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Forex: Dollar Climb Struggling without Scheduled Event Risk or Underlying Sentiment Trends to Help it Along

Forex: Dollar Climb Struggling without Scheduled Event Risk or Underlying Sentiment Trends to Help it Along

2011-02-08 05:39:00
John Kicklighter, Chief Currency Strategist
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  • Dollar Climb Struggling without Scheduled Event Risk or Underlying Sentiment Trends to Help it Along
  • Euro Unfazed by Portugal’s Financing Activities, German Data and ECB Officials’ Comments
  • British Pound follows Inflation Pressures Represented in Short-Term Yields
  • Australian Dollar Wavers after Retail Sales Data, Misses out on the Risk Appetite Run
  • Japanese Yen Easing as Risk Trends Climb, but Keep Your Eye on Domestic Matters
  • Swiss Franc on the Verge of a Breakout, Will Employment Help Encourage the Move

Dollar Climb Struggling without Scheduled Event Risk or Underlying Sentiment Trends to Help it Along

We left last week off with a questionable performance from the US dollar and underlying market activity in general. Both the US dollar and S&P 500 advanced through an otherwise disappointing January labor report. Practically, it isn’t difficult to come up with a fundamental ‘reason’ for both asset classes to strengthen on the release. On the one hand, we can say the benchmark equity index rallied on the unexpectedly drop in the unemployment rate to a 21-month low. On the other, the safe haven dollar’s run could be targeted to the underlying data that points to a 26-year low in labor force participation. However, those that weren’t lost in trying to fit scheduled data to price action would notice that this contradictory performance (an advance from a safety currency and capital returns asset class) developed on exceptionally weak momentum. In other words, there was little conviction behind from market participants either way; and more likely than not, investors were simply following through on preexisting trends. We would see the same consistency Monday – though momentum slowed even further – and given the limited expectations for scheduled event risk in the days ahead; we will likely see both trend and correlations break down further this week.

Covering the first, full-day of trading; the event risk on and off the docket was not of the brand that can typically be expected to encourage volatility in the dollar or other domestic speculative markets. Nonetheless, the content that we absorbed could very well set the stage for moves later down the line. On the calendar, the December consumer credit report was the only reading of note. The average trader overlooks this reading; so we don’t often see a coordinated reaction from the masses. That said, this is one of the best measures of consumer spending and the perceived health of the credit market out there; and both of these individual interests is high on the traditionalist’s ‘to watch’ list. That said, we note the $6.1 billion increase in credit to a total of $2.41 trillion outstanding was greater than expected. That is the first take away for consumer spending. Perhaps more important, though, was the detail that revolving credit (such as credit cards) rose for the first time since August 2008. This is an encouraging sign considering one of the big hang-ups for a steady recovery for the US is the mismatch in credit availability between corporations and consumers. Perhaps this is also a sign that Americans have a more encouraging view of their financial position.

Now, looking outside the traditional calendar, we come across fundamental fodder that is far more interesting. In an interview, Dallas Fed President Richard Fisher (now a voting member on the Federal Open Market Committee) said he would have voted against the $600 billion quantitative easing program approved in November. With Kansas City Fed President Hoenig rotated out of the vote, speculation of an early withdrawal of stimulus and the timing for the eventual return to rate hikes needs a focal point. Though there are many larger fundamental concerns working against the dollar, this is one of the most recent and potentially volatile considerations. That said, we look out to the scheduled speeches by Fed Presidents Lockhart, Lacker and Fisher in the upcoming New York session.

Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Curbed Dollar Momentum Sets up USDCHF-not EURUSD- Reversal

Euro Unfazed by Portugal’s Financing Activities, German Data and ECB Officials’ Comments

The euro was relatively stable through Monday’s active trading session. This may not seems particularly remarkable given the light offerings for scheduled event risk; but there was actually a round of incidents that holds significance for Europe’s financial health and yield potential (the foundation of January’s rally). Keeping a close eye on the next domino in the bailout scheme; Portugal reported a successful 3.5 billion, syndicated bond auction – though at rates that are sustainable and for a smaller draw than initially planned. At the same time, it was reported Portuguese banks increased their borrowing from the ECB to 41 billion euros. Another concern, Moody’s reaffirmed its negative outlook on Italian banks owing to their deteriorating capital quality. On the interest rate side of picture, ECB member Mersch held consistent with the projection that inflation pressures were temporary; but he also said he would not hesitate to vote for hikes should commodity prices trickle down.

British Pound follows Inflation Pressures Represented in Short-Term Yields

We are still a few days away from the Bank of England’s official monetary policy decision; but already interest rate speculation is heating up. This is somewhat unusual considering the central bank will likely hold rates and not give any guidance on its decision; but the market is already looking further down the line. Gauging expectations, we see that the short-term (two-year) Gilt yield has advanced to a two-year high while overnight index swaps are pricing in 83 basis points worth of hikes over the coming 12 months (the most in a year). In the meantime, the BRC retail sales monitor reported its biggest increase in 10 months while the RICS House Price Balance improved for a third month (to -31 percent).

Australian Dollar Wavers after Retail Sales Data, Misses out on the Risk Appetite Run

The Australian dollar’s remarkable correlation to risk appetite trends cannot be overlooked. When the sentiment winds are blowing this carry currency is quick to react. That is why it is somewhat peculiar that the despite the S&P 500’s climb to a new two-plus year high, AUDUSD would see no progress. We could say this was in part due to the disappointing retail sales and construction index reading; but that would be a stretch.

Japanese Yen Easing as Risk Trends Climb, but Keep Your Eye on Domestic Matters

Currency traders are not easily swayed from their trends. We have learned this through the ineffectiveness of FX intervention efforts. However, they ignore policy officials’ warnings of financial and/or economic trouble at their own risk. BoJ Governor Shirakawa offered a dose of reality when he said a return for inflation would not solve Japan’s troubles and that fiscal and financial conditions are in “very bad shape.”

Swiss Franc on the Verge of a Breakout, Will Employment Help Encourage the Move

In the early hours of the upcoming European session, Switzerland will release its employment report. It will be a good comparison to measure the reaction this data has on the franc considering we just followed the dollar’s response to NFPs. Expectations should be set very low. This data will do more to remind us of the franc’s role as a safe haven and euro-alternative than to spark action on growth expectations.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

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

ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

JPY

23:50

Trade Balance - BOP Basis (Yen) (DEC)

779.7B

259.7B

Japan’s current account surplus shrank for the first time in three months in November as strength in iron ore and natural gas prices pushed up import costs and a strong yen hurt exports.

JPY

23:50

Current Account Balance (YoY) (DEC)

24.2%

-15.7%

JPY

23:50

Adjusted Current Account Total (Yen) (DEC)

1530.8B

1145.1B

JPY

23:50

Current Account Total (Yen) (DEC)

1130.0B

926.2B

JPY

23:50

Bank Lending Banks Adjustments (YoY) (JAN)

-1.8%

Japanese bank lending probably fell YoY in January for a fourteenth consecutive month.

JPY

23:50

Bank Lending Banks ex Trust (JAN)

-2.1%

-2.1%

JPY

23:50

Bank Lending Banks inc Trusts (YoY) (JAN)

-1.8%

-1.9%

JPY

23:50

Japan Money Stock M2+CD (YoY) (JAN)

2.3%

2.3%

Japan’s M3 money supply has not declined YoY since April 2007.

JPY

23:50

Japan Money Stock M3 (YoY) (JAN)

1.8%

1.8%

JPY

Eco Watchers Survey: Outlook (JAN)

43.9

The current conditions survey likely rose to a six-month high in January.

JPY

Eco Watchers Survey: Current (JAN)

45.5

45.1

GBP

0:01

BRC Retail Sales Monitor (JAN)

1.5%

The BRC and RICS readings were hurt in December by poor weather conditions.

GBP

0:01

RICS House Price Balance (JAN)

-38%

-39%

JPY

4:30

Bankruptcies (YoY) (JAN)

-3.0%

Fell annually in the last 17 months.

CHF

6:45

Unemployment Rate s.a. (JAN)

3.5%

3.6%

Swiss unemployment rate has held below 4% in the last eight months.

CHF

6:45

Unemployment Rate (JAN)

3.8%

3.8%

EUR

7:30

Bank of France Business Sentiment (JAN)

108

108

Sentiment at highest level since 2007.

EUR

7:45

French Central Government Balance (euros) (DEC)

-140.7B

French trade deficit likely expanded in December to largest in three months.

EUR

7:45

French Trade Balance (euros) (DEC)

-4.2B

-3.9B

EUR

11:00

German Industrial Production s.a. (MoM) (DEC)

0.2%

-0.7%

German industrial production fell in November, led by a decline in energy and construction output.

EUR

11:00

German Industrial Production n.s.a. and w.d.a. (YoY) (DEC)

11.5%

11.1%

USD

12:30

NFIB Small Business Optimism (JAN)

94.0

92.6

Expected to rise to highest since 2007.

CAD

13:15

Housing Starts (JAN)

173.5K

168.3K

November rise was first in four months.

USD

15:00

IBD/TIPP Economic Optimism (FEB)

50.3

51.9

Economic outlook portion sits at 54.8.

NZD

21:45

NZ Card Spending (MoM) (JAN)

-0.9%

Fell in December following 3-month rise.

USD

22:00

ABC Consumer Confidence (FEB 6)

-40

-41

Expected to rise to a four-week high.

Currency

GMT

Upcoming Events & Speeches

EUR

10:00

Bank of Italy Publishes Lending/Bad Debt Report For December

GBP

10:30

BoE's Andrew Bailey Speaks on U.K. Banking System

USD

13:45

Fed's Jeffrey Lacker Speaks on U.S. Economy

USD

18:00

Fed's Dennis Lockhart Speaks on U.S. Economy

USD

18:30

Fed's Richard Fisher Speaks on U.S. Economy

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist 2

1.4025

1.6420

89.00

1.0000

1.0922

1.0600

0.8230

127.60

146.05

Resist 1

1.3875

1.6300

86.00

0.9775

1.0750

1.0200

0.8000

120.00

140.00

Spot

1.3585

1.6107

82.32

0.9556

0.9908

1.0133

0.7700

111.83

132.60

Support 1

1.3425

1.5750

80.00

0.9300

0.9800

0.9600

0.6850

103.80

125.00

Support 2

1.2900

1.5315

75.00

0.9000

0.9700

0.9375

0.6585

100.00

119.00

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

13.8500

1.6575

7.4025

7.8165

1.4945

Resist 2

7.7500

5.7800

6.2750

Resist 1

12.5000

1.6300

7.2825

7.8075

1.4655

Resist 1

7.5800

5.6625

6.1150

Spot

12.0184

1.5769

7.2488

7.7832

1.2733

Spot

6.4617

5.4878

5.7830

Support 1

11.7200

1.5300

6.9900

7.7490

1.2700

Support 1

6.2850

5.2625

5.7030

Support 2

11.4400

1.4725

6.8000

7.7450

1.2500

Support 2

6.1250

5.1000

5.5200

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist 2

1.3692

1.6225

82.63

0.9629

0.9946

1.0188

0.7756

112.70

133.72

Resist 1

1.3638

1.6166

82.47

0.9593

0.9927

1.0161

0.7728

112.27

133.16

Pivot

1.3574

1.6127

82.32

0.9561

0.9893

1.0133

0.7698

111.75

132.70

Support 1

1.3520

1.6068

82.16

0.9525

0.9874

1.0106

0.7670

111.32

132.14

Support 2

1.3456

1.6029

82.01

0.9493

0.9840

1.0078

0.7640

110.80

131.68

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

1.3753

1.6275

83.20

0.9670

1.0005

1.0267

0.7804

113.25

134.22

Resist. 2

1.3711

1.6233

82.98

0.9641

0.9980

1.0233

0.7778

112.90

133.81

Resist. 1

1.3669

1.6191

82.76

0.9613

0.9956

1.0200

0.7752

112.54

133.41

Spot

1.3585

1.6107

82.32

0.9556

0.9908

1.0133

0.7700

111.83

132.60

Support 1

1.3501

1.6023

81.88

0.9499

0.9860

1.0066

0.7648

111.12

131.79

Support 2

1.3459

1.5981

81.66

0.9471

0.9836

1.0033

0.7622

110.76

131.39

Support 3

1.3417

1.5939

81.44

0.9442

0.9811

0.9999

0.7596

110.41

130.98

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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