Forex: Dollar Fights for an Advance as Stimulus, Downgrade Headlines

DailyFX

  • Dollar Fights for an Advance as Stimulus, Downgrade Headlines
  • Euro Drops to 1.3300 after Officials Says ‘Dangerously High’
  • Japanese Yen Rallies Most in Two Months, Trend Still Lacking
  • Swiss Franc Extends its Longest Tumble Versus Euro Since 2007
  • Australian Dollar Ready to Force Breakouts if Jobs Data Sparks Volatility
  • British Pound: Fitch Warns UK May Lose AAA Status
  • Gold: Market Forces Breakout, But is There Follow Through?

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Dollar Fights for an Advance as Stimulus, Downgrade Headlines

EURUSD may have put in for its first drop in four trading days while USDJPY finds itself in its steepest bear leg in two months, but that doesn’t mean that the dollar itself is doing particularly well. From the equally-weighted Dow Jones FXCM Dollar Index (ticker = USDollar), we find that the greenback was little moved on the day. For fundamental flashes, the dollar felt a modest shudder on credit rating agency Fitch’s warning that the US could lose its AAA-status if the brinkmanship continued for raising the nation’s debt ceiling. Alternatively, stimulus watchers read comments from the Fed’s Rosengren who said strong growth could curb quantitative easing 6-9 months before the jobless rate hit the 6.5 percent target. These are notable hiccups, but they are unlikely to carry last trend. For that we need a risk appetite shift. Can earnings provide?

Euro Drops to 1.3300 after Officials Says ‘Dangerously High’

Another wave of Euro headlines crossed the wires this past session; but this time, the currency actually reacted to the fundamental push. Given its rarity and the proximate timing of the market’s selling, the most influence of the session’s updates was from Eurogroup Chairman Juncker. Typically voicing his confidence about dubious bailout plans and growth projections, Juncker took a negative tack during the US trading session when he said that the Euro exchange rates were ‘dangerously high’. Anyone that has traded any yen crosses for any length of time would think that this was a rather tame statement (Japanese officials are notorious for their threats and belief on the yen’s bearings). However, such comments from Euro officials are unusual; and Juncker and crew have proven themselves more aggressive in adapting policy to meet concerns. In reality, these offhand comments are a catalyst, but their market-moving influence would quickly dry up without supporting concerns. On that note, Fitch warned France of a downgrade, Spain’s Rajoy wrote off a rescue again and Germany’s Schaeuble said Cyprus needs Russian aid.

Japanese Yen Rallies Most in Two Months, Trend Still Lacking

We have been here before. Early in Wednesday’s trading session, we find the Japanese yen gaining ground against all of its counterparts – following through on the quick rally won through the previous session. This looks a lot like the pullback from the yen crosses last week which notably stilled and prompted the market to return to its aggressive yen-selling ways after the government announced a 10.3 trillion yen stimulus program. Prime Minister Abe and Finance Minister Aso have already used their move and have little to coax the multi-month yen depreciation move other than threats. The next tangible catalyst (outside of risk trends) comes January 22 when the BoJ announces its policy decisions. Until then, we are left to the wiles of broader risk trends. Absent any outside influence, a natural correction is a strong draw.

Swiss Franc Extends its Longest Tumble Versus Euro Since 2007

An over-extended currency is naturally prone to a normalizing move – just look at the Japanese yen, both its multi-month rally and recent pullback fit the bill. The Swiss franc is no exception, though it has been more difficult to gauge given there was an artificial floor on its benchmark pairing (EURCHF) at 1.2000 that obscured where the balance of power was. A reduction of Eurozone tail risk is a fundamental factor that carries exceptional weight for this benchmark pair specifically. The immediacy of the economic region’s collapse has certainly eased, and subsequently the capital flow into the banking system has waned. Yet, those fears are not resolved, and this catalyst will lose its momentum rather quickly. This past session’s EURCHF was materially slower than Monday’s – the biggest since November 2011. That said, it also notched a seventh consecutive daily advance – the longest run since April 2007. This EURCHF trend will break, but other franc moves may carry.

Australian Dollar Ready to Force Breakouts if Jobs Data Sparks Volatility

Typically, the Australian dollar stands out for its volatility. So far this week, the currency is conspicuous for its lack of movement. Where we have seen a EURUSD tumble, AUDUSD has held close to 1.0600. In a market-wide yen rally, the Aussie dollar has posted the second smallest loss (next to the USD) against the recovering currency. This is yet more evidence that risk trends are not playing a serious role in the underlying markets at the moment. Yet, that sloth may be shed in the coming session. Much of the FX market’s volatility has been sourced in unique catalysts. As it happens, we have the Australian employment data for December on deck (00:30 GMT). There is plenty of room for surprise in the change and unemployment rate (seen jumping 0.2 percentage points). If it is a bullish surprise, that exceptionally close resistance will break.

British Pound: Fitch Warns UK May Lose AAA Status

There were two fundamental fronts for sterling traders to keep an eye on this past session. From the docket, December’s consumer-level inflation (CPI) data offered little to change the British pound’s fate. The headline, annual reading held at a 2.7 percent clip for the third consecutive month. This is keeps the policy yardstick above the 2.0 percent threshold and the pressure for the Bank of England to respond with ineffective rate cuts (though they would be very effective in hurting the currency) diminished. Unexpected was Fitch’s warning that the UK was moving closer to losing its AAA-status. Though the sterling long ago lost its top reserve status, it is still a financial benchmark. The loss of the top credit rating could be just as painful – perhaps moreso – as it would be for the United States.

Gold: Market Forces Breakout, But is There Follow Through?

There was nowhere for gold to move, so the speculative ranks were forced to decide on a short-term direction for the commodity Tuesday. With a series of high highs from January 4’s swing low heading into the upper boundary of a channel top that has guided the market down from the 1,800 failure back in early October, a break was inevitable. The general, bearish bearing for the commodity over the past three months would imply that the break would more likely result in a move to the downside to drop below the 200-day moving average and mid-point of the past year’s range (around 1,660). Instead, gold was given an unexpected push by the financial headlines. Fitch’s warning to the US, UK and France about their top credit ratings, trouble over Cyprus’ Eurozone rescue and suggestions that the 2014 US budget will be delayed all dim the appeal of currencies that can broadly devalue in the eyes of international investors looking to safe guard their capital. That said, this concern is nothing new. To keep moving towards 1,700 and beyond, the dollar needs to materially decline.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

New Motor Vehicle Sales (MoM)

-

0.0%

Returned to growth 1/2012. Six year average at 2.7%, YoY.

0:30

AUD

New Motor Vehicle Sales (YoY)

-

9.7%

2:00

NZD

Non Resident Bond Holdings

-

62.7%

Foreign holdings increased by 3% since 1/2012.

2:00

CNY

Actual FDI (YoY)

-2.0%

-5.4%

Capital fleeting since 6/2012.

5:00

JPY

Consumer Confidence

-

39.4

Eroded 3% since 6/2012.

7:00

EUR

EU 25 New Car Registrations

-

-10.3%

Declining since 10/2011.

8:15

CHF

Retail Sales (Real) (YoY)

3.4%

2.7%

Six year average at 2.6% growth.

10:00

EUR

Euro-Zone Consumer Price Index (MoM)

0.3%

-0.2%

Core prices have been inflating at decreasing rate since 7/2012 when at 1.7%.

10:00

EUR

Euro-Zone Consumer Price Index - Core (YoY)

1.5%

1.4%

10:00

EUR

Euro-Zone Consumer Price Index (YoY)

2.2%

12:00

USD

MBA Mortgage Applications

-

11.7%

Oscillates around zero. 5 year average at 0.7%.

13:30

USD

Consumer Price Index (MoM)

0.0%

-0.3%

Core CPI Index increased 11% over last 6 years.

CPI Index increased 15% over last 6 years.

13:30

USD

Consumer Price Index (YoY)

1.8%

1.8%

13:30

USD

Consumer Price Index Ex Food & Energy (MoM)

0.2%

0.1%

13:30

USD

Consumer Price Index Ex Food & Energy (YoY)

1.9%

1.9%

13:30

USD

Consumer Price Index Core Index s.a.

231.416

231.254

13:30

USD

Consumer Price Index n.s.a.

229.726

230.221

14:00

USD

Total Net TIC Flows

-

-$56.7B

Wavers around zero. 6 year average at $28.54B.

14:00

USD

Net Long-term TIC Flows

$25.3B

$1.3B

14:15

USD

Industrial Production

0.3%

1.1%

Spiked to quickest rate (1.1%) since 1/2011.

14:15

USD

Capacity Utilization

78.5%

78.4%

Average since 1967: 80.7%.

15:00

USD

NAHB Housing Market Index

48

47

Index has improved by 261% since 6/2011.

15:30

USD

DOE U.S. Crude Oil Inventories

2350K

1314K

15:30

USD

DOE Cushing OK Crude Inventory

-

332K

15:30

USD

DOE U.S. Gasoline Inventories

2600K

7412K

15:30

USD

DOE U.S. Distillate Inventory

-

6777K

21:00

NZD

ANZ NZ Job Ads (MoM)

-

-0.8%

6 year average at -0.8%.

23:50

JPY

Tertiary Industry Index (MoM)

0.1%

-0.1%

Wavers around zero.

GMT

Currency

Upcoming Events & Speeches

8:20

EUR

ECB's Nowotny Speaks on Monetary Policy, Fiscal Stability

9:00

EUR

Germany's Bundesbank Holds a Press Conference on Gold

10:40

EUR

ECB's Coeure speaks in Luxembourg

11:30

USD

Earnings – Bank of New York, JPMorgan, Goldman Sachs

15:00

USD

Fed's Kocherlakota Speaks on Policy in Eden Prairie, Minnesota

17:00

EUR

ECB's Asmussen speaks at Hohenheim University in Stuttgart

19:00

USD

U.S. Federal Reserve Releases Beige Book

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

6.1875

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.8155

5.9190

5.8200

Spot

12.6259

1.7708

8.8187

7.7527

1.2253

Spot

6.4999

5.6169

5.5796

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

1.3396

1.6168

89.25

0.9398

0.9902

1.0643

0.8479

118.92

143.61

Resist. 2

1.3368

1.6142

89.01

0.9378

0.9888

1.0623

0.8459

118.51

143.16

Resist. 1

1.3341

1.6116

88.77

0.9358

0.9874

1.0603

0.8439

118.11

142.72

Spot

1.3285

1.6064

88.29

0.9318

0.9846

1.0562

0.8399

117.30

141.84

Support 1

1.3229

1.6012

87.81

0.9278

0.9818

1.0521

0.8359

116.49

140.95

Support 2

1.3202

1.5986

87.57

0.9258

0.9804

1.0501

0.8339

116.09

140.51

Support 3

1.3174

1.5960

87.33

0.9238

0.9790

1.0481

0.8319

115.68

140.06

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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