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Dollar’s First Advance in Six Days is an Anemic One

Dollar’s First Advance in Six Days is an Anemic One

2011-10-12 04:01:00
John Kicklighter, Chief Currency Strategist
Share:
  • Dollar’s First Advance in Six Days is an Anemic One
  • Euro Benefits from Quiet Markets on Slovakia Vote, Greece Review
  • British Pound Looks to See If Labor Data Can Offer More Volatility than Posen, GDP Forecast
  • Japanese Yen Congestion Against US Dollar Extreme – Be Prepared for a Breakout
  • Australian Dollar: Consumer Confidence May have Notched Higher, But Risk Trends Haven’t
  • Canadian Dollar Receives Little Encouragement from Jump in Housing Starts
  • Gold Fails to Capitalize on Technical Break, European Crisis Pressure Easing

Dollar’s First Advance in Six Days is an Anemic One

Market conditions are feeble. This is not a reflection on direction for any specific asset or currency but rather a state of being for the level of volatility and conviction behind risk appetite trends. Without a higher level of activity and a market susceptible to shifting sentiment; fundamental developments are easily glossed over and meaningful trends remain out of reach. This was something of a burden for the greenback through Tuesday’s session as a round of potentially negative developments for capital markets wouldn’t translate into traction and meaningful progress for the FX market’s more extreme-leaning safe haven. The combination of a stalled risk run, tempered conviction and concerning updates on Europe’s financial situation was enough to lead the Dow Jones FXCM Dollar Index (ticker = USDollar) to its first positive close in six trading sessions; but it was essentially a ‘tick’ higher. This was the same exact scenario for the greenback’s most liquid pairing (EURUSD) – though there was slightly more progress to be found with the risk-sensitive AUDUSD and NZDUSD; while GBPUSD stood as an outlier with a 0.6 percent tumble.

When there is a dominant fundamental bias behind sentiment, the influence of significant headlines that counter that trend are often dampened or completely ignored. Dollar traders need to ask themselves whether the past session is an example of a risk appetite-hungry market overlooking disappointing news or an instance where activity levels are diminished overall. Topping the FX headlines in the previous session where disconcerting updates on Greece’s ability to reach the targets established for the disbursement of its stimulus and a roadblock to the effort to expand the EFSF’s size and scope of capabilities. Considering this has been the key to global stability issues for months; it is significant that such negative developments don’t encourage risk unwinding and a dollar bid.

Until we find a prevailing trend on underlying sentiment, the dollar will likely meander and find itself only temporarily distracted by other developments. That means indicators like this past sessions NFIB Small Business Optimism survey (which rose to 88.9) will be quickly overlooked. For the upcoming FOMC minutes, we will likely find the same conclusion. Not only does it not factor into the primary concern; the central bank further explained its decision well after its announcement. In the meantime, Europe isn’t the only catalyst for sentiment trends. We are also diving into 3Q earnings season with Alcoa reporting at the US session close and JPMorgan numbers due Wednesday morning.

Related: Discuss the Dollar in the DailyFX Forum, John’s Video: AUDUSD and Risk Trends Retreat Early Wednesday, Still Lacking Conviction

Euro Benefits from Quiet Markets on Slovakia Vote, Greece Review

If we ignore the market’s lackluster reaction Tuesday, the European headlines were quite concerning. However, for a trader, the market’s reaction is the only thing that truly matters. So, why would Slovakia’s decision to vote down the EFSF expansion program and the Troika’s dour report on Greece’s progress not lead to a selloff? The last of the EU members to approve the expansion of the all-encompassing bailout program suggested in July; Slovakia’s parliament shot down an effort to possibly increase the size and scope of the bailout program partly because it was attached to a Confidence Vote that would dissolve the government. It is largely expected that they will pass it on a repeat vote. If they don’t, we have a real issue. The other concern was the news from the Troika that Greece wouldn’t be able to meet its 2011 deficit target, that deeper structural changes are needed and privatization needs to be accelerated. Yet, the market knows the end game - including buying more time.

British Pound Looks to See If Labor Data Can Offer More Volatility than Posen, GDP Forecast

The British pound was one of the most active currencies through the past 24 hours – and this manifested itself into selling pressure. Already on the lam through the Asian session, the push intensified with a few negative fundamental drivers. August manufacturing activity slipped 0.3 percent while the NIESR group labeled the past year of growth through September ‘anemic’. Perhaps more influential was BoE member Posen’s warning that more stimulus may be on the way. These are notable; but the upcoming labor data would likely be better at sparking volatility.

Japanese Yen Congestion Against US Dollar Extreme – Be Prepared for a Breakout

The range on USDJPY Tuesday was mere 16 pips. The last time the market was this quiet was New Year’s day 2010 – an abnormal trading day. We come across extremes often; and we know that they do not last for long – they revert to a natural mean. An extreme lull in activity levels is no exception to the rule; and we should be vigilant on USDJPY’s extraordinary quiet conditions. This would be a good time for the BoJ to act...

Australian Dollar: Consumer Confidence May have Notched Higher, But Risk Trends Haven’t

After the improvement in the NAB business confidence figures for September, the Westpac’s consumer sentiment report for October added to the positive lean with a modest 0.4 percent increase in the index. This data simply does not carry enough influence in these thin markets though. Risk appetite is the key; and the drop in the morning Asian session was the guiding light for AUDUSD and other Aussie dollar crosses.

Canadian Dollar Receives Little Encouragement from Jump in Housing Starts

The investment currency designation works against the Canadian dollar just as surely as it works for it. In the early Wednesday trading hours, we are seeing more impact from the slide in risk than we did to the jump in September housing starts (to 205,900 units – just off the October 2008 high). We should expect the same for the upcoming home price index numbers.

Gold Fails to Capitalize on Technical Break, European Crisis Pressure Easing

Through the early hours of Tuesday’s trading session, it seemed as if gold would manage a meaningful, bullish technical break. Alas, market conditions would prevail – not a directional sentiment read but rather a lack of conviction. Normally, the Slovakia and Greek issues that arose through the session would encourage capital to move to a non-fiat store of wealth; but investors are sitting on their hands.

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**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

Investment Lending (AUG)

1.9%

Overall credit in Australia remains tight, though RBA suggest a rate cut is not completely impossible

0:30

AUD

Home Loans (AUG)

1.0%

1.0%

0:30

AUD

Value of Loans (MoM) (AUG)

1.4%

5:30

EUR

French CPI (YoY) (SEP)

2.5%

2.2%

French inflation on a YoY basis expected to increase on commodity costs; unlikely to shift ECB decisions

5:30

EUR

French CPI Ex Tobacco Index (SEP)

122.91

122.59

5:30

EUR

French CPI - EU Harmonized (MoM) (SEP)

0.1%

0.6%

5:30

EUR

French CPI - EU Harmonized (YoY) (SEP)

2.6%

2.4%

5:30

EUR

French CPI (MoM) (SEP)

0.1%

0.5%

6:00

EUR

German Wholesale Price Index (YoY) (SEP)

6.5%

German retail prices seeing some increase, though not enough to start raising bank interests

6:00

EUR

German Wholesale Price Index (MoM) (SEP)

0.1%

6:45

EUR

French Current Account (euros) (AUG)

-4.5B

Deficit continues to widen

8:30

GBP

Claimant Count Rate (SEP)

5.0%

4.9%

Major data of the day: British labor markets expected to continue weakening, though effects of latest QE will be watched next month

8:30

GBP

Jobless Claims Change (SEP)

24.0K

20.3K

8:30

GBP

ILO Unemployment Rate (3M) (SEP)

8.0%

7.9%

8:30

GBP

Average Weekly Earnings (3M/YoY) (SEP)

2.8%

2.8%

8:30

GBP

Weekly Earnings exBonus (3M/YoY) (SEP)

1.9%

2.1%

9:00

EUR

Euro-Zone Industrial Production w.d.a. (YoY) (AUG)

2.1%

4.3%

Industrial production continues to slow on falling demand

9:00

EUR

Euro-Zone Industrial Production s.a. (MoM) (AUG)

-0.8%

0.9%

11:00

USD

MBA Mortgage Applications (OCT 7)

-4.3%

Weekly data gauges housing market

12:30

CAD

New Housing Price Index (MoM) (AUG)

0.1%

0.1%

Mild growth unlikely to rally hawks

12:30

CAD

New Housing Price Index (YoY) (AUG)

2.3%

14:00

USD

JOLTs Job Openings (AUG)

3228

May increase following better NFPs

21:30

NZD

Business NZ Performance of Manufacturing Index

52.9

Index remains resilient

21:45

NZD

Food Prices (MoM) (SEP)

-1.3%

Could indicate inflation, though RBNZ focuses on core inflation

23:50

JPY

Tertiary Industry Index (MoM) (AUG)

-0.3%

-0.1%

Services expected weaker again

23:50

JPY

Bank Lending Banks ex-Trust (SEP)

-0.5%

-0.5%

Credit remains tight in Japan, could put more pressure on BoJ to help recovery

23:50

JPY

Bank Lending incl Trusts (YoY) (SEP)

-0.5%

GMT

Currency

Upcoming Events & Speeches

17:15

USD

Fed's Pianalto Speaks at University of Akron

17:30

USD

Fed's Plosser Speaks on Economy in Philadelphia

23:50

JPY

BOJ to Publish Minutes of Sept. 6-7 Board Meeting

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

1.0785

1.0750

0.9020

112.00

126.50

Resist 1

1.3900

1.5775

81.50

0.9250

1.0675

1.0375

0.8750

106.50

123.00

Spot

1.3675

1.5607

76.65

0.9061

1.0290

0.9988

0.7824

104.82

119.64

Support 1

1.3150

1.5300

76.35

0.8500

1.0150

0.9400

0.7500

102.00

116.00

Support 2

1.3025

1.5180

75.50

0.7800

0.9950

0.9125

0.6850

100.00

114.00

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

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

13.3334

1.8391

7.8790

7.7819

1.2815

Spot

6.6600

5.4434

5.6761

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

1.3760

1.5710

76.83

0.9167

1.0377

1.0065

0.7899

105.46

120.58

Resist 1

1.3717

1.5658

76.74

0.9114

1.0334

1.0027

0.7862

105.14

120.11

Pivot

1.3642

1.5620

76.67

0.9070

1.0295

0.9966

0.7811

104.58

119.78

Support 1

1.3599

1.5568

76.58

0.9017

1.0252

0.9928

0.7774

104.26

119.31

Support 2

1.3524

1.5530

76.51

0.8973

1.0213

0.9867

0.7723

103.70

118.99

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

1.3885

1.5792

77.43

0.9212

1.0428

1.0170

0.7970

106.57

121.27

Resist. 2

1.3833

1.5746

77.24

0.9175

1.0393

1.0124

0.7934

106.14

120.86

Resist. 1

1.3780

1.5700

77.04

0.9137

1.0359

1.0079

0.7897

105.70

120.45

Spot

1.3675

1.5607

76.65

0.9061

1.0290

0.9988

0.7824

104.82

119.64

Support 1

1.3570

1.5514

76.26

0.8985

1.0221

0.9897

0.7751

103.94

118.82

Support 2

1.3517

1.5468

76.06

0.8947

1.0187

0.9852

0.7714

103.50

118.41

Support 3

1.3465

1.5422

75.87

0.8910

1.0152

0.9806

0.7678

103.07

118.00

v

--- Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com.

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