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Dollar Gains Against Euro Will Stall if Dow, AUDUSD Don’t Collapse

Dollar Gains Against Euro Will Stall if Dow, AUDUSD Don’t Collapse

2012-09-25 04:07:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Gains Against Euro Will Stall if Dow, AUDUSD Don’t Collapse
  • Euro Jostled by Rumors of Bailout Leverage and Greece Crisis
  • Japanese Yen: Pension Funds May Do What Azumi is Hesitant To
  • Australian Dollar Traders Unimpressed by RBA’s Reassurances, China in Focus
  • British Pound: GBPUSD Shows Extremes on Multiple Levels
  • New Zealand Dollar Top Mover on the Day, Losses Beyond Obvious Data
  • Gold: Has Speculative Interest Jumped Too Far, Too Fast?

Dollar Gains Against Euro Will Stall if Dow, AUDUSD Don’t Collapse

If we boil the dollar down to a simple gain or loss, the greenback’s performance Monday was impressive. The benchmark managed gains against all but fellow safe haven Japanese yen through the opening session. Yet, we need look beyond the simple gain or loss and look at the quality of the session’s performance. The progress the greenback made was exceptionally reserved. The lack of progress is well-reflected with the Dow FXCM Dollar Index which advanced a sparse 9 points. For those keeping score, the Index hasn’t posted a move more than 30 points (bullish or bearish) in six active trading days. In other words, the dollar is trading in a tight congestion.

The lack of bearing and conviction is more than obvious amongst the majors. EURUSD’s otherwise important break below 1.3000 has generated little speculative drive to towards deeper, bearish objectives. The dollar’s other, top leverage position through AUDUSD has similarly lacked for progress. The disconnect from trend traces back to ever-volatile risk trends. Two of my favored risk barometers - the Dow Jones Industrial Average and S&P 500 - continue to carve out tight ranges (150 and 25 points respectively). What makes this congestion exceptionally unpredictable and potentially volatile is that it is setting up at multi-year highs. A basic fundamental expectation in the wake of the Fed’s new stimulus program would be a strong, bullish advance for equities and hearty decline for the dollar. Yet, speculation seems to have already projected further support and complicated the situation.

Seeking out those viable (and known) catalysts for underlying risk trends has become the primary objective for those awaiting a swing or trend from the dollar. The problem this week is that there are few scheduled events or indicators that carry the necessary influence to stir such a deep current. This past session, the top event risk was the Chicago Fed’s national activity index for August which posted the deepest read of contraction (-0.87) since June 2009. Perhaps if this indicator carried a little more influence, it would add to the bigger picture view that global growth is stalling. Yet, with stimulus reminders like St. Louis Fed President Williams’ suggestion that the QE3 program will carry into 2013 and could involve other assets; it is easier to stand pat than commit to a serious shift from the passive consensus.

In the upcoming session, we will see whether the September Consumer Confidence survey has greater sway over the dollar or sentiment trends. FX traders looking for volatility should hope for the latter. Looking beyond the near-term and known event risk, we should remember that backdrop for risk-reward is extremely skewed. Levels of return show aggregate benchmark yields amongst the majors just above record lows while the real rates of return (inflation-adjusted) for the benchmark 10-year Treasury is negative. The only reason this the market invests in such anemic conditions is volatility is at five-year lows – thanks to stimulus vows. What happens if confidence in the global safety net recedes?

Euro Jostled by Rumors of Bailout Leverage and Greece Crisis

Both scheduled event risk and rumor was having its way with the Euro Monday. With the exception of EURNZD (which was throttled by stand out weakness for the kiwi), the euro suffered a uniform decline on the opening day of the week. From the Docket, the German business confidence index (IFO) showed an overall reading for September that was a two-and-a-half year low. As the largest member of the Eurozone, trouble for this country’s business sector is an issue for the entire region. That short-term catalyst aside, the more pressing issue was development in the ever-present Euro-area crisis. German magazine Der Spiegel was the source of two contradictory (in terms of euro influence) rumors: that the ESM could use leverage to boost its influence to €2 trillion and that Greece’s deficit through August was actually €20 billion euros. Both were rebuffed by officials, but these are valuable for measuring market sensitivity to conjecture. We need a real catalyst.

Japanese Yen: Pension Funds May Do What Azumi is Hesitant To

Japanese Finance Minister Azumi was on the wires this morning attempting to leverage previous action through jawboning. In reference to the failed impact by the BoJ to drive the yenlower through an increase stimulus program, Azumi said the policies would have an impact over the mid- to long-term. Meanwhile, weekend headlines report a Japanese teachers fund is looking invest 50 billion yen in foreign bonds…

Australian Dollar Traders Unimpressed by RBA’s Reassurances, China in Focus

The RBA released its Financial Stability Review to little fanfare this morning. Reflections that domestic growth is robust enough to weather shocks from the Eurozone and China slowdown are reiterations of assessments we have heard before. Meanwhile, rate expectations are showing doubt in this rosy outlook (12-month RBA forecast sees 96bps in cuts) and a ‘Chinese Beige Book’ confirms slowdown.

British Pound: GBPUSD Shows Extremes on Multiple Levels

The GBPUSD’s seven consecutive week bullish advance (the longest run we’ve had for the cable since late 2004) was something we highlighted last week. Extreme moves often signal turning points but a measure on a weekly chart will be less distinct. Perhaps another extreme measure to consider: the 20-day (standard trading month) average daily change for the same pair is the smallest we’ve seen in over five years.

New Zealand Dollar Top Mover on the Day, Losses Beyond Obvious Data

The New Zealand dollar was by far the biggest mover on the day Monday with a sharp decline across the board. Against the individually weak Euro, the kiwi would still outpace with a decline of 0.4 percent. Meanwhile, the risk aversion leveraged Japanese yen gained a hearty 1.2 percent against the commodity currency. This shift seems more speculative flow-based than data / event risk derived given the amplitude.

Gold: Has Speculative Interest Jumped Too Far, Too Fast?

When market’s move one direction too quickly, there is often a snap back. This is especially true when speculators are at the foundation of the drive. So it may be with gold. Last week, we saw in COT figures that among futures traders, net speculative long positions surged for a fifth week to its highest level in six months. Another interesting trend: the buildup in ETF gold holdings is the fastest we’ve seen since November 2011.

**For a full list of upcoming event risk and past releases, go towww.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

2:00

CNY

Conference Board China Leading Index (AUG)

236.4

Could be more critical as markets watch for hard landing

5:00

JPY

Small Business Confidence (SEP)

-

44.8

Levels continue to decline

6:00

EUR

German GfK Consumer Confidence (OCT)

5.9

5.9

Seen to be stable after ECB easing, additional stimulus

6:00

CHF

UBS Consumption Indicator (AUG)

-

1.55

May be helped by EU confidence

8:30

GBP

BBA Loans for House Purchase (AUG)

28100

28441

Data stagnant, house prices still seen to decline in major areas

12:30

CAD

Retail Sales (MoM) (JUL)

0.2%

-0.4%

Retail sales expected to recover, though pressure on BoC rate hikes questionable

12:30

CAD

Retail Sales Less Autos (MoM) (JUL)

0.2%

-0.4%

13:00

USD

S&P/CS 20 City s.a. (MoM) (JUL)

0.7%

0.94%

July index may be seen as a benchmark to compare future months to after Fed’s QE3

13:00

USD

S&P/Case-Shiller Composite-20 (YoY) (JUL)

1.0%

0.5%

13:00

USD

S&P/Case-Shiller Home Price Index (JUL)

-

142.21

14:00

USD

Consumer Confidence (SEP)

63.1

60.6

Expected to have largest gain since February 2012

14:00

USD

Richmond Fed Manufacturing Index (SEP)

-6

-9

Eastern industries could see recovery, region still lagging

14:00

USD

House Price Index (MoM) (JUL)

0.6%

0.7%

House prices may slowly rise

22:45

NZD

Trade Balance (NZD) (AUG)

-630M

15M

Trade balance expected to fall into deficit; export data critical as a measure of Chinese economy, future growth path

22:45

NZD

Exports (NZD) (AUG)

3.55B

4.00B

22:45

NZD

Balance (YTD) (NZD) (AUG)

-760M

-853M

22:45

NZD

Imports (NZD) (AUG)

4.10B

3.99B

-:-

GBP

Nationwide House Prices s.a. (MoM) (AUG)

0.0%

1.3%

National housing prices still falling; additional BoE easing may be unlikely as inflation still elevated

-:-

GBP

Nationwide House Prices n.s.a. (YoY) (AUG)

-0.6%

-0.7%

GMT

Currency

Upcoming Events & Speeches

13:00

EUR

ECB President Mario Draghi Speaks on Euro Economy

16:00

USD

Fed's Plosser Speaks on Economic Outlook in Philadelphia

18:15

CAD

BoC’s Tim Lan Speaks on Canadian Economy

22:00

CHF

SNB Chairman Jordan Speaks on Swiss Economy

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visitTechnical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit ourPivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USDMXN

USDTRY

USDZAR

USDHKD

USDSGD

Currency

USDSEK

USDDKK

USDNOK

Resist 2

15.5900

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

15.0000

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

12.8954

1.7979

8.2370

7.7529

1.2265

Spot

6.5651

5.7600

5.7403

Support 1

12.5000

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 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

1.3069

1.6341

78.43

0.9435

0.9852

1.0548

0.8320

101.90

127.54

Resist. 2

1.3038

1.6314

78.28

0.9413

0.9835

1.0522

0.8298

101.62

127.24

Resist. 1

1.3007

1.6286

78.14

0.9391

0.9818

1.0495

0.8277

101.34

126.95

Spot

1.2946

1.6231

77.85

0.9347

0.9783

1.0443

0.8234

100.78

126.36

Support 1

1.2885

1.6176

77.56

0.9303

0.9748

1.0391

0.8191

100.22

125.77

Support 2

1.2854

1.6148

77.42

0.9281

0.9731

1.0364

0.8170

99.94

125.47

Support 3

1.2823

1.6121

77.27

0.9259

0.9714

1.0338

0.8148

99.66

125.18

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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