Dollar Has the Technicals for a Rally, Now the Fundamental Spark…

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  • Dollar Has the Technicals for a Rally, Now the Fundamental Spark…
  • Euro Lost Ground in All Pairs, Now for the Critical Support
  • Australian Dollar to Bring Volatility Early Next Week with RBA
  • British Pound Finally Brings Strongest Run in 8 Years to a Close
  • Japanese Yen: Should Traders Expect Anything from the BoJ?
  • Canadian Dollar Faces 0.9850 with Employment Data on Tap
  • Gold Posts First Weekly Loss in Six With a $1 Decline

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Dollar Has the Technicals for a Rally, Now the Fundamental Spark…

In the early hours of trading Friday, it looked like the dollar’s slow climb would crumble quickly as equities regained lost ground. That sentiment boost came crashing down, however, as the day progressed and the greenback ended the quarter with its biggest rally since August 1. That said, the single day drive doesn’t override the tepid pace of recovery the currency has run over the past two weeks. Dollar bulls are in desperate need of a strong fundamental driver to jumpstart momentum and prevent another slide in the wake of passive capital flows to higher yield.

With EURUSD just above its 200-day moving average at 1.2825 and GBPUSD leaning towards a reversal of a seven-week bull trend at the very start of next week, we will need to scan the horizon for possible fundamental ignitions. It is difficult to stir the level of sentiment needed to counteract months and years of impulsive risk investment in respect to stimulus. The Euro-area crisis and Fiscal Cliff are always good topics but ill-defined. Watch indicators like ISM manufacturing and NFPs to perhaps take advantage of a growing fear of recession.

Euro Lost Ground in All Pairs, Now for the Critical Support

It was a universal decline for the fundamental troubled and oft-speculated euro this past week. Though pairs like EURUSD have just come off of multi-week rallies, the correction doesn’t catch many fundamental traders by surprise. The afterglow of the ECB’s Open Market Transaction program long ago wore off when investors and country heads realized that conditions for rescue from the central bank were just as burdensome as an EU-level bailout. The euro was therefore running on the good will of general sentiment – which was notably week. With the next steps in the Spanish drama played out, the market is now looking for a clear indication on whether the country asks for an official rescue or not. Meanwhile, we have the ECB meeting on deck. It is unlikely they follow up on an open-ended program, but watch Draghi’s language.

Australian Dollar to Bring Volatility Early Next Week with RBA

We have two very different reads on the Aussie dollar. Just a simple glance at AUDUSD would suggest that the high-yield currency is in a comfortable atmosphere – not oversold nor overbought. The softer risk setting has certainly weighed the currency and the shockingly dovish outlook for the RBA decision next week doesn’t help the carry trade interest. Overnight swaps (from Credit Suisse) are still showing a 66 percent probability of a 25bp cut by the central bank Tuesday and over 100 bps of easing over the coming year. Though conditions are slowing and China is wavering, this still reads as too aggressive. The question is whether a hold on rates with dovish language by the central bank next week can spur a relief rally. It will likely depend on risk trends. In the meantime, net speculative interest (COT) is just off a record high. Dichotomous.

British Pound Finally Brings Strongest Run in 8 Years to a Close

It was inevitable. After seven consecutive weeks of advance (the longest climb since December 2004), GBPUSD finally closed this past period in the red. That said, the aggressive, one-sided move didn’t produce a snapback of equivalent measure. Given the scale on which we had to view the cable’s extreme advance, it is reasonable to expect that meaningful turns won’t necessarily look like a ‘V’ top. In the meantime, the average daily change for the past 20-days (a trading month) is still at its lowest levels in years (suggesting a near-term breakout). Furthermore, the COT figures revealed that speculators in the futures market have the highest exposure to a long sterling position since May 2011. The risk of a turn is high, but it doesn’t have to simply turn because it over-extended. As we look for fundamental sparks, the BoE decision stands out; yet the event has failed to generate market reaction for some time. It is better to watch general investor appetite and stay up to date on the Euro crisis.

Japanese Yen: Should Traders Expect Anything from the BoJ?

With traditional investor sentiment fading this past week, the yen responded as it always does: advancing as a carry unwind leverages its funding and safe haven status. Though not far, the yen crosses are not immediately upon their respective record lows. If there is deeper line of fear in the markets that works its way to the surface in the immediate future, there is still some volatility in a yen rally to be had. That said, a quick look at a 10 year chart of any yen cross shows where the long-term potential lies. USDJPY (amongst its peers) inevitably has a long rally ahead of it. That said, we need to see some level of commitment. The only thing with any hope of offsetting the scales of risk is intervention risk. With the Finance Ministry changing hands, we’ll see if the BoJ will scale up its effort to drive the currency lower – didn’t work well last go around.

Canadian Dollar Faces 0.9850 with Employment Data on Tap

The Canadian dollar didn’t perform very well this past week. The combination of risk aversion and a sharp decline in oil prices drove USDCAD higher and the loonie lower against the rest of its crosses. When it comes to the establishing the fundamental health of the Canadian currency, the USDCAD is a difficult exchange rate to gauge. As the US situation improves, so too does Canada’s. As such, it is worth browsing the crosses if you are a loonie trader. CADJPY is a great ‘risk’ sensitive pair and AUDCAD balances the direct fundamentals as we head into the new week. Looking for catalysts, watch both the US and Canadian jobs data on Friday for a boost in activity.

Gold Posts First Weekly Loss in Six With a $1 Decline

Thursday’s incredible gold rally couldn’t hold up through the end of the week. So close to overtaking the upper bounds of a two-week range, the precious metal would choose instead the less contentious route and settle back with 1775 – 1750 congestion. It is a fitting outcome that after all the volatility that coursed through the market last week, that gold would end 1 dollar lower than the previous week’s close. That officially broke a five-week rally, but it has yet to call a reversal. Considering the intra-week surge this past week was founded and failed on an expected catalyst – Spain moving closer to seeking a bailout – we know what is need to carry us to new highs: an unexpected swell in stimulus or at least speculation of such a boost. We wouldn’t expect the RBA, BoJ or BoE to carry the necessary clout. The ECB could provide, but is unlikely to move again so soon. This leaves the metal adrift. If the dollar comes on to a significant bid, gold could pitch into a steep dive.

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ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

2:30

(Sat)

CNY

HSBC Manufacturing PMI (SEP)

47.6

Private PMI measure may show further slowdown

23:01

(Sun)

GBP

Lloyds Business Barometer (SEP)

10

British business confidence increasing moderately

23:50

(Sun)

JPY

Tankan Lge Manufacturers Index (3Q)

-1

Tankan indices seeing stronger services industries; large industry outlook still pinned by strong yen, weak exports

23:50

(Sun)

JPY

Tankan Non-Manufacturing (3Q)

8

23:50

(Sun)

JPY

Tankan Lge Mfg Outlook (3Q)

1

23:50

(Sun)

JPY

Tankan Non-Mfg Outlook (3Q)

6

23:50

(Sun)

JPY

Tankan Large All Indust Capex (3Q)

6.2%

23:50

(Sun)

JPY

Loans & Discounts Corp (YoY) (AUG)

-0.34%

Corporate lending still weak

0:30

AUD

TD Securities Inflation (MoM) (SEP)

0.6%

Falling inflation may give RBA additional room to cut

0:30

AUD

TD Securities Inflation (YoY) (SEP)

2.2%

1:00

CNY

Manufacturing PMI (SEP)

49.2

Official data also showing decline

7:15

CHF

Retail Sales (Real) (YoY) (AUG)

3.2%

Pickup in sales may precede gradual rise in inflation

7:30

CHF

PMI Manufacturing (SEP)

46.7

Swiss manufacturing sector still shrinking

7:45

EUR

Italian PMI Manufacturing (SEP)

43.6

Final PMI data showing manufacturing sectors all in decline; additional ECB stimulus may be directed at sovereign debt relief

7:50

EUR

French PMI Manufacturing (SEP F)

42.6

7:55

EUR

German PMI Manufacturing (SEP F)

47.3

8:00

EUR

Eurozone PMI Manufacturing (SEP F)

46

8:30

GBP

PMI Manufacturing (SEP)

49.5

British economy still in recession

8:30

GBP

Net Consumer Credit (AUG)

-0.2B

Private borrowing still weak

8:30

GBP

Net Lending Sec. on Dwellings (AUG)

1.1B

Fall in house prices could show weakness across entire real estate market

8:30

GBP

Mortgage Approvals (AUG)

47.3K

8:30

GBP

M4 Money Supply (MoM) (AUG)

0.5%

Money supply relatively stable despite new asset purchasing programs

8:30

GBP

M4 Money Supply (YoY) (AUG)

-4.6%

9:00

EUR

Euro-Zone Unemployment Rate (AUG)

11.3%

Unemployment rate led by peripherals

12:30

CAD

Industrial Product Price (MoM)(AUG)

-0.5%

Input price increases subdued as Canadian dollar tracks commodities

12:30

CAD

Raw Materials Price Index (MoM)(AUG)

0.9%

14:00

USD

ISM Manufacturing (SEP)

49.9

49.6

Manufacturing sector still seen shrinking, though recovering

14:00

USD

ISM Prices Paid (SEP)

55

54

14:00

USD

Construction Spending (MoM)(AUG)

0.5%

-0.9%

Expected to grow on Fed’s QE

17:00

EUR

Italian Budget Balance (SEP)

-6.0B

Budget balance continues to fall into deficit as markets question Monti

17:00

EUR

Italian Budget Balance (YTD) (SEP)

-33.5B

GMT

Currency

Upcoming Events & Speeches

-:-

USD

Fed Chairman Bernanke Speaks on Monetary Policy

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

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

12.8585

1.7970

8.3146

7.7546

1.2274

Spot

6.5650

5.7970

5.7251

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

1.2977

1.6277

78.53

0.9484

0.9908

1.0478

0.8384

101.32

127.16

Resist. 2

1.2948

1.6250

78.39

0.9463

0.9890

1.0453

0.8364

101.04

126.87

Resist. 1

1.2919

1.6222

78.25

0.9441

0.9873

1.0428

0.8343

100.76

126.58

Spot

1.2860

1.6167

77.96

0.9398

0.9837

1.0378

0.8301

100.21

126.00

Support 1

1.2801

1.6112

77.67

0.9355

0.9801

1.0328

0.8259

99.66

125.42

Support 2

1.2772

1.6084

77.53

0.9333

0.9784

1.0303

0.8238

99.38

125.13

Support 3

1.2743

1.6057

77.39

0.9312

0.9766

1.0278

0.8218

99.10

124.84

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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