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Dollar Puts In Another Volatile Run to Nowhere

Dollar Puts In Another Volatile Run to Nowhere

2011-09-30 01:47:00
John Kicklighter, Chief Currency Strategist
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  • Dollar Puts In Another Volatile Run to Nowhere
  • Euro Flounders after Germany Approves EFSF Expansion, Mixed Data
  • New Zealand Downgrades Will Reverberate for Some Time
  • British Pound Follows Euro Lines Rather than Data Improvement
  • Canadian Dollar Looks to July GDP Data Will Refine US Connection
  • Swiss Franc Talked Down by SNB’s Hildebrand, FX Market Brushes It Off
  • Gold Range at Pre-Tumble Low, Volume Lightest in Two-Week

Dollar Puts In Another Volatile Run to Nowhere

Intraday volatility is still quite high even though the absence of a clear and consistent direction has become painfully obvious to market participants. This excessive energy speaks to how sensitive speculative markets are to developments in the financial foundations of the capital markets. All that is absent now is a meaningful development that either undermines or fortifies stability. For the dollar, the burden for bullish momentum is still the highest amongst its counterparts. Far behind the yield and growth curves; the greenback has to play to its liquidity status to gain traction. Demand for market depth deteriorates each day the market’s move sideways and volatility eases. Looking to the benchmarks for risk, we see the S&P 500 worked its way deeper into its 1,225 / 1,115 range as the masses await larger catalysts to descend upon the market.

Despite the lack of fuel to feed trends and moment, we still see the influence of a heavy bearish lean behind risk trends – which is a sign that fundamentals are ready to drive the dollar higher with a meaningful catalyst. Good, objective gauges for the market’s fear are the various volatility indexes. The equities-based VIX is tracing out a range that looks very similar to the S&P 500 index it is based on; yet this congestion is set near its highest levels since the second quarter of 2010. More specific to FX markets, we note that the currency volatility index (CVIX) has pulled back this week from a 16-month peak; but it is still trending higher and at 14.8 percent is still well above the 11.2 percent monthly average measured at the end of July.

Looking for catalysts into the final 24 hours of this trading week, we are met with low potential drivers. That said, the presence of heavy-hitting global indicators the following week will keep traders on their toes, expecting a return to breakouts and trends next week. In the meantime, we took note of the commentary from policy officials this past session. Atlanta Fed President Lockhart reflected on the labor trouble facing the US, suggesting that monetary policy not be able to significantly improve employment. Far more opinionated was Philadelphia Fed President Plosser who opined that the latest move from the central bank could undermine its creditability and that there would be little significant positive impact from Operation Twist on growth. Given the position the Fed finds itself in, we would normally ignore it; but the prominence of a dissenting vote suggests there is a possibility of a quick reversal or a more creative approach in the foreseeable future. In the upcoming New York session, the top event risk are personal spending and income figures along with St. Louis Fed President Bullard’s reflections on the US economy.

Related: Discuss the Dollar in the DailyFX Forum, John’s Video: Lack of Conviction Better for USDJPY Scalp than EURUSD Trends

Euro Flounders after Germany Approves EFSF Expansion, Mixed Data

After Finland passed the EFSF expansion proposal (in concept, numbers are still open to debate); the German Lower House decided to follow suit. There are still a number of votes to go (the Upper House in Germany voting tomorrow, other EU members); but headwinds seem limited. With the potential to expand the fund to buy bonds on the secondary market, open credit lines and recapitalize banks; there is enough here to take immediate pressure off the European crisis. Yet, this is still a consideration for the future. In the meantime, the read on the economic health of the region was mixed with a two-year low in consumer confidence and Reunification low in German unemployment.

New Zealand Downgrades Will Reverberate for Some Time

It was sentiment versus cold hard fact for the New Zealand dollar this morning. With risk trends anchored, the high-yielding currency was dealing with a natural dampener. However, there were clear fundamental shocks to this peace when rating agency Fitch announced it had downgraded the country’s rating to AA; and Standard & Poor’s followed a few hours later with its own downgrade to a similar AA level. Pairs that were highly risk sensitive (NZDUSD and NZDJPY) absorbed the impact; but AUDNZD charged ahead. This development does not have a one-off effect. Expect these downgrades to come back again as sentiment starts to tip in one direction – especially if it is a bearish lean.

British Pound Follows Euro Lines Rather than Data Improvement

Though there were a few notable fundamental highlights from the sterling’s arena, it wouldn’t’ be enough to deviate the currency from the EU crisis / risk trends line. That said, it is worth noting the SNB’s suggestion that they may add pounds to their reserves going forward and news that consumer confidence had bounced up from two-year lows.

Canadian Dollar Looks to July GDP Data Will Refine US Connection

Policy officials in Canada have been vocal this past week; but they have had almost no influence on the loonie. Perhaps the upcoming July GDP reading will have better luck. For the Canadian currency, the economic connection to the US and investment aspect similar to Australian and New Zealand offer a confused look. This data is an opportunity for the currency to run off its own fundamentals.

Swiss Franc Talked Down by SNB’s Hildebrand, FX Market Brushes It Off

Policy officials have tried hard over the past few days to talk the Swiss franc down. Following up on his colleague’s (Thomas Jordan) remarks, SNB President Hildebrand echoed the vow to protect the EURCHF floor. He may have sabotaged his own efforts however in noting the ‘dangerous’ economic forecast given his currency’s safe haven status. Perhaps the future sterling purchases could spread the Swiss short move.

Gold Range at Pre-Tumble Low, Volume Lightest in Two-Week

Not only is gold lower on the week; but it is holding those lows. With the previous, sharp correction back in August; the metal put in for a quick reversal to recover lost ground. Yet, with this past session’s close, we have seen the smallest range since just before the collapse a week ago and the weakest volume figures for the futures market in two weeks. It is difficult to feed a trend or reverse it under these conditions.

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

0:30

AUD

RPData-Rismark House Px Raw (AUG)

-0.9%

Continued declines in housing prices suggests saturation of market

0:30

AUD

RPData-Rismark House Px s.a. (AUG)

-0.6%

1:00

NZD

NBNZ Activity Outlook (SEP)

43.3

Bank’s own outlook index has tracked lower

1:00

NZD

NBNZ Business Confidence (SEP)

34.4

1:30

AUD

Private Sector Credit (MoM) (AUG)

0.2%

0.2%

Australian credit continues to grow despite high interest

1:30

AUD

Private Sector Credit (YoY) (AUG)

2.8%

2.7%

2:00

NZD

Money Supply M3 (YoY) (AUG)

6.3%

Growth may decrease on rate expectations

2:30

CNY

HSBC Flash China Manufacturing PMI (SEP)

49.9

Manufacturing seen as shrinking

4:00

JPY

Vehicle Production (YoY) (AUG)

-8.9%

Japanese heavy industry production data continues to show weakness, may create large problem for new Noda administration

5:00

JPY

Construction Orders (YoY) (AUG)

5.7%

5:00

JPY

Annualized Housing Starts (AUG)

0.860M

0.955M

5:00

JPY

Housing Starts (YoY) (AUG)

4.5%

21.2%

6:00

EUR

German Retail Sales (MoM) (AUG)

-0.5%

0.3%

Fall in retail sales may delay rate hikes

6:00

EUR

German Retail Sales (YoY) (AUG)

-1.0%

-1.6%

6:45

EUR

French Producer Prices (MoM) (AUG)

-0.1%

Increase in producer prices most likely due to higher raw materials prices

6:45

EUR

French Producer Prices (YoY) (AUG)

6.1%

6:45

EUR

French Consumer Spending Manuf. (MoM) (AUG)

1.1%

Consumer spending growing at a slower pace, pointing to weaker sentiment

6:45

EUR

French Consumer Spending Manuf. (YoY) (AUG)

2.2%

6:45

EUR

French Consumer Spending (MoM) (AUG)

0.2%

1.2%

6:45

EUR

French Consumer Spending (YoY) (AUG)

1.3%

1.8%

8:00

EUR

Italian Unemployment Rate s.a. (Q2)

8.0%

8.2%

Italian unemployment stagnant, not expected to move market

8:00

EUR

Italian Unemployment Rate s.a. (AUG P)

8.0%

8.0%

9:00

EUR

Euro-Zone CPI Estimate (YoY) (SEP)

2.5%

2.5%

Estimate still above ECB target

9:00

EUR

Euro-Zone Unemployment Rate (AUG)

10.0%

10.0%

May increase on Greek cuts

9:00

EUR

Italian CPI (NIC incl. tobacco) (MoM) (SEP P)

-0.1%

0.3%

Italian prices relatively stable, fall may be due to lower consumer spending

9:00

EUR

Italian CPI (NIC incl. tobacco) (YoY) (SEP P)

2.9%

2.8%

9:00

EUR

Italian CPI - EU Harmonized (MoM) (SEP P)

1.0%

0.4%

9:00

EUR

Italian CPI - EU Harmonized (YoY) (SEP P)

2.6%

2.3%

9:30

CHF

KOF Swiss Leading Indicator (SEP)

1.33

1.61

Swiss economy still seen as weak

10:00

EUR

Italian Producer Price Index (MoM) (AUG)

0.1%

0.3%

Italian PPI may be weaker as large industries slow buying, expansion

10:00

EUR

Italian Producer Price Index (YoY) (AUG)

4.5%

4.9%

12:30

CAD

Gross Domestic Product (MoM) (JUL)

0.3%

0.2%

Major data of the day – YoY data expected to increase for last time before August economic weakness

12:30

CAD

Gross Domestic Product (YoY) (JUL)

2.3%

2.0%

12:30

USD

Personal Income (AUG)

0.1%

0.3%

US consumer spending lower as more consumers hold onto cash in uncertain economy

12:30

USD

Personal Spending (AUG)

0.2%

0.8%

12:30

USD

PCE Deflator (YoY) (AUG)

3.0%

2.8%

12:30

USD

PCE Core (MoM) (AUG)

0.2%

0.2%

12:30

USD

PCE Core (YoY) (AUG)

1.7%

1.6%

13:45

USD

Chicago Purchasing Manager (SEP)

56.5

56.5

Midwestern industries expected stable

13:55

USD

U. of Michigan Confidence (SEP F)

57.8

57.8

Final revision not expected to move markets

14:00

USD

NAPM-Milwaukee (SEP)

58.3

Purchasing index has been stable

GMT

Currency

Upcoming Events & Speeches

1:35

CNY

MNI September Business Condition Survey

15:00

USD

Fed's Bullard to Speak in San Diego

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

1.6745

86.00

0.8560

1.0275

1.0750

0.9020

118.00

146.05

Resist 1

1.5000

1.6600

81.50

0.8275

1.0000

1.0800

0.8750

113.50

140.00

Spot

1.4193

1.6215

76.78

0.7888

0.9839

1.0650

0.8473

108.97

124.49

Support 1

1.4000

1.5935

76.35

0.7500

0.9425

1.0350

0.7745

109.00

124.00

Support 2

1.3700

1.5750

75.50

0.7000

0.9055

0.9925

0.6850

106.00

119.00

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS & SCANDIES 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

1.8235

7.4025

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

12.5000

1.8000

7.3500

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

12.4149

1.7522

7.0738

7.7892

1.2046

Spot

6.3965

5.2483

5.4031

Support 1

11.5200

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.4400

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

1.4326

1.6296

77.19

0.8104

0.9906

1.0778

0.8595

110.27

125.04

Resist 1

1.4259

1.6255

76.98

0.7996

0.9873

1.0714

0.8534

109.62

124.77

Pivot

1.4222

1.6214

76.77

0.7854

0.9813

1.0670

0.8485

109.24

124.48

Support 1

1.4155

1.6173

76.56

0.7746

0.9780

1.0606

0.8424

108.59

124.20

Support 2

1.4118

1.6132

76.35

0.7604

0.9720

1.0562

0.8375

108.21

123.91

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

1.4393

1.6392

77.65

0.8030

0.9949

1.0814

0.8613

110.70

126.19

Resist. 2

1.4343

1.6348

77.43

0.7994

0.9922

1.0773

0.8578

110.27

125.77

Resist. 1

1.4293

1.6304

77.22

0.7959

0.9894

1.0732

0.8543

109.83

125.34

Spot

1.4193

1.6215

76.78

0.7888

0.9839

1.0650

0.8473

108.97

124.49

Support 1

1.4093

1.6126

76.34

0.7817

0.9784

1.0568

0.8403

108.11

123.64

Support 2

1.4043

1.6082

76.13

0.7782

0.9756

1.0527

0.8368

107.67

123.22

Support 3

1.3993

1.6038

75.91

0.7746

0.9729

1.0486

0.8333

107.24

122.79

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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