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Forex: Dollar Steady through NFPs, Traders Now Look to Fed Chatter, Rates, Risk and EU Summit

Forex: Dollar Steady through NFPs, Traders Now Look to Fed Chatter, Rates, Risk and EU Summit

2011-03-05 05:40:00
John Kicklighter, Chief Currency Strategist
Share:
  • Dollar Steady through NFPs, Traders Now Look to Fed Chatter, Rates, Risk and EU Summit
  • Euro Climbs to a Fresh Four Month High as Financial Concerns Seen on the Horizon
  • British Pound Loses its Rate Momentum to the Euro, May Falter after the BoE Decision
  • New Zealand Dollar: How Far has the Market Priced in the Threat of an RBNZ Cut Next Week?
  • Australian Dollar Falls Short of Risk Trends, May Prove Susceptible to Disappointing Data
  • Swiss Franc: Why Does the Swiss Currency have a Correlation to Oil Akin to the Loonie?

Dollar Steady through NFPs, Traders Now Look to Fed Chatter, Rates, Risk and EU Summit

This past week ended with something of a fizzle as the market seemed to absorb the US employment data with little interest in how the data alters the potential for relative growth, US rates or risk appetite trends. However, the data carries more weight in all three of these categories than one would assume given the immediate reaction. It may take some time, but this data will certainly alter the course of the greenback down the line. Recapping the release, it isn’t difficult to understand the markets restrained response. Volatility in the FX market was generally anemic with EURUSD specifically cutting its smallest range so far this year (hitting levels reserved for the holidays of the past year). From the data itself, an aloof market can be associated to the headline NFPs reading printing 192,000 jobs added through February against a consensus forecast of 196,000. Yet, looking more closely at the data, we see that private payrolls marked their second largest increase in five years (222,000) while the unemployment rate unexpectedly dropped back to its lowest level in 20 months (8.9 percent). And while there is certainly reason to be hesitant about being too optimistic with wage growth slowing and participation hitting a 25-year low; we are seeing a reduction in the underemployment rate. This is looking more and more like a slow but steady recovery.

Economic performance is the lesser of three primary fundamental considerations to the dollar’s health. The other two hold the greatest potential in the week ahead. Interest rate speculation has been absent for the dollar – now, especially in the wake of the ECB’s hawkish escalation and the BoE’s tense fight to ignore the pressing fundamentals. This would seem a consistent gap working against the greenback; but there is a lot of room for speculation behind these two European central banks to deflate as that first move comes and goes without a consistent regime that can continuously draw capital. For a more direct approach, there are a number of Fed officials on the docket that can perhaps catch some of the speculative wind that is whipping across the FX market. Far more contentious and unpredictable are risk appetite trends. The S&P 500 has set up congestion at the very extreme of an unprecedented run. We can come up with support for continuation; but the risk of reversal is still severe.

Related:Discuss the Dollar in the DailyFX Forum

Euro Climbs to a Fresh Four Month High as Financial Concerns Seen on the Horizon

The euro has been shocked to life by the ECB’s hawkish rhetoric this past week. It would be easy to forecast a momentous and steady gain for the shared currency going forward if that was as deep as this fundamental concern ran. Unfortunately, the conditions surrounding the euro’s future are far more complicated than that. The first issue is that speculation of a positive shift in interest rates has been a common fundamental driver for some months now. The commentary of this past week certainly moved the time frame up for that first move; but the totality of the regime through the immediate future was likely already well-accounted for. What this means is that this first hike alone can’t turn the euro into a high-yield currency and ECB President made sure to express something the market seems to be ignoring for the time being: that a move in April would not mark the start of a “series.” Yet, the market could remain oblivious to this caveat and ride on speculation alone as there wouldn’t be much to confirm that reality until the central bank’s next meeting in April. On the other hand, rate speculation is only one side of the equation. Risk can tip the balance on its own. The strains born out of the austerity and recession for troubled EU nations has been put on the back burner for the past month or two thanks to open-ended promises of significantly increasing the region’s bailout program. This was a good way to buy time; and speculation has held up even as disagreement over the very proposals made has become increasingly obvious. We will finally see some level of resolution to this divergence on Friday when the EU convenes its emergency summit to discuss those very proposals.

British Pound Loses its Rate Momentum to the Euro, May Falter after the BoE Decision

Up until this past week, the pound was the best equipped major currency as BoE interest rate expectations were easily outpacing their counterparts. Yet, there has been a power shift. With the ECB delivering remarks that in central bank speak is tantamount to a guarantee for a hike at the next meeting, the sterling has been overtaken for rate potential. Yet, not only does this boost the euro over the pound for fundamental fuel; it also draws stark contrast to the MPC’s own hesitance with acting on excessive inflation. There is little doubt that short-term price pressures are well beyond tolerable levels running at a 4 percent clip; but policy officials are trying to disarm all speculation of an impending shift in policy by repeatedly stating that this burden is merely temporary. Sticking to this conviction leaves the currency in a precarious position because speculative interest will eventually fall apart if spurn too long. Perhaps this week’s rate decision will finally confirm or deny expectations.

New Zealand Dollar: How Far has the Market Priced in the Threat of an RBNZ Cut Next Week?

Of all the scheduled event risk over the coming week, the RBNZ rate decision is perhaps the best bet for volatility. While we have many other meaningful events and indicators, there is a wide enough degree of potential outcomes and difficult pricing in each conclusion’s impact that some portion of the market will be caught off guard regardless of the outcome. Currently speculators are pricing in a 128 percent chance of a quarter-percent cut (there is debate of a 50 bps notch) and the 12 month forecast is seeing a benchmark 15 bps lower than the current level.

Australian Dollar Falls Short of Risk Trends, May Prove Susceptible to Disappointing Data

Many standard correlations have been stretched in recent months; so it might be easy to miss the Australian dollar’s dissociation from the steady commodity rally and intraweek surges in global equities. Yet, this is an important observation to make. If the Aussie dollar is struggling to act to a positive risk move; what happens optimism slide? In the meantime, we’ll watch the employment report as a tangible catalyst.

Swiss Franc: Why Does the Swiss Currency have a Correlation to Oil Akin to the Loonie?

The correlation between USDCAD and oil prices is well known; and its fundamental logic relatively easy to grasp. However, why is there such a strong negative relationship between USDCHF and energy prices? It can be partly explain by deflation; but there is also a risk component to this association. While both the dollar and franc are considered safe havens; the Swiss currency clearly offers a different type of protection.

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

NZD

05:00

NZD Building Permits (MoM)

-18.6%

Should permits continue to struggle, adds to sentiment that a recovery in residential construction hasn't begun.

AUD

23:30

AUD AiG Performance of Construction Index

40.2

Index has fallen for four straight months.

JPY

23:50

JPY Official Reserve Assets

$1093.0B

Reserves could fall for fifth consecutive month.

AUD

00:30

AUD ANZ Job Advertisements (MoM)

2.4%

Could increase as economy adds jobs following floods.

JPY

05:00

JPY Tokyo Avg Office Vacancies

9.04

Deteriorating conditions could push figure above high set in August.

AUD

05:00

AUD Foreign Reserves (Australian dollar)

40.8B

Reserves likely to increase as Aussie depreciated.

JPY

05:00

JPY Coincident Index

105.9

103.5

Despite weak growth expected, conditions forecasted to improved in near term.

JPY

05:00

JPY Leading Index

102.3

101.4

EUR

09:30

EUR Euro-Zone Sentix Investor Confidence

17.2

16.7

Bullish commentary by ECB boosts investor confidence in recovery.

CAD

13:30

CAD Building Permits (MoM)

0.3%

2.4%

Poor weather likely weighed on construction.

USD

20:00

USD Consumer Credit

$3.300B

$6.099B

Decline would mark first decrease in four months.

Currency

GMT

Upcoming Events & Speeches

USD

13:00

USD Fed's Lockhart Speaks on U.S. Economic Outlook

USD

14:15

USD Fed's Fisher Speaks in Washington 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

1.4280

1.6420

89.00

1.0000

1.0275

1.0600

0.8230

127.60

146.05

Resist 1

1.4025

1.6300

86.00

0.9775

1.0000

1.0200

0.8000

120.00

140.00

Spot

1.3985

1.6270

82.33

0.9262

0.9721

1.0133

0.7378

115.12

133.94

Support 1

1.3700

1.5750

80.00

0.9200

0.9700

0.9600

0.6850

103.80

125.00

Support 2

1.3450

1.5315

75.00

0.9000

0.9500

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

7.3500

7.8075

1.4655

Resist 1

7.5800

5.6625

6.1150

Spot

12.0015

1.5999

6.8904

7.7867

1.2665

Spot

6.3515

5.3322

5.5699

Support 1

11.7200

1.5300

6.7600

7.7490

1.2700

Support 1

6.2850

5.2625

5.5550

Support 2

11.4400

1.4725

6.5575

7.7450

1.2500

Support 2

6.1250

5.1000

5.5125

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

1.4045

1.6341

83.39

0.9378

0.9766

1.0188

0.7447

116.45

135.85

Resist 1

1.4015

1.6305

82.86

0.9320

0.9743

1.0161

0.7412

115.79

134.89

Pivot

1.3978

1.6271

82.54

0.9272

0.9722

1.0118

0.7376

115.33

134.28

Support 1

1.3948

1.6235

82.01

0.9214

0.9699

1.0091

0.7341

114.67

133.32

Support 2

1.3911

1.6201

81.69

0.9166

0.9678

1.0048

0.7305

114.21

132.71

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

1.4142

1.6425

83.18

0.9367

0.9806

1.0255

0.7473

116.48

135.49

Resist. 2

1.4103

1.6387

82.97

0.9340

0.9785

1.0225

0.7449

116.14

135.10

Resist. 1

1.4064

1.6348

82.76

0.9314

0.9764

1.0194

0.7426

115.80

134.71

Spot

1.3985

1.6270

82.33

0.9262

0.9721

1.0133

0.7378

115.12

133.94

Support 1

1.3906

1.6192

81.90

0.9210

0.9678

1.0072

0.7330

114.44

133.17

Support 2

1.3867

1.6153

81.69

0.9184

0.9657

1.0041

0.7307

114.10

132.78

Support 3

1.3828

1.6115

81.48

0.9157

0.9636

1.0011

0.7283

113.76

132.39

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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