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Forex: Dollar Drifts Lower Against Euro but USDJPY Surges

By , Chief Currency Strategist
22 November 2012 06:58 GMT
  • Dollar Drifts Lower Against Euro but USDJPY Surges
  • Euro Rebound after Greece Indecision Remarkable…Or is It?
  • Japanese Yen: Third 1 Percent Plus, USDJPY Rally in Two Weeks
  • Australian Dollar Confused by RBA Stevens, Boosted by Chinese Data
  • British Pound Looks for a Sixth Straight Advance after BoE Minutes
  • Canadian Dollar: Low Speculative Volume Leverages Data Volatility Risk
  • Gold Consolidates, Volatility Measure Says Breakout Soon

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Dollar Drifts Lower Against Euro but USDJPY Surges

There were two different views of the dollar. Looking at the equally-weighted Dow Jones FXCM Dollar Index (ticker = USDollar), we find the currency marking its highest close in three months having posted a tense reversal from the closely-watched 10,000 level. Yet, when we look across the majors, the single currency doesn’t look nearly as convincing. In fact, the dollar fell against more than half of its major counterparts through Wednesday with notable runs from EURUSD (posting an aggressive intraday reversal) and GBPUSD (now working on its sixth consecutive advance). Where does this disparity come from? A lack of conviction - or ‘momentum’ to the trader.

It is true that more than half of the majors (the most liquid, dollar-based pairings) were showing losses for the benchmark currency. However, the average loss was only 0.1 percent. Gain or loss, these pairings were showing moderate moves through the day – that is with the exception of USDJPY. A pair that doesn’t have its roots in tempered risk appetite trends, USDJPY was free to reflect unfettered changes in underlying strength. The 1.0 percent rally for the pair was more a reflection of yen weakness, but this pair is still historically imbalanced and will continue to gradually trend in this direction for months to come. Moving away from the highlights, the more important takeaway on the day was the general level of activity.

We know that the world’s premier safe haven currency performs best when global investors are scrambling for a harbor from rough financial seas. The outlook for growth, yields and financial stability are all certainly still unbalanced; but to be a dollar driver, they must be active. That is job for general market conditions. Traders must be fretting these considerations. However, fear usually abates when participation fades – and that is exactly what we are facing. With Wednesday’s close, the US market is essentially offline for the rest of the week (due to the Thanksgiving holiday). Though only one region of global trading, this particular segment accounts for a considerable portion of speculative activity and it is often the session where we see new risk-based trends developed. We often look at fundamentals for our bearings as traders, but it is market conditions that determines whether event risk or technical break will carry influence. And, given the distinct relationship between volume, volatility and investor sentiment; a slight ‘risk on’ bias (dollar bearish) is easy to maintain. Bottom line, though, big moves are unlikely.

Euro Rebound after Greece Indecision Remarkable…Or is It?

While the euro managed only a modest gain against the US currency on the day Wednesday; the fact that it closed in the green at all after its fundamental hit is impressive. The top event risk for euro (which also happened to be the top update for the entire Forex market) was the EU Finance Ministers’ announcement that they had once again rolled back a necessary decision on Greece’s funding crisis. EU President Juncker had said before the meeting that a ‘definitive decision’ would be made in this gathering on the next steps of handling the country’s pressing rescue needs. Instead, officials merely offered empty remarks of praise and rescheduled to meet again on Monday, November 26 (this time ‘definitive decision’ seemed conspicuously absent). A market that is keenly aware of the long-term troubles in the Euro-area and growing fed up with half-measures would normally punish the currency for this move. Yet, without a full speculative depth, this bearish news is artificially dulled.

Japanese Yen: Third 1 Percent Plus, USDJPY Rally in Two Weeks

The yen has collapsed over the past week. In fact, since the beginning of its recent plunge with the open on November 14, the smallest decline the currency has made is the 3.3 percent tumble against the Australian dollar. The biggest: the 5.0 percent dive against the Euro. These are risk-sensitive pairs, so we could theoretically attribute some of this performance to risk aversion, but we can see the yen’s inherent weakness through USDJPY. This pair has posted three, one percent-plus rallies in the span of a week. We haven’t seen this level of bullish consistency since back in the first half of 2009. While there is a strong probability of a yen correction should we find a heavy risk aversion move sometime next week (unlikely to happen this week), Japanese officials’ desperation in driving the currency lower will likely ensure its pain.

Australian Dollar Confused by RBA Stevens, Boosted by Chinese Data

The Australian dollar has a long going on fundamental. First and foremost, risk trends have been tempered and carry a slight bullish bias due to market conditions. Adding to that Aussie bullishness traders are riding off the IMF’s reserve currency consideration and the positive showing from the Chinese manufacturing PMI report this morning. That said, RBA Governor Stevens hinted that further cuts could be easily tipped.

British Pound Looks for a Sixth Straight Advance after BoE Minutes

It is already five consecutive, daily advances for GBPUSD with Wednesday’s close and the open this morning looks like cable bulls want to make it six. We haven’t seen that level of consistency since April 27. We look back to that run, and we see the biggest bearish reversal this year – and naturally it is easy to draw correlation. However, these are abnormal conditions; and this climb has proven especially slow.

Canadian Dollar: Low Speculative Volume Leverages Data Volatility Risk

Considering a good portion of the speculative market will not be online through the final 48 hours of trading week, we know it will be difficult to develop trends. On the other hand, that lack of market depth also leverages speculative changes (aka volatility). That sets up notable Canadian data on the docket – retail sales – to generate far more response from FX traders than they are used to seeing.

Gold Consolidates, Volatility Measure Says Breakout Soon

Gold has moved deeper into its congestion pattern. In fact, the metal is carving out its second smallest average daily range in three months. That is fitting given the backdrop on risk trends that influences the dollar and thereby the precious metal that plays its primary alternative store of wealth. Tame activity levels is reasonable, but things are a little too quiet. The CBOE’s gold volatility index is at its lowest level on record…

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

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

1:45

CNY

HSBC Flash Manufacturing PMI (NOV)

49.5

Bank’s own index could shift to expansion

8:30

EUR

German PMI Manufacturing (NOV A)

46

46

German manufacturing and services still expected to continue decline; Greece is again focus

8:30

EUR

German PMI Services (NOV A)

48.4

48.4

8:00

EUR

French PMI Services (NOV P)

45

44.6

Zone-wide indices also reflect shrinking strength; monetary stimulus could make up for fiscal austerity

8:00

EUR

French PMI Manufacturing (NOV P)

44

43.7

9:00

EUR

Euro-Zone PMI Composite (NOV A)

45.9

45.7

9:00

EUR

Euro-Zone PMI Services (NOV A)

46

46

9:00

EUR

Euro-Zone PMI Manufacturing (NOV A)

45.6

45.4

11:00

GBP

CBI Trends Total Orders (NOV)

-20

-23

First medium-importance data after Olympics may reflect continued downward trend

11:00

GBP

CBI Trends Selling Prices (NOV)

7

7

13:30

CAD

Retail Sales (MoM) (SEP)

0.5%

0.3%

Canadian retail sales steady, reflecting moderate consumer spending

13:30

CAD

Retail Sales Less Autos (MoM) (SEP)

0.5%

0.4%

15:00

EUR

Euro-Zone Consumer Confidence (NOV A)

-25.8

-25.7

Unresolved debt problems hurting confidence

GMT

Currency

Upcoming Events & Speeches

-:-

USD

US Markets Closed for Thanksgiving Holiday

7:30

JPY

Bank of Japan Releases Monthly Report on Financial Development

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

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

13.0279

1.8005

8.9630

7.7510

1.2252

Spot

6.7137

5.8086

5.7114

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

1.2936

1.6053

83.14

0.9452

1.0022

1.0464

0.8225

106.91

132.75

Resist. 2

1.2911

1.6029

82.95

0.9435

1.0007

1.0443

0.8208

106.62

132.43

Resist. 1

1.2887

1.6006

82.76

0.9418

0.9992

1.0423

0.8190

106.34

132.11

Spot

1.2838

1.5959

82.38

0.9383

0.9962

1.0382

0.8155

105.76

131.47

Support 1

1.2789

1.5912

82.00

0.9348

0.9932

1.0341

0.8120

105.18

130.83

Support 2

1.2765

1.5889

81.81

0.9331

0.9917

1.0321

0.8102

104.90

130.52

Support 3

1.2740

1.5865

81.62

0.9314

0.9902

1.0300

0.8085

104.61

130.20

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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22 November 2012 06:58 GMT