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Dollar Late-Session Rally Just as Feeble as Preceding Tumble

Dollar Late-Session Rally Just as Feeble as Preceding Tumble

2011-09-29 01:46:00
John Kicklighter, Chief Currency Strategist
Share:
  • Dollar Late-Session Rally Just as Feeble as Preceding Tumble
  • Euro Faces Heavy Round of Data to Remind Us of the Crisis Costs
  • British Pound Slides as BoE Notes Scope for Policy to Stabilize Policy
  • Swiss Franc: SNB Jordan Says EURCHF Would be Below Parity Without Floor
  • Australian Dollar Offers a Leverage Response to Risk Aversion
  • Japanese Yen Finds Greater Marginal Interest in JGB Yield Boost than Data
  • Gold Attempts to Revive Bear Trend on Diminished Volume

Dollar Late-Session Rally Just as Feeble as Preceding Tumble

The afternoon / evening trading hours of this past New York trading session had hearts racing as the high-yield currencies, equities and other risk sensitive assets triggered a sharp selloff. Given the proximity of larger trends (both bullish and bearish) these past few weeks; there is a natural tendency for speculators to interpret any strong, one-sided moves as a sign that a more prolific trend is being developed. However, that fits neither the backdrop for market conditions nor the fundamental scene that we are faced with this week. Once again, it is good practice to defer to the higher timeframe charts to make an educated call on trend development. Starting with the benchmark S&P 500, the benchmark’s 38-point tumble from a failed run to overtake the week’s high at 1,187 certainly leveraged volatility; but we are still well-within the two-month range between 1,225 and 1,105. The same is true for the dollar. Whether referring to the Dow Jones FXCM Dollar Index (ticker = USDollar) or EURUSD, we are trading with broader bands of congestion (10,000 to 9,800 and 1.3675 to 1.3400 respectively).

A fundamental argument against a strong market run (be it behind risk trends or the dollar – they are interrelated) can be formed out of the basic reality that the larger themes are not under particular duress at the moment. The European financial crisis, fears of a Chinese asset bubble and ongoing economic concerns in the US are certainly present; but there are no new catalysts to encourage dramatic shifts in capital due to the influence of these particular drivers. Just as convincing are the background market conditions we are dealing with. To engage a strong trend; we need conviction to maintain momentum beyond a ‘breakout’ phase. Yet, if we look to volume figures on those risk-based assets that measure turnover, we see that recent swings are backed by weaker positioning than previous weeks. Furthermore, we see that correlation between asset classes has weakened significantly. The presence of correlation between otherwise unrelated assets indicates an overwhelming interest in shifting capital behind themes like risk aversion, liquidity demand or yield padding.

And, though its influence was tempered by a hibernating market; we should take note of the fundamental developments on the docket. This past session, the August durable goods orders reported a modest 0.1 drop while the core figure boasted a three-month high 1.5 percent jump). For the big picture, this supports the expectation of a slowdown while suggesting manufacturing is still the backbone to performance in the US. In the upcoming session we have the final reading of GDP and pending home sales, both very lagging indicators. Perhaps more influential may be the Fed chatter. Hoenig echoed Fisher when he said efforts to flatten the yield curve could create further imbalance and insinuated it wouldn’t work. In the next 24 hours, we have Plosser, Lockhart and Rosengren on tap. That a list of most hawkish to dovish.

Related:Discuss the Dollar in the DailyFX Forum, John’s Video: GBPUSD, AUDUSD and S&P 500 See Sharp Declines but Trend Still Elusive

Euro Faces Heavy Round of Data to Remind Us of the Crisis Costs

The euro doesn’t run on normal fundamental fuel. That said, the influence through speculation surrounding Europe’s financial crisis would throttle back as the financial headlines emptied out for developments. There were a few notable highlights (such as news that Italy and Spain were extending their short-selling ban, Former ECB Chief Economist Issing remarking that Greece’s exit is inevitable and the ongoing renegotiations for Greece’s second bailout program); but none of it clarified for investors how much they would lose. There is always the possibility that headlines will trigger this catalyst; but in the meantime, we should keep an eye on the confidence and German jobs data due.

British Pound Slides as BoE Notes Scope for Policy to Stabilize Policy

The Bank of England released its third quarter Secured Lending Survey Wednesday; and though the report is geared towards financial and credit conditions, there were direct inferences to monetary policy in this statement. A note of “severe strains” in markets since June, led to expectations that regional banks would struggle to repair balance sheets. But the most remarkable note was the suggestion that there was need for short-term policy efforts to aid financial stability. Remember, we have a BoE rate decision tomorrow, and it seems they are telegraphing…

Swiss Franc: SNB Jordan Says EURCHF Would be Below Parity Without Floor

SNB President Thomas Jordan commented on the central bank’s unorthodox monetary policy Wednesday, saying that if they didn’t put in the explicit floor on EURCHF at 1.20; the exchange rate would be trading the 1.0000 mark. Giving some detail on their approach, the policy authority said that the central bank could not become insolvent, but it will cost. Furthermore, he repeated his vow to do everything to support the floor.

Australian Dollar Offers a Leverage Response to Risk Aversion

With the New York afternoon tumble in risk appetite trends, the carry-favorite Australian dollar would leverage its losses. The extent that this fundamental driver has over the currency is as limited as the underlying momentum behind sentiment trends; but we should keep an eye to rate expectations going forward. We have the RBA decision next week, and there is still (errant) speculation that there is a cut in store.

Japanese Yen Finds Greater Marginal Interest in JGB Yield Boost than Data

If traditional fundamental concerns were a consideration in the Japanese yen’s guidance, the currency would be dramatically lower by now. Therefore, it shouldn’t come as a surprise that the disappointing showing for August retail sales (annual sales dropped 2.6 percent) would show little influence on price action. More influential is the JGB yield. Though it is exceptional low, a recent bounce has coincided with yen strength.

Gold Attempts to Revive Bear Trend on Diminished Volume

We have shaken the market’s confidence in gold. Despite a drop in risk trends Wednesday, the metal took a tumble in contrast to its safe haven appeal. That said, we should monitor underlying conditions to gain a perspective on conviction. Knowing that risk trends are lacking for drive, we look to volume on CBOE gold futures and see that conviction in this recent dive is the lowest it’s been in five trading days.

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

1:30

AUD

Job Vacancies (AUG)

-4.5%

Australian labor markets may deteriorate

7:55

EUR

German Unemployment Rate (SEP)

7.0%

7.0%

German unemployment still expected to fall, although economy still weak

7:55

EUR

German Unemployment Change (SEP)

-8K

-8K

8:00

EUR

Italian Deficit to GDP (YTD) (Q2)

7.7%

Has been stable around 8%

8:30

GBP

Net Consumer Credit (AUG)

0.2B

0.2B

British housing figures still cautious, but may grow due to Bank’s pledge to keep rates low

8:30

GBP

Net Lending Sec. on Dwellings (AUG)

0.8B

0.7B

8:30

GBP

Mortgage Approvals (AUG)

49.5K

49.2K

8:30

GBP

M4 Money Supply (MoM) (AUG)

-0.1%

British money supply may grow on lending

8:30

GBP

M4 Money Supply (YoY) (AUG)

-1.1%

8:30

GBP

M4 Ex OFCs 3M Annualised (AUG)

3.5%

9:00

EUR

Euro-Zone Business Climate Indicator (SEP)

-0.12

0.07

European economic surveys all show weakness as debt concerns are combined with a slowdown in the global recovery

9:00

EUR

Euro-Zone Consumer Confidence (SEP F)

-18.9

-18.9

9:00

EUR

Euro-Zone Economic Confidence (SEP)

96

98.3

9:00

EUR

Euro-Zone Industrial Confidence (SEP)

-5

-2.9

9:00

EUR

Euro-Zone Services Confidence (SEP)

1.9

3.7

12:30

CAD

Industrial Product Price (MoM) (AUG)

-0.4%

-0.3%

Falling price index will probably result in dovish bank statements

12:30

CAD

Raw Materials Price Index (MoM) (AUG)

-1.3%

-1.2%

12:30

USD

Gross Domestic Product (Annualized) (Q2 T)

1.2%

1.0%

Third revision of US GDP expected to point slightly upwards, may bouy some confidence

12:30

USD

Personal Consumption (Q2 T)

0.4%

0.4%

12:30

USD

Gross Domestic Product Price Index (Q2 T)

2.4%

2.4%

12:30

USD

Core PCE (QoQ) (Q2 T)

2.2%

2.2%

12:30

USD

Initial Jobless Claims (SEP 17)

420K

423K

Weekly employment figures seen moderating, improving

12:30

USD

Continuing Claims (SEP 23)

3730K

3727K

13:45

USD

Bloomberg Consumer Comfort (SEP 25)

-52.1

Survey has been trending lower

14:00

USD

Pending Home Sales (MoM) (AUG)

-2.1%

-1.3%

Falling pending sales still suggests weakness in consumer real estate

14:00

USD

Pending Home Sales (YoY) (AUG)

10.1%

14:30

USD

EIA Natural Gas Storage Change (SEP 23)

89

Storage lower due to seasonal demand

15:00

USD

Kansas City Fed Manf. Activity (SEP)

3

Midwestern industries may weaken

21:45

NZD

Building Permits (MoM) (AUG)

-1.5%

13.0%

Expected to fall on weak demand

23:01

GBP

GfK Consumer Confidence Survey (SEP)

-33

-31

Confidence points to weakness

GMT

Currency

Upcoming Events & Speeches

6:50

USD

Fed's Rosengren Speaks on Bank Regulation in Stockholm

12:30

USD

Fed's Plosser Speaks on Economy in Radnor

17:00

USD

Fed's Lockhart Speaks in Atlanta

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

1.4050

1.5900

86.00

0.9400

1.0675

1.0750

0.9020

112.00

126.50

Resist 1

1.3900

1.5775

81.50

0.9250

1.0300

1.0375

0.8750

106.50

123.00

Spot

1.3582

1.5607

76.57

0.8980

1.0286

0.9833

0.7793

104.00

119.51

Support 1

1.3385

1.5300

76.35

0.8500

0.9950

0.9700

0.7745

102.00

116.00

Support 2

1.3025

1.5180

75.50

0.7800

0.9750

0.9545

0.6850

100.00

114.00

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

16.5000

2.0000

8.5800

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

14.3200

1.9000

8.1025

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

13.5061

1.8619

7.8942

7.7942

1.2920

Spot

6.7860

5.4794

5.7769

Support 1

12.6000

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.4295

7.7450

1.1800

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

1.3753

1.5724

77.14

0.9045

1.0373

1.0016

0.7952

105.02

120.85

Resist 1

1.3667

1.5665

76.85

0.9013

1.0329

0.9924

0.7872

104.51

120.18

Pivot

1.3605

1.5620

76.60

0.8969

1.0261

0.9864

0.7823

104.01

119.57

Support 1

1.3519

1.5561

76.31

0.8937

1.0217

0.9772

0.7743

103.50

118.90

Support 2

1.3457

1.5516

76.06

0.8893

1.0149

0.9712

0.7694

103.00

118.29

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

1.3815

1.5817

77.47

0.9144

1.0429

1.0025

0.7950

106.01

121.49

Resist. 2

1.3757

1.5764

77.25

0.9103

1.0393

0.9977

0.7911

105.51

121.00

Resist. 1

1.3698

1.5712

77.02

0.9062

1.0357

0.9929

0.7871

105.01

120.50

Spot

1.3582

1.5607

76.57

0.8980

1.0286

0.9833

0.7793

104.00

119.51

Support 1

1.3466

1.5502

76.12

0.8898

1.0215

0.9737

0.7715

102.99

118.51

Support 2

1.3407

1.5450

75.89

0.8857

1.0179

0.9689

0.7675

102.49

118.01

Support 3

1.3349

1.5397

75.67

0.8816

1.0143

0.9641

0.7636

101.99

117.52

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

Follow John on twitter at http://www.twitter.com/JohnKicklighter

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

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