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Forex News: Dollar Range to Break but with a EURUSD Plunge or Rally?

Forex News: Dollar Range to Break but with a EURUSD Plunge or Rally?

2012-10-31 04:35:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Range to Break but with a EURUSD Plunge or Rally?
  • Euro Spared Pain of Deepening Spain, Greece Trouble by Absent Risk
  • Japanese Yen Rallies after BoJ Stimulus - Why it Won’t Last
  • Canadian Dollar: Will GDP Push USDCAD Above Parity or Will Jobs Do It?
  • British Pound: Speculation Focuses on Whether BoE to Play Catch Up
  • US Oil Unnaturally Quiet Through Record Breaking Hurricane
  • Gold: Is Congestion Indicative of Bullish Reversal?

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

Dollar Range to Break but with a EURUSD Plunge or Rally?

Volatility and trend were under lockdown for the forex market through the open 48 hours of trading. In fact, fear of sudden and aggressive moves from the currency market is so low that the FX Volatility Index is currently reading its lowest level in over five years (at 7.65 percent). For the US dollar – the preferred shelter from financial storms – stability is a bearish catalyst. However, looking at the Dow Jones FXCM Dollar Index (ticker = USDollar), we can see that the greenback has certainly transitioned into congestion; but it has yet to take a serious bearish move. Seasoned fundamental traders should recognize that both the lull in activity and the congestion for the dollar are temporary. The eerie calm reflects hesitation seen in underlying investor sentiment from last week, but the situation has been exacerbated by the absence of US speculators.

Heading into Wednesday, the US equities and bond markets are expected to come back online. With the New York financial center knocked offline two days by Hurricane Sandy, the transmission of global risk trends has been notably disrupted. It should also be said that many of the more influential and longer-lasting risk runs develop during the New York trading session. Considering that Asian and European market volume and volatility readings have also atrophied during this period, the potential for a sudden rebound in speculative activity is high. The more pressing question is what direction a rebound in volatility will encourage – if it encourages a distinct bearing at all.

In the downtime to Wednesday’s main event, fundamental developments have done little to change the generally unflattering outlook for the global economy and financial markets. Persistent Euro-area financial problems carry possible infection risk for the global system and the Spanish growth reading is a disturbing read on the rest of the region. State-side, September’s personal spending figures draw questionable comparison to job and wage figures. A blind, influx of speculative liquidity can fall either way (end of month window dressing may add to the repositioning of those that went flat before the hurricane); but there is little to keep a bullish market going for long. Alternatively, should the first move be one of risk aversion (bidding the dollar as a safe haven), there would be plenty of fuel to feed the fire.

Euro Spared Pain of Deepening Spain, Greece Trouble by Absent Risk

The euro dodged another fundamental bullet this past session. As the headlines continue to show a long-term Eurozone descent into a deeper financial crisis, the currency manages to hold back the tide by playing to traders’ appetite for short-term fixes. Nothing on the newswires was supportive of the region’s overall picture. From the docket, the first increase in the Germany jobless rate in three years was overshadowed by Spain’s 3Q GDP reading. The 1.6 percent contraction on a year-over-year basis was the steepest since the final quarter of 2009, while the 0.3 percent performance just on the three-month period represented a fourth consecutive contraction. That adds a little more tangibility to otherwise ethereal promises. Meanwhile, Greece’s coalition reportedly has enough support to push through the 2013 budget. The austerity package will require more discussion, and Samaras has said he is looking for more than just the release of the next aid tranche – implicit acknowledgment that the situation requires more than just the ‘next step’. The upcoming session is loaded for further event risk. Spain’s deadline for its bad bank requirements and a supposed bond redemption will join trade and housing data. Greece is expecting another call with the Troika and retail sales.

Japanese Yen Rallies after BoJ Stimulus - Why it Won’t Last

If we have learned anything from the Fed’s aggressive stimulus efforts it is that blowing up the money supply has a depressing effect on a currency. We do see eventual deviations from that rule of thumb over time, especially when the currency in question is a safe haven – like the yen. However, risk trends are on hiatus; so where did the yen’s rally that followed news that the BoJ had increased its asset purchase program by 11 trillion yen to a total 91 trillion yen come from? Consider that the most recent increases saw absolutely no market movement. Furthermore, heading into this meeting, the government’s calls were leaning towards a 20 trillion move. A temporary rally, but not one that lasts.

Canadian Dollar: Will GDP Push USDCAD Above Parity or Will Jobs Do It?

The Canadian dollar has been adrift without a solid risk trend bearing. That passive evolution will be stirred with any increase in speculative conditions in the upcoming session, but the dual-purpose (safe haven and investment) currency doesn’t have a clear bead on sentiment even if it does take. To help with that indecision, we have the Canadian GDP figures for August. This is a monthly figure – not quarterly. Its influence, historically, is not particular persuasive; but if the market needs a reason, it can find it here. Otherwise we wait until Friday’s job numbers.

British Pound: Speculation Focuses on Whether BoE to Play Catch Up

We won’t see the Bank of England ruling on monetary policy until next Thursday, but sterling traders are already trying to draw a bearing on the event. While the MPC started the run with a Funds for Lending program, the market impact was always going to be minimal and economic influence dubious. Following on the heels of the BoJ’s stimulus increase, the Fed’s QE3 and ECB’s OMT program; the BoE is not only behind the curve but it is also at risk of seeing itself priced out in a currency war. Will they respond with stimulus? The market thinks so.

US Oil Unnaturally Quiet Through Record Breaking Hurricane

Over the past week, US oil has traded generally within a 1.50-point range. And, before we attribute this to a sidelined US market; it should also be said that Brent has kept a range of 2.50 points. This is exceptionally quiet for a commodity that should see direct supply-demand implications from the largest storm in the recent history. This tells us two things: supply is more than ample and oil traders are looking for distinct risk trends.

Gold: Is Congestion Indicative of Bullish Reversal?

For the past three weeks, gold has carved out a bear trend that has put progress behind the notable reversal from 1800. Yet, with the dollar sidelined by incoherent speculative trends; the metal finds itself similarly on ice awaiting a clear bearing. Speculative interests seem to be on the rise with ETF holdings at a fresh record, but the drop in futures volume and lack of committed ‘investors’ should leave us dubious of direction.

**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

EUR

Spain Current Account (AUG)

0.5B

Trade may drive improvement

EUR

Greece Retail Sales (AUG)

-0.1%

Consumer spending drop stable

0:01

GBP

GfK Consumer Confidence Survey (OCT)

-28

-28

October confidence not reflecting higher GDP consumption numbers

0:30

AUD

Private Sector Credit (YoY) (SEP)

3.9%

4.1%

Private credit starting to decline, though YoY change still above average

0:30

AUD

Private Sector Credit (MoM) (SEP)

0.2%

0.2%

1:30

JPY

Labor Cash Earnings (YoY) (SEP)

-0.4%

0.2%

Labor market moderately weaker

2:00

NZD

Money Supply M3 (YoY) (SEP)

7.2%

Large rise may precede inflationary pressures

5:00

JPY

Construction Orders (YoY) (SEP)

8.7%

Japanese housing starts expected to rebound, though effect on overall economy ambiguous

5:00

JPY

Housing Starts (YoY) (SEP)

17.0%

-5.5%

5:00

JPY

Annualized Housing Starts (SEP)

0.870M

0.888M

7:00

EUR

German Retail Sales (MoM) (OCT)

0.3%

0.1%

Continued fall may show weak spending by German consumers

7:00

EUR

German Retail Sales (YoY) (OCT)

-1.1%

-0.8%

8:00

EUR

Spain Housing Permits (AUG)

10.6%

Housing demand still growing

10:00

EUR

Euro-Zone CPI Estimate (YoY) (OCT)

2.5%

2.7%

EU inflation relatively tamed

10:00

EUR

Euro-Zone Unemployment Rate (SEP)

11.4%

11.4%

Unemployment rate led by weak peripherals

11:00

USD

MBA Mortgage Applications (OCT 26)

-12.0%

Weekly decline looking for reversal as fed supports market

12:30

CAD

Gross Domestic Product (MoM) (AUG)

0.2%

0.2%

August GDP may rise, mirroring improvement in US 3QA GDP; exports may decline due to strong CAD

12:30

CAD

Gross Domestic Product (YoY) (AUG)

1.7%

1.9%

12:30

USD

Employment Cost Index (3Q)

0.5%

0.5%

Low costs could indicate more hiring in seasonal transition

13:00

USD

NAPM-Milwaukee (OCT)

47.2

Midwestern industries still seen weaker

13:45

USD

Chicago Purchasing Manager (OCT)

51.4

49.7

Could rise on services sector

14:30

USD

DOE U.S. Crude Oil Inventories (OCT 26)

5896K

Weekly crude data may show reduced inventories as oil hits quarterly low; Hurricane Sandy may not have hoarding effect

14:30

USD

DOE U.S. Distillate Inventory (OCT 26)

-646K

14:30

USD

DOE Cushing OK Crude Inventory (OCT 26)

40K

14:30

USD

DOE U.S. Gasoline Inventories (OCT 26)

1439K

21:30

AUD

AiG Performance of Manufacturing Index (OCT)

44.1

Australian manufacturing still weaker

GMT

Currency

Upcoming Events & Speeches

EUR

Greece-Troika Teleconference Meeting

EUR

Greek Parliament Expected to Rule on 2013 Budget

EUR

Spain Bond Redemption EUR 14.97B

EUR

Spain Deadline for Bad Bank

EUR

Bank of Portugal Publishes Bank Survey on Credit Market

13:00

USD

Fed's Raskin Gives Welcoming Remarks in Ellicott City

SUPPORT AND RESISTANCE LEVELS

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

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

CLASSIC SUPPORT AND RESISTANCE EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

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

13.0563

1.7965

8.6421

7.7500

1.2196

Spot

6.6379

5.7535

5.7311

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

1.3075

1.6186

80.12

0.9393

1.0065

1.0477

0.8301

104.22

129.05

Resist. 2

1.3048

1.6160

79.97

0.9374

1.0047

1.0454

0.8282

103.95

128.77

Resist. 1

1.3020

1.6134

79.83

0.9355

1.0029

1.0431

0.8262

103.67

128.48

Spot

1.2965

1.6082

79.53

0.9317

0.9993

1.0386

0.8224

103.12

127.90

Support 1

1.2910

1.6030

79.23

0.9279

0.9957

1.0341

0.8186

102.57

127.32

Support 2

1.2882

1.6004

79.09

0.9260

0.9939

1.0318

0.8166

102.29

127.04

Support 3

1.2855

1.5978

78.94

0.9241

0.9921

1.0295

0.8147

102.02

126.75

v

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

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

Sign up for John’s email distribution list, here.

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