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Dollar Activity Levels Suggest Serious Break, Trend Ahead

Dollar Activity Levels Suggest Serious Break, Trend Ahead

2012-10-16 03:25:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Activity Levels Suggest Serious Break, Trend Ahead
  • Euro Unable to Overtake 1.3000 or EURJPY 102.50 on Talk Alone
  • British Pound: Will Inflation Figures Tip the Scales, Force Volatility?
  • New Zealand Dollar Eyes 0.8100 after Weak 3Q CPI Print
  • Australian Dollar Chinese Data Versus RBA Rate Forecasts for 1.0300
  • Canadian Dollar Slides as Business Outlook Flatlines, Debt Increases
  • Gold Tumbles Below 1750 on Biggest Daily Drop in Three Months

New to FX? Watch thisVideo; For live market updates, visitDailyFX’s Real Time News Feed

Dollar Activity Levels Suggest Serious Break, Trend Ahead

As EURUSD holds stubbornly below 1.3000 and USDJPY is threatening to reverse its gradual bear trend with a close above 78.50, we find that the dollar itself is tantalizingly close to posting a meaningful recovery into a strong bull phase. We can flesh out this potential on the fundamental side when we view the S&P 500’s dance with 1425 as a critical pivot point over the past months. Yet, we can see it in the reserve currency’s own technical performance with the Dow Jones FXCM Dollar Index (ticker = USDollar) posturing just below the upper bounds of its descending trend channel from its June 1 reversal (and the 50-day moving average). Yet, my real interest on the technical side is in the general activity level of the benchmark. The 14-day ATR (a gauge of activity) is the lowest it has been since September 6 (a lull that preceded an aggressive move lower). A reversion to a mean in terms of volatility doesn’t imply direction. Yet, given the proximity of risk measures like US equities to major reversals, the balance of possibilities is clear. Earnings figures still have the best potential for tapping risk today. Goldman Sachs and Intel are up.

Euro Unable to Overtake 1.3000 or EURJPY 102.50 on Talk Alone

The 1.3000 figure looms over the EURUSD, tempting the pair to make a move higher. This is perhaps best achieved should there be a follow up risk-positive move through the coming session; but we are unlikely to pull of such a climb on the euro’s performance alone – at least not until the end of the week. Through the opening session, the euro was barely stirred by a rumor from FT that an Economy Ministry official suggested Spain was ready to ask for a bailout and news that Greece’s 10-year yield closed at its lowest level since August 2011. We need to see serious progress. The EU Summit on Thursday/Friday may provide. Meanwhile, today, we have a Spanish, Greek and EFSF bond auction.

British Pound: Will Inflation Figures Tip the Scales, Force Volatility?

This past week, the sterling gained against all its major counterparts with the exception of the Australian dollar (and that was due to the GBPAUD starting off last week so high). Yet, for GBPUSD, we have seen a definitive shift in performance. Initially there was the rally from mid-July. This trend leveled out around mid-September; and since then, we have slowly retreated. The measures of an overbought currency pair and the need for a breakout are overwhelming. The consecutive week rallies through the end of September, COT figures and SSI measures are joined by the weekly ATR reading which is at its lowest level in years. CPI data is due, but jobs data carries more weight.

New Zealand Dollar Eyes 0.8100 after Weak 3Q CPI Print

The New Zealand dollar performed quite well through Wednesday’s session, taking advantage of the risk environment and its lingering return premium to its Aussie counterpart (the NZ 10-year government bond rate is 42 bps above the Aussie benchmark). However, that strength has immediately fallen away through the early hours of today’s session, and the selling pressure is proving far more aggressive than the initial opening bounce. The selloff early morning Tuesday stands out especially given the slow pace of activity for the rest of the markets. Such a move takes a catalyst. That spark this morning was the 3Q CPI reading which printed a 0.8 percent annual pace. This was the lowest reading since 4Q 1999. Given new RBNZ governor Wheeler’s vow to keep rates between 1 and 3 percent, we may see rate cut expectations creep in.

Australian Dollar Chinese Data Versus RBA Rate Forecasts for 1.0300

Through a two-part swing in risk trends, the Aussie dollar ended Monday higher against its counterparts. Investor sentiment naturally helped the carry currency plagued with an uncertain future. With US equity indexes posting the biggest advance in two weeks, there was a considerable compensation for other shortfalls. The most prominent struggle for the currency is its rate outlook. Overnight swap markets are pricing in an 85 percent probability of a 25bp rate cut at the RBA’s next meeting early next month. The same product is also pricing in a cumulative 95 bps of easing over the next 12 months. That is puts a currency that is renowned for its carry in a difficult position. If rates bottom out at 2.25 percent (100 bps of easing from the current yield), it would still confer a considerable carry over funding currencies – but not enough to offset the risks involved. Meanwhile, the Chinese trade data printed a far better surplus than expected while tempered inflation suggests the PBoC may act.

Canadian Dollar Slides as Business Outlook Flatlines, Debt Increases

When we look at USDCAD, it is difficult to discern fundamental developments from the greenback. It is exponentially more difficult to draw conclusions about the impact of Canadian data. However, we did have meaningful event risk on the country’s docket and the currency posted losses against all of its counterparts with the exception of the Japanese yen. The weight comes largely from the economic releases for the day. It is unbecoming of a safe haven currency (a role the loonie is trying to play by avoiding recession and financial crisis while maintaining a competitive yield) when third quarter business forecast and lending figures disappointing reads. The forecast for business sales flat-lined with a net 0.0-reading – the second lowest since 2Q 2009 – versus expectations of a 13.25-print. Furthermore, the BoC reported that in the third quarter, the household debt-to-income ratio jumped to 165.8 percent. Coming up, we have the capital flow report for August.

Gold Tumbles Below 1750 on Biggest Daily Drop in Three Months

If we were going by the numbers alone, it would seem reasonable to call a bearish reversal on gold. The precious metal has closed in the red six of the past seven trading days. The most recent tumble was the sharpest (0.96 percent) since July 10 and handily drove gold to its first daily close below 1750 since September 12. In a quick technical summary: we drove a bullish wave that began with the break out back on August 21; the market leveled off its last thrust on the 14th of last month and we are now in the early phase of a turn. This reads like a straightforward reversal, but follow through doesn’t happen just on breakouts alone. We need fundamental conviction to feed a selloff for this commodity especially after COT figures showed speculative interests rose for 8 consecutive weeks and with ETF holdings just testing a record high. Standard risk trends don’t really translate with this commodity. The dollar’s strength or weakness will feed the next move for this anti-fiat and anti-inflation asset.

**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

8:30

GBP

ONS UK House Prices (YoY) (AUG)

1.9%

2.0%

Tracking growth of other surveys

8:30

GBP

PPI Output n.s.a. (YoY) (SEP)

2.2%

2.2%

Producer prices growing moderately, with no changes to monetary policies expected

8:30

GBP

PPI Output Core n.s.a. (YoY) (SEP)

1.0%

1.2%

8:30

GBP

PPI Input n.s.a. (YoY) (SEP)

-0.6%

1.4%

8:30

GBP

CPI (MoM) (SEP)

0.4%

0.5%

CPI nearing BoE’s target 2% as slower growth could result in deflation-fighting policies

8:30

GBP

Core CPI (YoY) (SEP)

2.1%

2.1%

8:30

GBP

CPI (YoY) (SEP)

2.2%

2.5%

8:30

GBP

Retail Price Index (MoM) (SEP)

2.6%

2.9%

Decline in retail prices indicates slowdown in overall economy as country faces another stall

8:30

GBP

Retail Price Index (YoY) (SEP)

0.5%

0.4%

9:00

EUR

Euro-Zone CPI - Core (YoY) (SEP)

1.6%

1.5%

Zone-wide inflation seen controlled

9:00

EUR

Euro-Zone CPI (YoY) (SEP)

2.7%

2.7%

9:00

EUR

Euro-Zone Trade Balance (euros) (AUG)

10.0B

15.6B

Balance may recover as imports weaken due to uncertainty

9:00

EUR

Euro-Zone Trade Balance s.a. (euros) (AUG)

8.2B

7.9B

9:00

EUR

Euro-Zone ZEW Survey (Eco Sentiment) (OCT)

-

-3.8

German ZEW survey could recover following strong indications by governments and ECB

9:00

EUR

German ZEW Survey (Eco Sentiment) (OCT)

-14.9

-18.2

9:00

EUR

German ZEW Survey (Current Situation) (OCT)

11.8

12.6

12:30

CAD

Manufacturing Shipments (MoM) (AUG)

0.5%

-1.5%

Demand for Canadian goods weakening as economies weaken

12:30

CAD

International Securities Transactions (AUG)

8.50B

6.67B

Interest continues to grow

12:30

USD

CPI (MoM) (SEP)

0.5%

0.6%

US inflation seen stable, though any large shock may prompt Fed to consider tightening

12:30

USD

CPI (YoY) (SEP)

1.9%

1.7%

12:30

USD

CPI Ex Food & Energy (MoM) (SEP)

0.2%

0.1%

12:30

USD

CPI Ex Food & Energy (YoY) (SEP)

2.0%

1.9%

13:00

USD

Total Net TIC Flows (AUG)

-

$73.7B

Treasury purchases still strong

13:00

USD

Net Long-term TIC Flows(AUG)

-

$67.0B

13:15

USD

Industrial Production (SEP)

0.2%

-1.2%

US industries seen to weaken again, though coming months will show effects of new easing

14:00

USD

NAHB Housing Market Index (OCT)

41

40

Expected to be helped by MBS purchases

23:30

AUD

Westpac Leading Index (MoM) (AUG)

-

0.4%

Leading index growing slower

GMT

Currency

Upcoming Events & Speeches

-:-

USD

Earnings 3Q (Goldman Sachs, Intel, State Street)

0:30

AUD

Reserve Bank Board - October Minutes

0:30

USD

Fed's Williams Speaks on the Economy in San Francisco

08:30

EUR

Spain to Sell 12 and 18-Month Bills

09:00

EUR

Greece to Sell 3-Month Bills (€1.25 Bln)

10:00

EUR

EFSF to Sell 6-Month Bills (€2 Blns)

13:00

EUR

Bank of Italy Releases the Quarterly Economic Bulletin

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

9.1900

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

12.8111

1.8115

8.8150

7.7511

1.2214

Spot

6.6515

5.7537

5.6989

Support 1

12.5000

1.6500

8.5650

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.5575

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

1.3079

1.6170

79.38

0.9405

0.9884

1.0358

0.8243

103.28

127.77

Resist. 2

1.3050

1.6145

79.24

0.9385

0.9867

1.0334

0.8223

103.00

127.49

Resist. 1

1.3021

1.6120

79.09

0.9365

0.9850

1.0310

0.8203

102.73

127.21

Spot

1.2964

1.6070

78.81

0.9325

0.9816

1.0262

0.8163

102.18

126.65

Support 1

1.2907

1.6020

78.53

0.9285

0.9782

1.0214

0.8123

101.63

126.09

Support 2

1.2878

1.5995

78.38

0.9265

0.9765

1.0190

0.8103

101.36

125.81

Support 3

1.2849

1.5970

78.24

0.9245

0.9748

1.0166

0.8083

101.08

125.53

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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