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FOREX: US Dollar Risks to Downside on Disappointing Data, S&P 500 Rallies

FOREX: US Dollar Risks to Downside on Disappointing Data, S&P 500 Rallies

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  • US Dollar Risks to Downside on Disappointing Data, S&P 500 Rallies
  • Euro Rallies against US Dollar on S&P 500 Strength, Despite Greek Worries
  • British Pound Approaches Resistance on Weak Dollar, Strong Sales
  • Japanese Yen Advances as Domestic Economy Dips Back into Recession
  • Australian Dollar Rallies as Gold and Silver Drift Higher
  • Canadian Dollar to take cues from Bank of Canada Core CPI Results

US Dollar Risks to Downside on Disappointing Data, S&P 500 Rallies

The US Dollar was weaker across the board at the close of New York trade today after a negative trifecta of US economic data fueled concerns about a slowdown in global growth. Existing home sales, leading indicators, and the Philly Fed survey all disappointed to the downside, fueling speculation that the Fed will need to maintain its ultra-loose monetary stance and keep rates at record lows. The data comes on the back of weaker than expected print on existing home sales, empire manufacturing, and industrial production figures earlier in the week. The dollar, which initially saw some strength on the release, quickly pared gains falling against all the majors before the close of trade in New York. With no data on tomorrow’s economic docket, volatility should remain subdued as traders head into the weekend. Of note, technical studies on the Dow Jones FXCM Dollar Index suggest risks remain to the downside for the US currency heading into the week ahead.

Related:Discuss the Dollar in the DailyFX Forum

Euro Rallies against US Dollar on S&P 500 Strength, Despite Greek Worries

The Euro was a top performer in a quiet day across currency markets, squeaking out a modest gain as the New York Stock Exchange saw its sixth-lowest daily volume on the year. An effectively empty euro zone economic calendar left the single currency to trade off of developments in ongoing fiscal debt crises and broader financial market risk sentiment. Eurogroup president Jean-Claude Juncker reiterated that he is “radically against” a total restructuring of Greece’s debts and urged the Greek government to be “absolutely serious” about its consolidation efforts. The commentary had little real effect, however; the spread between the Greek 10-year government bond yield and the benchmark German Bund remained near record-highs.

All in all fundamental risks favor EUR weakness, but the Euro/US Dollar currency pair has traded virtually tick-for-tick with the US S&P 500 and outlook almost certainly depends on broader ‘risk’. Limited event risk Friday suggests financial markets may see little volatility through the week’s close.

British Pound Approaches Resistance on Weak Dollar, Strong Sales

The sterling advanced 0.41% against the greenback today after a better than expected print on retail sales which advanced by 1.2% in April. The data topped consensus estimates calling for a print of just 0.8% m/m, while the year on year data surpassed expectations for a read 2.2%, with a print of 2.7% y/y. The report helped cool nervous investors who jettisoned the currency yesterday on dismal employment figures and a slightly dovish tone on the BoE minutes. The pound held above interim support at 1.6150 before mounting an assault on the greenback that saw the pair test the upper bound trendline of the ascending channel that has held for the past 36-hours. The sterling will encounter key resistance at the 1.6240 support level, with subsequent ceilings eyed at 1.6270 and the 1.63-handle. Support rests lower at 1.6170 backed by 1.6150 and 1.6110.

Yen Advances as Domestic Economy Dips Back into Recession

The yen snapped a two-day losing streak today, advancing more than 0.23% against the dollar after a flurry of negative economic data out of the US. Overnight, Japan got its own dose of dismal data with Q1 GDP figures grossly missing estimates with a print of -0.9% q/q. The annualized figure looked even bleaker with a read of -3.7%, missing calls for a contraction of just 1.9%. Although investors were widely anticipating further contraction in the isle-nation economy after the devastating earthquake that slammed the northeastern coast, the data now confirms that the domestic economy has slipped back into recession. The yen may see further weakness, as we note strengthening bond yields on the 30-yr bond which tends to track the pair well. The USD/JPY pair remains in the ascending channel formation that has held since May 5th with interim support eyed at 81.50 and 81.30. Topside targets are held at 81.70, 81.90, and 82.20.

Australian Dollar Rallies as Gold and Silver Drift Higher

The Australian Dollar was the third-best performer on a quiet day for forex markets, mostly tracking moves in gold and silver markets as well as the US S&P 500. The AUDUSD has tracked spot gold prices virtually tick-for-tick in the past seven days—it’s difficult to tell the charts apart when placed side-by-side. We suspect that moves in precious metals could continue to influence the Aussie dollar, while broader ‘risk’ remains the key word for the high-yielding currency. Though recent CFTC Commitment of Traders data showed a pullback in speculative AUDUSD longs, the amount of leveraged still used in AUD bets makes it particularly susceptible to sudden shifts in financial market moods. That said, limited global economic event risk points to relatively quiet trade into the weekend.

Canadian Dollar to take cues from Bank of Canada Core CPI Results

Traders sent the Canadian dollar modestly higher against its US namesake, but the USDCAD is likely to be put to the test on the result of upcoming Consumer Price Index inflation results. All eyes turn to the Bank of Canada Core CPI result as outlook for domestic interest rates could sway significantly on any surprises. Consensus forecasts point to a 1.6 percent year-over-year gain in core inflation—comfortably below the BoC’s stated target of 2.0 percent. Interest rate traders nonetheless predict that the Bank of Canada will be among the most aggressive global central banks in raising interest rates through the coming 12 months—a fact that has likely supported the high-flying Canadian Dollar. The distribution of analyst estimates is roughly balanced as few expect strong surprises. Said fact could make for interesting reactions out of the Canadian Dollar on the data release due at 11:00 GMT.

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

JPY

Bank of Japan Interest Rate Decision

0.1%

0.1%

Expected to hold as economy still weak

1:30

AUD

RBA FOREX Transactions AUD (APR)

699M

May see decline as AUD holdings fall

3:00

NZD

Credit Card Spending s.a. (MoM) (APR)

-1.6%

More transactions would indicate greater consumer side spending

3:00

NZD

Credit Card Spending (YoY) (APR)

1.5%

4:30

JPY

All Industry Activity Index (MoM) (MAR)

-6.1%

0.7%

March data expected to fall sharply

6:00

EUR

German Producer Prices (YoY) (APR)

6.0%

6.2%

Early indicator of inflation show decline from year previous

6:00

EUR

German Producer Prices (MoM) (APR)

0.6%

0.4%

7:00

JPY

Convenience Store Sales (YoY) (APR)

7.7%

Recovery spending expected to benefit

8:00

EUR

EUZone Current Account s.a. (euros) (MAR)

-7.2B

Current accounts remain near post-2008 record lows

8:00

EUR

EUZone Current Account n.s.a. (euros) (MAR)

-9.5B

8:00

EUR

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

15.7%

16.2%

Slower Italian manufacturing sector may indicate slower growth in Germany as well

8:00

EUR

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

1.5%

8:00

EUR

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

0.5%

1.9%

8:00

EUR

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

12.8%

11:00

CAD

Consumer Price Index Core (MoM) (APR)

0.2%

0.7%

Overall inflation expected to grow faster as commodity prices drive most of inflation; Bank of Canada looks at overall inflation when making policy decisions

11:00

CAD

Consumer Price Index Core (YoY)(APR)

1.6%

1.7%

11:00

CAD

Consumer Price Index (APR)

119.4

11:00

CAD

Consumer Price Index (MoM) (APR)

0.5%

1.1%

11:00

CAD

Consumer Price Index (YoY) (APR)

3.4%

3.3%

12:30

CAD

Retail Sales (MoM) (MAR)

0.9%

0.4%

March retail sales expected to strengthen as loonie reaches highs

12:30

CAD

Retail Sales Less Autos (MoM) (MAR)

0.7%

0.7%

14:00

EUR

Euro-Zone Consumer Confidence (MAR)

-12

-11.6

Peripheral risk lower confidence

GMT

Currency

Upcoming Events & Speeches

7:30

EUR

ECB's Yves Mersch Speaks on European Economy

12:00

USD

Fed's William Dudley 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

1.5160

1.6750

89.00

0.9345

1.0275

1.1800

0.8400

117.60

146.05

Resist 1

1.5000

1.6600

86.00

0.8900

1.0000

1.1000

0.8215

117.24

140.00

Spot

1.4309

1.6229

81.64

0.8812

0.9678

1.0667

0.7910

116.82

132.50

Support 1

1.4000

1.6160

80.00

0.8600

0.9500

1.0400

0.7745

113.80

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

11.6311

1.5742

6.8698

7.7739

1.2376

Spot

6.2578

5.2120

5.5045

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 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

1.4494

1.6394

82.57

0.8919

0.9774

1.0815

0.8020

118.71

134.47

Resist. 2

1.4448

1.6353

82.34

0.8893

0.9750

1.0778

0.7993

118.23

133.98

Resist. 1

1.4402

1.6312

82.10

0.8866

0.9726

1.0741

0.7965

117.76

133.49

Spot

1.4309

1.6229

81.64

0.8812

0.9678

1.0667

0.7910

116.82

132.50

Support 1

1.4216

1.6146

81.18

0.8758

0.9630

1.0593

0.7855

115.88

131.51

Support 2

1.4170

1.6105

80.94

0.8731

0.9606

1.0556

0.7827

115.41

131.01

Support 3

1.4124

1.6064

80.71

0.8705

0.9582

1.0519

0.7800

114.93

130.52

v

Written by: David Rodriguez, Quantitative Strategist and Michael Boutros, Currency Analyst for DailyFX.com

To receive this report 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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