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Forex Analysis: Dollar Offers a Reluctant Rally from 1.3000, GDP Ahead

Forex Analysis: Dollar Offers a Reluctant Rally from 1.3000, GDP Ahead

2012-10-26 04:34:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Offers a Reluctant Rally from 1.3000 with GDP Ahead
  • Euro Troubles Stirring after News that Greece Needs €30 Bln More
  • British Pound Rallies on Questionable GDP Figures, Overdone?
  • New Zealand Dollar: The Volatility Continues Well after Official RBNZ Call
  • Japanese Yen: Does a New Stimulus Package Mean a USDJPY Rally or Tumble?
  • Oil Advances for the First time in Five Days, Hurricane Sandy a Supply Risk?
  • Gold Climbs after Greece Warnings, Japan Stimulus, US Downgrade Rumor

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

Dollar Offers a Reluctant Rally from 1.3000 with GDP Ahead

The dollar managed to squeeze out modest gains through the past session with the assistance of a significant round of data and media-friendly headlines. Yet, the measured pace behind the greenback reflects the same reticence that has inflicted the rest of the financial markets. For the Dow Jones FXCM Dollar Index (ticker = USDollar) , a rebound from 9,900 Thursday offered a tacit confirmation that the market is leaning towards risk aversion; but active deleveraging and a flight for capital to safety requires a clear fundamental drive and the withdrawal of temporary support mechanisms (like the hope for stimulus). US equity benchmarks provide the same assessment. While the S&P 500 managed to turn its steady advance from the beginning of June with the drop below 1,425, follow through has yet to develop and volume (another measure of conviction) has yet to throw its weight.

Most of the elements are there for a serious wave of risk aversion – anemic growth, historically low yields, financial troubles the world over – but there are a few reservations that have managed to render investors immobile. We have squashed the hope for more stimulus from the Fed after the central bank announced Wednesday that its QE3 purchases would be kept as is. This past session, another benchmark that investors could have held out for offered up a signal for risk aversion: Apple’s earnings. One of the largest corporations by market capitalization (and a hedge fund favorite), a weakening performance can effectively curb expectations for ‘hold out’ channels for outperforming capital market players and effectively send funds to safe havens. Now, we have one more serious, near-term roadblock to clear: US GDP.

The growth reading on the world’s largest economy can feed hope for a ‘soft landing’ that investors can continue to seek out low returns and it can also leverage fear by emphasizing what the global slowdown. The consensus heading into the data projects a 1.8 percent annualized pace of growth through the third quarter – a pickup from the previous period’s 1.3 percent gait. Given the trend in person spending, trade and service sector activity figures through the same period; the forecast seems reasonable. However, there will be a bias in the reaction to this data. An upside ‘surprise’ will conflict with a global trend of slowing data. Alternatively, a disappointment will lift the temporary stay on deleveraging.

Euro Troubles Stirring after News that Greece Needs €30 Bln More

The fundamental wires offered up some troubling news for the Euro this past session. The consensus amongst officials and speculators this week has oscillated between optimism of provisional fixes for some of the region’s most pressing problems and fear that one of the necessary short-term fixes (that the market has come to depend on) can fail. Quickly returning to the top spot of the Eurozone’s crisis watch (Spain has some time with yields off its highs), Greece’s health seemed to take a turn for the worst. The WSJ reported that officials said the country requires an additional €30 billion to fill its funding gap through 2016. Negotiations to release the next tranche of aid in the already agreed-upon program have proven difficult enough. Needs above and beyond the second bailout effort speak to greater risk and a longer battle for recovery.

British Pound Rallies on Questionable GDP Figures, Overdone?

Like most other currencies and assets, the pound is anchored to risk trends. However, while this veil of fundamental confinement readily curbs trends, it doesn’t fully prevent volatility. The much better-than-expected 3Q UK GDP figure from this past session was occasion enough to boost GBPUSD above 1.6100 and forge a potentially-critical GBPJPY trend reversal with a move above 128.50. That said, a closer inspection of this 1.0 percent jump through the third quarter (the biggest in five years) suggests that there was considerable influence from the London Olympics – a temporary factor. Given timely data has not supported the same optimism, so follow through is dubious. And so, the pound turns back to risk.

New Zealand Dollar: The Volatility Continues Well after Official RBNZ Call

Early Thursday morning, the RBNZ delivered a statement with its decision to hold its monetary policy unchanged that supported the modest hawkish bias that set the currency apart from other carry and funding currencies. Specifically, confidence in a rebound from inflation and endurance through global growth concerns spelled out enough optimism to send the kiwi rallying. Yet, that run was brought to an abrupt halt early this morning when Governor Wheeler said they had the ability to cut rates anytime and intervention was an option.

Japanese Yen: Does a New Stimulus Package Mean a USDJPY Rally or Tumble?

This morning, officials reported that the Japanese cabinet had approved a 422.6 trillion yen ($5.3 billion) stimulus package to help encourage growth in the world’s third largest economy. Should we read this a move to promote stability and thereby strengthen the yen or a liquidity injection that devalues the currency? The size of the program itself is modest given the country’s financial situation. Uncertainty is clearly building when we look at the cost of borrowing for Japan over the longer-term. The relative cost is the highest since 1999.

Oil Advances for the First time in Five Days, Hurricane Sandy a Supply Risk?

An aggressive bear wave from US oil has leveled out this past session just above 85. A stalled risk aversion trend from the capital markets has found further support from the approach of Hurricane Sandy which threatens the entire Eastern seaboard. Yet, this storm has a consider ways to go in order to offset the buildup in supply. The DoE crude inventory figures for the last week reported this past session surged by 5.896 million barrels. Further, total production is at a 16-year high. On the demand side, US GDP will set the tone for $100/barrel-oil.

Gold Climbs after Greece Warnings, Japan Stimulus, US Downgrade Rumor

Both the dollar and gold closed higher Thursday. That doesn’t happen very often as they typically represent alternatives for the market’s ideal store of wealth. Yet, the metal managed to offset the dollar’s gravity with the report of stimulus needs from Greece and approval for Japan. Further, the rumor (quickly debunked) that Fitch was close to downgrading the US top-rating lingered.

**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

1:35

CNY

MNI Business Sentiment Indicator (OCT)

-

-

6:00

EUR

German Import Price Index (YoY) (SEP)

2.9%

3.2%

German import prices may indicate demand for foreign, peripheral and Eastern European goods

6:00

EUR

German Import Price Index (MoM) (SEP)

0.3%

1.3%

6:00

EUR

German GfK Consumer Confidence Survey (NOV)

5.9

5.9

May follow IFO higher

7:00

CHF

KOF Swiss Leading Indicator (OCT)

1.67

Swiss confidence moderating

12:30

USD

GDP (Annualized) (3Q A)

1.8%

1.3%

US economy expected to pick up in advance report; may shift focus to Fed moderation concerning additional stimulus

12:30

USD

GDP Price Index (3Q A)

2.0%

1.6%

12:30

USD

Personal Consumption (3Q A)

2.0%

1.5%

12:30

USD

Core PCE (QoQ) (3Q A)

1.3%

1.7%

13:55

USD

U. of Michigan Confidence (OCT F)

83

83.1

Final revision not expected to move markets

GMT

Currency

Upcoming Events & Speeches

-:-

EUR

Greece Expected to Brief Troika on Progress

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

6.1875

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.7600

5.8175

5.7800

Spot

13.0052

1.8005

8.7325

7.7502

1.2204

Spot

6.7130

5.7662

5.7751

Support 1

12.5000

1.6500

8.5650

7.7490

1.2000

Support 1

6.0800

5.5840

5.6000

Support 2

11.5200

1.5725

6.5575

7.7450

1.1800

Support 2

5.8085

5.3350

5.3040

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

1.3049

1.6228

80.97

0.9430

1.0018

1.0451

0.8265

105.05

130.71

Resist. 2

1.3021

1.6202

80.82

0.9410

1.0001

1.0427

0.8245

104.76

130.42

Resist. 1

1.2992

1.6175

80.66

0.9391

0.9983

1.0404

0.8225

104.48

130.12

Spot

1.2936

1.6123

80.34

0.9351

0.9947

1.0358

0.8186

103.92

129.53

Support 1

1.2880

1.6071

80.02

0.9311

0.9911

1.0312

0.8147

103.36

128.94

Support 2

1.2851

1.6044

79.86

0.9292

0.9893

1.0289

0.8127

103.08

128.64

Support 3

1.2823

1.6018

79.71

0.9272

0.9876

1.0265

0.8107

102.79

128.34

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

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