEP)

0.2%

0.3%

YoY decline in DCGPI indicates deflation still major problem

23:50

JPY

Domestic Corporate GPI (YoY) (SEP)

-1.4%

-1.8%




GMT

Currency

Upcoming Events & Speeches

0:00

USD

Fed's Kocherlakota Gives Opening Remarks at Town Hall Forum

8:00

EUR

ECB Publishes Oct. Monthly Report

16:30

USD

Fed's Plosser Speaks on Economy in Pennsylvania

23:25

AUD

RBA's Ellis Speaks at University of Technology in Sydney


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

13.1731

1.7975

8.4003

7.7568

1.2506


Spot

6.6054

5.9532

5.8306

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

1.2637

1.5929

79.27

0.9696

0.9995

1.0516

0.8203

99.67

125.72

Resist. 2

1.2606

1.5900

79.12

0.9671

0.9977

1.0488

0.8180

99.37

125.38

Resist. 1

1.2575

1.5870

78.97

0.9646

0.9959

1.0459

0.8158

99.06

125.04

Spot

1.2512

1.5810

78.67

0.9597

0.9923

1.0403

0.8112

98.44

124.37

Support 1

1.2449

1.5750

78.37

0.9548

0.9887

1.0347

0.8066

97.82

123.70

Support 2

1.2418

1.5720

78.22

0.9523

0.9869

1.0318

0.8044

97.51

123.36

Support 3

1.2387

1.5691

78.07

0.9498

0.9851

1.0290

0.8021

97.21

123.02

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


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