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Forex: Dollar the Most At-Risk of Breakout in Years and Yet…

By , Chief Currency Strategist
01 December 2012 06:30 GMT
  • Dollar the Most At-Risk of Breakout in Years and Yet…
  • Euro Rally Stalls Once Again Before EUR/USD Can Overtake 1.3000
  • Australian Dollar: RBA Carries Top Event Risk of Central Bank Meets
  • Japanese Yen: Policy Officials Pass Currency Responsibility Back to Risk
  • British Pound Little Moved on the Week, Can the BoE Shake Things Up?
  • Canadian Dollar: USDCAD Implied Volatility Slowly Picks Up from Record Low
  • Gold’s Chances to Overtake 1800 in 2012 May be Over

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Dollar the Most At-Risk of Breakout in Years and Yet…

The dollar (ticker = USDollar) managed briefly to push its way to its highest level of the week Friday and temporarily overtook the closely watched 10,000-figure. However, the safe haven currency was ultimately unable to hold this technical progress as capital markets refused to slip and risk trends trailed off quietly into the weekend. As the world’s reserve currency – and paradoxically hosting the greatest threat to global financial (the US Fiscal Cliff) – the greenback requires considerable motivation to extend its bullish run from mid-September amid a dwindling speculative crowd. That is quite the quandary because the biggest risk to stability is anchored and keeping the currency distracted. Looking ahead to the new week, dollar bulls need a swell in volatility and tumble in risk assets. There is plenty of event risk to stir activity for individual currencies, but little to stir the more profound fundamental themes. Fiscal Cliff headlines will continue to draw traders’ attention (whether bullish, bearish or neutral). Without an overwhelming risk move, the dollar may need to wait until the following week when the Fed convenes.

Euro Rally Stalls Once Again Before EUR/USD Can Overtake 1.3000

The Euro-area headlines were busy Friday, but the most profound update was released until the speculative community had already wound down for the weekend. Trying to find its way to the front of the pack, ratings agency Moody’s announced that it had cut both the European Stability Mechanism’s (ESM) and European Financial Stability Facility’s (EFSF) ‘AAA’ top credit ratings. The funding programs are integral to the Troika’s efforts to stabilize the Eurozone’s financial markets. Evidence that the areas of funding (rescue programs and countries) invites the risk that political will may not be the only impediment to a full recovery. Expect this after-hours release to play through early next week. Further immediate concern for fundamental traders next week will be the Eurozone and European Union Finance Ministers separate meetings as well as any news related to the Greek Debt Management Agency’s efforts to draw interest for the bond buyback (an effort that will deliver current, private bond holders instant losses). The ECB decision will likely be a focal point, but they are unlikely to move beyond OMT.

Australian Dollar: RBA Carries Top Event Risk of Central Bank MeetsDespite the Australian dollar’s penchant for leveraging risk trends into volatility, AUDUSD proved to be one of the more reserved pairings this past week. In fact, its activity level (10-day ATR) was the lowest we have seen since 2007 – yet, not that unusual given the general state of volatility measures across the market. That quiet will be difficult to sustain, however, heading into next week as the market is already pricing in fireworks from the RBA. Though we haven’t seen much change in central bank rhetoric or data recently, overnight swaps are pricing in a clear bias for an RBA rate cut come Tuesday. With an 83 percent probability of a 25bp cut, a move can get the Aussie moving…and so could a hold.

Japanese Yen: Policy Officials Pass Currency Responsibility Back to Risk

It has become something of a running joke that Japanese policy officials couldn’t influence their currency even if they acted upon the market with heavy rounds of stimulus or direct FX intervention. Yet, over the past three weeks, market participants have started to show a little more respect for their commitment to devalue the local currency and help support growth. LDP Opposition Lead Abe has been integral to the effort by voicing a commitment to escalate the issue to the point that policy effort could offset risk flows, repatriation and other currents of capital flow – that he could potentially rescind the BoJ’s independence and embark on unlimited stimulus. That threat was worth hundreds of pips on yen crosses, but the drive may be over. This past week Abe recanted his BoJ override. So, unless risk appetite drives the yen down, it may be oversold

British Pound Little Moved on the Week, Can the BoE Shake Things Up?

While the broader FX markets were little moved, the sterling stood out for its lack of influence. The currency has struggled to rouse its own volatility – much less trend – and there are few things that can unseat that complacency. One of the few events that carry the necessary influence is the Bank of England monetary policy meetings. The central bank has fallen far behind the pack in terms of stimulus, which is unusual given Governor King’s vocal concerns and the government’s dedication to austerity. Market’s are expecting no change to the asset purchase program, but the discuss of different programs may start to pop up. If they do, expect the sterling to tumble.

Canadian Dollar: USDCAD Implied Volatility Slowly Picks Up from Record Low

We already know USDCAD to be one of the most resistant to trend amongst the non-managed and highly liquid pairings. However, in these generally mute market conditions, it seems even this quiet pair is managing incredible extremes. This past week, the one-week implied volatility (expectations for market movement) for USDCAD slowly advanced from its lowest level on records going back nearly 13 years. That passive view was deserved given the top concern facing the global markets (Fiscal Cliff) would impact both the US and Canadian currency to similar magnitudes. Yet, extremes do not last; and the Canadian dollar will have a chance to stir volatility in the immediate future. The first nudge higher came this past week with 3Q trade and GDP figures. Coming up we have the BoC and Canadian employment data. It is worth mentioning that we haven’t seen a weekly move over 200 pips from this pair in nearly a year. Is it overdue?

Gold’s Chances to Overtake 1800 in 2012 May be Over

Through the past week, gold was the stand out amongst the various ‘high profile’ assets. While US equities extended their slow climb, the euro suffered some volatility following the Troika’s approval of Greek aid distribution and the dollar retrenched into congestion despite the ticking countdown to the Fiscal Cliff; gold had clearly topped the market for activity. Futures volume through the past week and month were the highest seen since the period through June 1. Further, the pickup in trading and a unique consistency of trend led the metal to the biggest weekly drop since June 22. For all intents and purposes, an active market. However, when we look at the CBOE’s gold volatility index, we find expected volatility levels at series lows. Through all the activity, gold has held back from developing a meaningful trend (bullish or bearish). We have to consider the metal slid despite a stalled dollar and escalation of US fiscal fears. At this pace, little could drive us back to 1800 before year end.

**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

21:30

(Sun)

AUD

AiG Performance of Manufacturing Index (NOV)

45.2

Manufacturing in Australia continues to shrink as China continues slowing; RBA rate later this week

21:45

(Sun)

NZD

Terms of Trade Index (QoQ) (3Q)

-1.5%

-2.6%

NZ export drop expected to weigh

23:30

(Sun)

AUD

TD Securities Inflation (MoM) (NOV)

0.1%

Australian inflation continues to be stable, giving RBA more room for easing policy

23:30

(Sun)

AUD

TD Securities Inflation (YoY) (NOV)

2.4%

23:50

(Sun)

JPY

Capital Spending (3Q)

4.4%

7.7%

Japanese 3Q investment spending growing; need to wait for elections for more direction

23:50

(Sun)

JPY

Capital Spending excl Software(3Q)

1.0%

6.6%

0:01

GBP

Lloyds Business Barometer (NOV)

17

British index moderate, recovering

0:01

GBP

Hometrack Housing Survey (MoM) (NOV)

-0.1%

BoE-watched survey still weak, may prompt BoE shift towards housing market assets

0:01

GBP

Hometrack Housing Survey (YoY) (NOV)

-0.4%

0:30

AUD

Company Operating Profit (QoQ) (NOV)

-3.0%

-0.7%

Australian measures of businesses continue to show weakness

0:30

AUD

Inventories (3Q)

0.4%

0.6%

0:30

AUD

Retail Sales s.a. (MoM) (OCT)

0.4%

0.5%

Consumer confidence weaker

1:00

CNY

Non-manufacturing PMI (NOV)

55.5

Services still growing as new economy stresses tertiary sector and move away from manufacturing

1:45

CNY

HSBC Manufacturing PMI (NOV)

50.4

49.5

Expected to follow official data higher

5:30

AUD

RBA Commodity Price Index (NOV)

87.3

Commodity decline faster than that of Aussie may forecast another major global economic decline

5:30

AUD

RBA Commodity Index SDR (YoY) (NOV)

-16.0%

8:15

CHF

Retail Sales (Real) (YoY) (OCT)

3.8%

5.4%

Swiss consumer confidence still growing

8:30

CHF

SVME – PMI (NOV)

47

46.1

Swiss business spending continues to shrink, though at slower pace

8:45

EUR

Italian PMI Manufacturing (NOV)

46

45.5

Collection of European manufacturing sector data still shows slowdown as GDP later this week expected to report continued recession

8:50

EUR

French PMI Manufacturing (NOV F)

44.7

44.7

8:55

EUR

German PMI Manufacturing (NOV F)

46.8

46.8

9:00

EUR

Euro-Zone PMI Manufacturing (NOV F)

46.2

46.2

9:30

GBP

PMI Manufacturing (NOV)

48

47.5

British recession seeing moderate recovery as end of austerity leads to more confidence

15:00

USD

ISM Manufacturing (NOV)

51.5

51.7

US business spending expected to grow but at slower pace; first data of November may preview weaker numbers reported for month

15:00

USD

ISM Prices Paid (NOV)

53.5

55

15:00

USD

Construction Spending (MoM) (OCT)

0.5%

0.6%

May prompt more Fed support

GMT

Currency

Upcoming Events & Speeches

-:-

EUR

Greece Debt Agency to Announce Bond Buyback Invitation

14:00

(Sun)

USD

Geithner to Discuss Fiscal Cliff on Meet the Press

0:10

JPY

BoJ”s Nishimura Speaks on Monetary Policy

4:00

JPY

BoJ’s Shirakawa and ECB’s Noyer Speak on World Economy

9:30

GBP

BoE Publishes Funding for Lending (FFL) Scheme Report

14:00

EUR

Germany’s Schaeuble and France’s Moscovic Speak on Euro Economy

16:00

EUR

Eurozone Finance Ministers Meet

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

12.9667

1.7872

8.9088

7.7503

1.2202

Spot

6.6608

5.7442

5.6733

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

1.3090

1.6105

83.23

0.9353

1.0003

1.0508

0.8275

108.29

133.37

Resist. 2

1.3064

1.6082

83.04

0.9335

0.9988

1.0488

0.8257

108.00

133.04

Resist. 1

1.3038

1.6059

82.86

0.9317

0.9974

1.0468

0.8239

107.70

132.72

Spot

1.2986

1.6013

82.48

0.9281

0.9944

1.0428

0.8204

107.11

132.06

Support 1

1.2934

1.5967

82.10

0.9245

0.9914

1.0388

0.8169

106.52

131.41

Support 2

1.2908

1.5944

81.92

0.9227

0.9900

1.0368

0.8151

106.22

131.08

Support 3

1.2882

1.5921

81.73

0.9209

0.9885

1.0348

0.8133

105.93

130.76

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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01 December 2012 06:30 GMT