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FOREX: Dollar Advance Curbed as Heavy Event Risk Threatens Heavy FX Volatility

FOREX: Dollar Advance Curbed as Heavy Event Risk Threatens Heavy FX Volatility

2011-02-15 02:36:00
John Kicklighter, Chief Currency Strategist
Share:
  • Dollar Advance Curbed as Heavy Event Risk Threatens Heavy FX Volatility
  • British Pound Traders Should Plot out Bullish and Bearish Scenarios For CPI Data
  • Euro Ready for a Surge in Volatility as 4Q GDP Figures Cross the Wires
  • Japanese Yen Enjoys a Brief Rally After GDP Numbers Show a Smaller-than-Expected Contraction
  • New Zealand Dollar Tumbles after December Retail Sales Miss Forecast by a Wide Margin
  • Australian Dollar Unmoved by RBA Minutes as Recent Commentary Proves an Accurate Guide

Dollar Advance Curbed as Heavy Event Risk Threatens Heavy FX Volatility

Thanks to the heavy influence of EURUSD, the dollar itself closed out its third consecutive daily advance through Monday. Yet, this particular pair’s performance doesn’t offer an accurate overall picture of the single currency. For most of the other greenback-based majors, there was a tangible (if measured) move at the benchmark’s expense. On the other hand, this tame intraday volatility didn’t do much to moderate the substantial breakout and trend generation pressure residing behind all of the majors. Running down the list for trade potential, we come first to the most heavily traded dollar-based speculative pairs: EURUSUD and GBPUSD. The former slid for the fourth third consecutive trading day and subsequently plunged lows not seen in over three weeks below 1.35. The so-called ‘cable’ might have recovered some of Friday’s lost ground but it was still oscillating around the closely-watched 1.60 figure. From there, the dual safe-haven pairs USDJPY and USDCHF are notable holding just below easily-read range highs of 83.75 and 0.9775 respectively. Then there are the commodity / carry trade pairs. AUDUSD and NZDUSD hover on the verge of lasting reversals; while USDCAD is attempting to carve out a bottom at a well-worn, 31-month low.

For US-based fundamental encouragement Monday, the docket was exceptionally light. Off-scheduled events were similarly restrained in their support of the unbalanced dollar. New York Fed President William Dudley didn’t take up the hawkish call that began last week with fellow board members Fisher, Lacker and Lockhart. A return to a hawkish regime may be a ways into the future; but speculators start to price in the change well ahead of time. Perhaps a glimmer of early stimulus withdrawal and distant hike expectations have helped boost the 12-month interest rate forecast back to levels last seen since June (approximately 50 bps) and the benchmark three-month Libor rate up to its own six-month high (0.3140 percent). That said, there were a few speed bumps to account for as well. The San Francisco Fed released a working paper that suggested that 6.7 percent may be the new ‘normal’ level of unemployment, up significantly from the 5.0 percent natural level of joblessness before the recession and financial crisis. What’s more, Treasury Secretary is reportedly delivering a forecast to President Obama that predicts a record debt-to-GDP ratio for 2011 just as government’s 2012 budget is projecting a record deficit of $1.6 trillion.

In Tuesday’s session, fundamental traders should take stock of the US-based event risk that will be coming down the wires. The headliner will be the retail sales figures for January as we keep a close eye on personal consumption as a component of overall GDP after its general contribution in the 4Q GDP figures. Import inflation data for December could stir a quiet interest rate scene and capital flows measured in the TIC numbers is a good reading for those tracing money movement. Yet, if we want to see real volatility, we’ll have to look outside the dollar’s docket.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Is EURUSD or GBPUSD a Better Setup for Impending Fundamentals

British Pound Traders Should Plot out Bullish and Bearish Scenarios For CPI Data

There are a few countries’ dockets that are stacked for market-movers through Tuesday; but the pound is probably the most primed for dramatic levels of volatility. Last week, the Bank of England left rate watchers little to work with when they announced only that they were keeping the benchmark lending rate at 0.50 percent and the bond purchasing program unchanged at 200 billion sterling. This was not necessarily unexpected; but the speculative seen was so tense that traders were willing to react to any change in tone – no matter how minor. These volatility opportunists may have their chance in the upcoming London session with the January CPI figures. With the headline figure seen accelerating to two-year high 4.0 percent clip and the core reading jumping to 3.1 percent; it is easy to imagine interest rate expectations swelling well-beyond their current one-year high standing. That said, we will need a definitive better-than- or worse-than-expected outcome to generate volatility. Otherwise, the existence of Wednesday’s BoE Quarterly Inflation report – whereby the market will get a better read on their intensions going forward – will encourage traders to hold to the sidelines. Either we get a remarkable move Tuesday or Wednesday.

Euro Ready for a Surge in Volatility as 4Q GDP Figures Cross the Wires

The trade potential for the euro may be one step down from the sterling; but its influence should not be underestimated. On deck for the upcoming European session, we are preparing for the first measures of 4Q GDP for the core European economies German, France and Italy. These EU members will need to keep the furnace stoked if the region is to keep its footing. However, it is the Greek’s own growth reading that can really change the picture. Following Spain’s 0.2 percent expansion and Portugal’s 0.3 percent contraction, we want to see how the weakest link is doing. In the meantime, it should also be noted the weekly EU meeting resulted in a tentative vow to double the ESM lending capacity.

Japanese Yen Enjoys a Brief Rally After GDP Numbers Show a Smaller-than-Expected Contraction

For scheduled event risk over the first 36 hours of this trading week, no other country beats Japan. That said, the data still has little sway over the yen. An annualized 1.1 percent drop in the economy pushed Japan to third behind China and the BoJ rate decision offered no change. Net effect, this currency is the still the ideal funding currency – while its fundamental appeal is fading compared to its US counterpart.

New Zealand Dollar Tumbles after December Retail Sales Miss Forecast by a Wide Margin

There was a quick reaction from the New Zealand dollar to the drop in the December and 4Q retail sales data (and oddly enough, a more remarkable move in fact than the yen’s response to the GDP figures). The 1.1 percent drop in spending isn’t exactly remarkable given the volatility of the data; but the one-month low in interest rate expectations is material enough to worry kiwi traders.

Australian Dollar Unmoved by RBA Minutes as Recent Commentary Proves an Accurate Guide

There wasn’t much to expect from the RBA minutes to the last meeting. Last week, Governor Glenn Stevens made it quite clear that he believed the floods that devastated the country’s Northeast would not materially hurt economic growth nor would it stoke inflation. That said, the recently tempered interest rate expectations were little altered. Though, we should really be keeping our eyes on underling risk trends at this point.

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

Bank of Japan Interest Rate Decision

0.10%

0.10%

Market implies no chance of rate hike.

CNY

2:00

Consumer Price Index (YoY) (JAN)

5.4%

4.6%

YoY consumer prices likely rose in January to highest level since 2008.

CNY

2:00

Producer Price Index (YoY) (JAN)

6.2%

5.9%

JPY

4:00

Tokyo Condominium Sales (YoY) (JAN)

40.8%

Rose annually in the last 11 months.

JPY

4:30

Industrial Production (MoM) (DEC F)

3.1%

Japan’s industrial production increased the most in 11 months in December, boosted by overseas demand.

JPY

4:30

Industrial Production (YoY) (DEC F)

4.6%

JPY

4:30

Capacity Utilization (MoM) (DEC F)

1.6%

JPY

6:00

Machine Tool Orders (YoY) (JAN F)

89.4%

Orders rose YoY in last 14 months.

EUR

6:30

French Gross Domestic Product (QoQ) (4Q P)

0.6%

0.3%

French economic growth disappointed in 3Q on drop in output.

EUR

6:30

French Gross Domestic Product (YoY) (4Q P)

1.7%

1.7%

EUR

7:00

German Gross Domestic Product s.a. (QoQ) (4Q P)

0.5%

0.7%

Germany posted strong economic growth in 3Q, led by exports and private consumption.

EUR

7:00

German Gross Domestic Product n.s.a. (YoY) (4Q P)

4.1%

3.9%

EUR

7:00

German Gross Domestic Product w.d.a. (YoY) (4Q P)

4.1%

3.9%

EUR

9:00

Italian Gross Domestic Product s.a. and w.d.a. (QoQ) (4Q P)

0.2%

0.3%

Italy likely posted economic growth for a fourth straight quarter in 4Q.

EUR

9:00

Italian Gross Domestic Product s.a. and w.d.a. (YoY) (4Q P)

1.3%

1.1%

GBP

9:30

DCLG UK House Prices (YoY) (DEC)

2.8%

4.0%

Prices rose YoY in last 13 months.

GBP

9:30

Consumer Price Index (MoM) (JAN)

0.1%

1.0%

U.K. inflation probably accelerated to 26-month high in January, on rising prices for oil and food, as well as a higher sales tax.

GBP

9:30

Consumer Price Index (YoY) (JAN)

4.0%

3.7%

GBP

9:30

Core Consumer Price Index (YoY) (JAN)

3.1%

2.9%

GBP

9:30

Retail Price Index (JAN)

228.9

228.4

U.K. retail sales increased in December from the year prior, as petrol & oil costs increased over 14% and food prices increased 5.9%.

GBP

9:30

Retail Price Index (MoM) (JAN)

0.2%

0.7%

GBP

9:30

Retail Price Index (YoY) (JAN)

5.1%

4.8%

GBP

9:30

Retail Price Index Ex Mort Int.Payments (YoY) (JAN)

5.0%

4.7%

EUR

10:00

Euro-Zone Gross Domestic Product s.a. (QoQ) (4Q A)

0.4%

0.3%

Europe’s economy expanded less than estimated in 3Q on lower spending.

EUR

10:00

Euro-Zone Gross Domestic Product s.a. (YoY) (4Q A)

2.1%

1.9%

EUR

10:00

Euro-Zone ZEW Survey (Economic Sentiment) (FEB)

28.5

25.4

Likely rose to a 9-month high in February.

EUR

10:00

German ZEW Survey (Economic Sentiment) (FEB)

20.0

15.4

Current situation survey likely rose in February to highest since July 2007.

EUR

10:00

German ZEW Survey (Current Situation) (FEB)

83.0

82.8

EUR

10:00

Euro-Zone Trade Balance s.a. (euros) (DEC)

-0.2B

-1.9B

Europe posted a trade deficit in November following a 2-month surplus.

EUR

10:00

Euro-Zone Trade Balance (euros) (DEC)

1.1B

-0.4B

EUR

10:00

Italian Trade Balance (Total) (euros) (DEC)

-3382M

Italy posted a trade deficit in November for a fourth straight month.

EUR

10:00

Italian Trade Balance EU (euros) (DEC)

-1438M

USD

13:30

Advance Retail Sales (JAN)

0.5%

0.6%

Retail sales likely rose for a seventh month in January, although at the slowest pace since July.

USD

13:30

Retail Sales Less Autos (JAN)

0.5%

0.5%

USD

13:30

Retail Sales Less Auto & Gas (JAN)

0.4%

0.4%

USD

13:30

Empire Manufacturing (FEB)

15.00

11.92

Has fluctuated wildly in last 4 months.

USD

13:30

Import Price Index (MoM) (JAN)

0.8%

1.1%

Import prices rose in December, led by fuels and food costs.

USD

13:30

Import Price Index (YoY) (JAN)

4.4%

4.8%

USD

14:00

Net Long-term TIC Flows (DEC)

$40.0B

$85.1B

Global demand for U.S. assets rose in November, led by private purchases.

USD

14:00

Total Net TIC Flows (DEC)

$43.7B

$39.0B

USD

15:00

Business Inventories (DEC)

0.7%

0.2%

Likely rose for a twelfth month.

USD

15:00

NAHB Housing Market Index (FEB)

16

16

Probably held at 16 for a fourth month.

USD

22:00

ABC Consumer Confidence (FEB 13)

-46

Fell to lowest since November last week.

Currency

GMT

Upcoming Events & Speeches

AUD

0:30

Reserve Bank of Australia Meeting Minutes

USD

15:00

Fed's Sandra Pianalto 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

1.3486

1.6035

83.31

0.9699

0.9885

1.0032

0.7572

112.35

133.57

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

12.0566

1.5968

7.3059

7.7963

1.2811

Spot

6.4974

5.5291

5.8341

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

1.3622

1.6128

83.80

0.9772

0.9930

1.0123

0.7644

113.59

134.10

Resist 1

1.3554

1.6081

83.55

0.9735

0.9908

1.0078

0.7608

112.97

133.84

Pivot

1.3491

1.6032

83.33

0.9714

0.9879

1.0029

0.7576

112.53

133.51

Support 1

1.3423

1.5985

83.08

0.9677

0.9857

0.9984

0.7540

111.91

133.25

Support 2

1.3360

1.5936

82.86

0.9656

0.9828

0.9935

0.7508

111.47

132.92

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

1.3651

1.6202

84.19

0.9813

0.9977

1.0163

0.7673

113.74

135.16

Resist. 2

1.3610

1.6160

83.97

0.9784

0.9954

1.0130

0.7648

113.39

134.77

Resist. 1

1.3568

1.6119

83.75

0.9756

0.9931

1.0097

0.7623

113.05

134.37

Spot

1.3486

1.6035

83.31

0.9699

0.9885

1.0032

0.7572

112.35

133.57

Support 1

1.3404

1.5951

82.87

0.9642

0.9839

0.9967

0.7521

111.65

132.77

Support 2

1.3362

1.5910

82.65

0.9614

0.9816

0.9934

0.7496

111.31

132.37

Support 3

1.3321

1.5868

82.43

0.9585

0.9793

0.9901

0.7471

110.96

131.98

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

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