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FOREX: Dollar Puts in for its First Loss in for its First Loss in Six Days as Anti-Euro Sentiment Eases

FOREX: Dollar Puts in for its First Loss in for its First Loss in Six Days as Anti-Euro Sentiment Eases

2011-05-10 03:52:00
John Kicklighter, Chief Currency Strategist
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  • Dollar Puts in for its First Loss in for its First Loss in Six Days as Anti-Euro Sentiment Eases
  • Euro Attempts to Regain Lost Ground as Officials Agree to Discuss Greece Adjustments
  • British Pound Rides Euro Gains, Reaction to Biggest Jump in Retail Sales in Years Tame
  • New Zealand Dollar Slides after the IMF Assesses Kiwi Up to 20 Percent Overpriced
  • Canadian Dollar Posts a Quick Stumble after Housing Data, Oil Gains Offer Stability
  • Japanese Yen Shows Little Concern to BoJ Minutes Clearing the Way for Further Stimulus
  • Gold Continues to Recover Ground as Dollar Stability Maintains to Anti-Currency Sentiment

Dollar Puts in for its First Loss in for its First Loss in Six Days as Anti-Euro Sentiment Eases

After the impressive performance it posted last week, the dollar was bound to ease off it rally to start this week. This is especially true considering the greenback borrowed much of its strength through the pains of its benchmark counterpart (the euro) rather than generating the move on its own. Looking back over the dollar’s performance this past week, it is interesting to note that the currency’s gains against the euro were the most progressive. With a 3.5 percent gain through the most liquid currency pair in the FX market, we saw EURUSD outpace similar declines from the more yield-intensive AUDUSD (2.2 percent) and NZDUSD (2.0 percent). Another unique observation to point out during this period is that while the dollar managed a 1.6 percent gain against its safe haven compatriot, the Swiss franc; it actually posted a 0.7 percent loss against the yen. Typically, the franc and yen move in the same direction against the greenback. The fact that USDCHF sported substantial losses during a period of risk aversion suggests the euro’s fundamental burden was so great that it has revived its correlation to the euro.

The pullback on the Dow Jones FXCM Dollar Index was ultimately modest (35 points to 9516); but the intraday reversal does remind us that if the reserve currency is to hold its ground – much less make further gains – it needs to luck out with continued unwinding of the euro or find an intrinsic catalyst. Looking outside of the EURUSD’s influence; there is little in the way of fundamental pressure to keep the greenback moving. For yield expectations, Richmond Fed President Jeffrey Lacker took up the hawkish baton passed off by Kocherlakota last week with a warning that rates may need to be listed later this year should economic growth prove robust enough to lift inflation expectations. Yet, his ominous words have yet to boost the 12-month interest rate forecast measured through Credit Suisse overnight index swap up from its seven-week low 27 bps. Perhaps Lacker’s official speech at 16:45 GMT will add pressure. As for Fed Board Governor Elizabeth Duke, her tone has proven more neutral lately; so a hawkish turn from this a second member would give us more to work with.

Outside of interest rate expectations (which will be difficult to rouse without a purposeful hawkish stance from the Fed as a whole before the expiration of QE2); we should keep a close eye on risk appetite trends. There is still tremendous and untapped potential for the greenback to rally on a safe haven shift for the capital markets. Our favored benchmark for risk trends – the S&P 500 – put in for a second modest gain. We need a genuine catalyst to redirect such a well-defined trend; but its influence over the dollar is nonetheless remarkable.

Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: A Temporary Bounce from the Euro can Eat into EURUSD Short Gains

Euro Attempts to Regain Lost Ground as Officials Agree to Discuss Greece Adjustments

Eurogroup Head Jean-Claude Juncker was trying to curb a growing sense of panic in European markets last week when officials said on his behalf that no emergency meeting was being held to discuss Greece. We later learned that in fact there was a meeting to discuss the financially-troubled economy; but that the exit from the euro was not a topic of conversation. Considering they bent the truth about the meeting itself, it is reasonable to doubt there assertions that Greece didn’t threaten to withdrawal from the common currency unless further concessions were made on the country’s bailout program. Indeed, we now know that the next Eurogroup meeting on May 16th will find discussion on these terms. Yet, with further accommodation to Greece; Ireland and Portugal will expect the same. Yet, a drop in repayment rates doesn’t even guarantee a recovery. With Standard & Poor’s cut Greece’s sovereign rating to match the lowest of the EU; the future is looking very bleak indeed.

British Pound Rides Euro Gains, Reaction to Biggest Jump in Retail Sales in Years Tame

If we look at an intraday chart of GBPUSD price action, we see that the ‘cable’ marked a New York session bullish reversal at the same time as the its euro-based counterpart. This pair’s correlation to EURUSD will remain as long as there is meaningful, fundamentally-derived momentum. In fact, its influence seems significant enough to offset notable event risk on the UK docket. The 1.4 percent drop in home prices reported by Halifax was a secondary read; but the biggest jump in BRC retail sales in five years and sixth monthly increase in the RICS balance is notable.

New Zealand Dollar Slides after the IMF Assesses Kiwi Up to 20 Percent Overpriced

We often here policy officials demean or talk-up their currency when they have an agenda (like bolstering trade or stabilizing financial markets). However it is those times when there is no agenda, just a pure observation, which are so remarkable. After the government reported a NZ$12.4 billion deficit through March 31st, the IMF suggested accommodation was necessary and that the currency was perhaps 20 percent overpriced.

Canadian Dollar Posts a Quick Stumble after Housing Data, Oil Gains Offer Stability

Though we don’t often expect Canadian data to carry much lasting influence over its currency; the event risk can generate volatility. A pick up in activity was what we saw with the release of the April housing starts report after printing a weaker-than-expected 179,000-annual pace of growth. FX traders will quickly overlook this data when it comes to USDCAD and instead keep a fixed gaze on risk trends and US oil prices.

Japanese Yen Shows Little Concern to BoJ Minutes Clearing the Way for Further Stimulus

Coming after one of the worst natural disasters for Japan in years, the April Bank of Japan was read to be extraordinarily accommodative. Therefore, there was little surprise in the minutes of that meeting that there was the potential for further accommodation in the near future. However, there was a voice that warning such excessive stimulus could lead to “severe” inflation. The Fed doesn’t believe so apparently.

Gold Continues to Recover Ground as Dollar Stability Maintains to Anti-Currency Sentiment

Where goes the dollar, gold more often than not is heading the opposite direction. This is not an example of a straight-forward risk appetite / risk aversion relationship; rather, this reflects the need for an alternative asset. Gold is the next viable alternative to the euro’s financial troubles when investors are worried the dollar’s backdrop is too muddied to invest in. Unless the dollar rallies under its own power, the metal will firm.

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

GMT

Currency

Release

Survey

Previous

Comments

0:00

NZD

QV House Prices (YoY) (APR)

-2.0%

Expected higher as New Zealand construction leads real estate

1:30

AUD

Trade Balance (Australian dollar) (MAR)

500M

-205M

Driven by record raw material exports

2:00

CNY

Trade Balance (USD) (APR)

$3.20B

$0.14B

Worse than expected data may indicate slowdown in Chinese economy, PBoC policies effective

2:00

CNY

Exports YoY% (APR)

29.5%

35.8%

2:00

CNY

Imports YoY% (APR)

28.9%

27.3%

5:45

CHF

SECO Consumer Confidence (APR)

10

10

Off from July 2010 high

6:45

EUR

French Manufacturing Production (MoM) (MAR)

0.4%

0.7%

French manufacturing countering higher German production as export demand declines

6:45

EUR

French Manufacturing Production (YoY) (MAR)

5.9%

7.2%

6:45

EUR

French Industrial Production (MoM) (MAR)

0.4%

0.4%

6:45

EUR

French Industrial Production (YoY) (MAR)

4.7%

5.6%

7:15

CHF

CPI - EU Harmonised (YoY) (APR)

1.0%

Inflation expected to remain flat, will not contribute to rate hike in near future

7:15

CHF

CPI - EU Harmonised (MoM) (APR)

0.7%

7:15

CHF

Consumer Price Index (MoM) (APR)

0.5%

0.6%

7:15

CHF

Consumer Price Index (YoY) (APR)

0.6%

1.0%

8:00

EUR

Italian Industrial Production w.d.a. (YoY)(MAR)

4.0%

2.3%

Italian production higher on greater domestic demand of machinery

8:00

EUR

Italian Industrial Production n.s.a. (YoY) (MAR)

3.0%

2.3%

8:00

EUR

Italian Industrial Production s.a. (MoM) (MAR)

0.8%

1.4%

11:30

USD

NFIB Small Business Optimism (APR)

91.8

91.9

May indicate lower investment spending

12:30

USD

Import Price Index (MoM) (APR)

1.8%

2.7%

YoY expected higher on weaker dollar, MoM lower on reduced demand

12:30

USD

Import Price Index (YoY) (APR)

10.5%

9.7%

14:00

USD

IBD/TIPP Economic Optimism (MAY)

41.8

40.8

Indicates growing, cautious trend

14:00

USD

Wholesale Inventories (MAR)

1.0%

1.0%

Retail slowly recovering

23:50

JPY

Official Reserve Assets (APR)

$1116.0B

Exp growth as yen injections continue

GMT

Currency

Upcoming Events & Speeches

13:30

USD

Fed's Duke Speaks on Community Development in St. Louis

16:45

USD

Fed's Lacker Speaks on Economic Outlook in Arlington

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

1.5160

1.6750

89.00

0.9345

1.0275

1.1800

0.8400

127.60

146.05

Resist 1

1.5000

1.6600

86.00

0.8900

1.0000

1.1000

0.8215

125.90

140.00

Spot

1.4530

1.6391

80.25

0.8705

0.9690

1.0588

0.7840

116.60

131.53

Support 1

1.4000

1.6200

80.00

0.8600

0.9500

1.0400

0.7825

115.70

125.00

Support 2

1.3700

1.5750

75.00

0.8500

0.9055

1.0200

0.6850

105.50

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

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

12.5000

1.6300

7.3500

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

11.7239

1.5476

6.7536

7.7718

1.2405

Spot

6.2175

5.1319

5.4694

Support 1

11.5200

1.5040

6.5575

7.7490

1.2145

Support 1

6.0800

5.1050

5.3040

Support 2

11.4400

1.4725

6.4295

7.7450

1.2000

Support 2

5.8085

4.9115

4.9410

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

1.4462

1.6436

80.47

0.8735

0.9689

1.0775

0.7957

116.15

132.03

Resist 1

1.4496

1.6413

80.36

0.8720

0.9689

1.0681

0.7898

116.37

131.78

Pivot

1.4411

1.6399

80.26

0.8714

0.9653

1.0715

0.7901

115.68

131.63

Support 1

1.4445

1.6376

80.15

0.8699

0.9653

1.0621

0.7842

115.90

131.38

Support 2

1.4360

1.6362

80.05

0.8693

0.9617

1.0655

0.7845

115.21

131.23

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

1.4721

1.6558

81.23

0.8820

0.9789

1.0740

0.7956

118.44

133.58

Resist. 2

1.4673

1.6516

80.98

0.8791

0.9764

1.0702

0.7927

117.98

133.07

Resist. 1

1.4625

1.6474

80.74

0.8762

0.9740

1.0664

0.7898

117.52

132.56

Spot

1.4530

1.6391

80.25

0.8705

0.9690

1.0588

0.7840

116.60

131.53

Support 1

1.4435

1.6308

79.76

0.8648

0.9640

1.0512

0.7782

115.68

130.51

Support 2

1.4387

1.6266

79.52

0.8619

0.9616

1.0474

0.7753

115.22

130.00

Support 3

1.4339

1.6224

79.27

0.8590

0.9591

1.0436

0.7724

114.76

129.48

v

Written by: John Kicklighter, Senior 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

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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