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Forex: Dollar Climbs 5 Straight Days Yet Lacking Drive

Forex: Dollar Climbs 5 Straight Days Yet Lacking Drive

John Kicklighter, Chief Strategist

Talking Points:

  • Dollar Climbs 5 Straight Days Yet Lacking Drive
  • Euro Suffers Biggest Drop Since June 2012
  • Japanese Yen Crosses Slip as BoJ Avoid the ‘S’ Word

Dollar Climbs 5 Straight Days Yet Lacking Drive

Look to where the money is. This past session, the FX market’s most liquid currency pair – EURUSD – posted a massive 1.1 percent. That is this pair’s biggest dollar-favorable move in over a year, yet it does not necessarily reflect a particularly robust dollar. Monitoring the other ‘majors’, we found the benchmark’s performance was far less consistent. Doubt following the FOMC rate decision Wednesday has yet to pervade speculators’ optimism that the dreaded Taper will come any sooner than the March 2014 policy meeting. And yet, the probabilities of a December or January reduction in the QE3 program were materially improved by the central bank’s decision not to heighten its dovish rhetoric. The USDollar is up five straight days (matching the longest run since May 2012. If the precarious S&P 500 leads a risk aversion move, the dollar’s drive will find reinforcement. Otherwise, we will look ahead to next week’s 3Q GDP and October NFPs to gauge Taper.

Euro Suffers Biggest Drop Since June 2012

The Euro was the biggest mover of the majors by a wide margin this past session. Across the majors, the shared currency suffered losses between 0.3 percent (EURCHF) and 1.6 percent (EURCAD). Of course, the most media-coverage was given to the EURUSD’s biggest drop in 16 months and EURJPY’s reversal from multi-year highs. These two pairs tap into a deeper fundamental appeal for the FX markets – risk appetite. Yet, the euro’s universal itself is quite exceptional. Not only does it alter a consistent bull trend that has developed over the past few months, its impetus suggests that we would be in for a bigger capital shift away from the region. From the docket, we would see September unemployment for the broader Eurozone hit a fresh record high of 12.2 percent while the October CPI reading sank to 0.7 percent – a four year low. Persistent economic pain and price pressures turning to disinflation raise the probability that policy officials will respond with more stimulus. That is auspicious timing as we have the ECB’s next policy meeting next week

Japanese Yen Crosses Slip as BoJ Avoid the ‘S’ Word

Following the Federal Reserve’s decision to use a softer tone on monetary policy – and thereby reinforce global risk appetite – there was some expectation that the Bank of Japan (BoJ) would do something to offset the neutral shift. It is in the Japanese policy authority’s interest for speculative appetites to build…more so than many other countries. In Japan’s efforts to build an economic recovery while simultaneously correcting structural problems with items like debt, an assessment of success would theoretically lift the yen as capital flowed in and the central bank eventually abandoned a zero interest rate policy (ZIRP). Japan does not want the currency ‘benefit’ in its plans without first experiencing some of the growth benefits as trade would suffer. Feeding carry is an important component of their path, yet they have little control over that global drive. Introducing a second wave of stimulus is one of few options. Yet, the BoJ showed little ambition for this.

Australian Dollar Little Moved China Data, RBA Next Week

This morning’s data has offered distinct support for the Aussie dollar’s fundamental backdrop. However, if risk trends don’t hold up their end of the bargain, the interest in forecasts for tepid rate hikes will garner little market appetite. Looking at the data, both the AiG manufacturing survey and Rismark home price indicator for October offer room for optimism. The factory activity report extended its surge to its highest reading (53.2) since July 2010 – in part a sign of success for easy monetary policy. China – Australia’s largest trade partner – would also report its own manufacturing progress report. A 19-month high bolsters fears of a fading export industry, but confidence in this trend is still shaky. A balance of growth and inflation are important moving forward if the Aussie dollar is to regain some of its sheen as a growing carry candidate – especially as speculative appetites dry up. The RBA decision is due next week, and swaps show no chance of a 25bp hike within the coming year.

Canadian Dollar Rallies after Strong August GDP Reading

It isn’t the norm that a Canadian data release can generate significant volatility from the FX market. This is certainly true of the monthly GDP figures that the country releases. Yet, the August growth numbers printed Thursday leveraged more than its fair share of loonie gains. The 0.3 percent pickup for the second month of the 3Q was a significant moderation of the previous month’s near-three year high figure. However, averaged out, the quarterly figure is on a strong pace. This strength will likely increase the market’s sensitivity to Canadian data through the coming week – a good time for it. On the docket we have the Ivey business survey, housing starts and employment figures.

Swiss Franc: SNB Tallies Losses on Gold Holdings

Given the correlation between the Swiss franc and the Euro (the 20-day rolling link between EURUSD and USDCHF is -0.92), it comes as little surprise that the former was significantly lower through the past session. The fundamental link is one of economic connection – if the country’s largest trade partner is seeing economic or financial uncertainty, Switzerland itself will receive the same international treatment. Looking beyond the external influences, there were local news headlines. The Swiss National Bank reported its 3Q figures. According to their figures, the central bank suffered a 6.4 billion franc loss so far in the year on its holdings. Its FX holdings lost 1.76 billion francs through the three-month period through September but were still 4.0 billion francs up on the year. Meanwhile, their gold holdings are still floating the group a loss of 10.7 billion on the year. As long as the SNB maintains a hold-to-recovery policy, much of these losses will be overlooked.

Gold’s Third Daily Drop, Biggest in 4 Weeks

The tentative, bearish turn for gold was punched with a significant exclamation mark Thursday. The precious metal dropped 1.6 percent through the session for the biggest one-day loss in four weeks and a move that suggests the bulls have been quieted. Looking to the traditional, fundamental counterpart for the commodity; the dollar’s gains were certainly a factor to the move. However, the greenback’s ‘Taper hopes’ gains were relatively restrained. Furthermore, the European data suggested the world’s second largest reserve currency could be looking at another large-scale asset purchase program (LSAP). When we look at the metal in euro terms, the session was still a bearish one, though the progress was far more reserved. Even the Bank of Japan’s policy bearings should have some latent sway over gold. Though the central bank didn’t mention its appetite for a second round of support to preempt the negative implications of the upcoming tax hike, investors no doubt expect the move at this point. Notably, neither volume on gold ETFs nor futures was particularly hearty.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

JPY

JPY Official Reserve Assets

$1273.5B

00:30

AUD

AUD Producer Price Index (QoQ)

0.10%

The YoY print has not been above 2% since the end of 2011.

00:30

AUD

AUD Producer Price Index (YoY)

1.20%

01:00

CNY

CNY Manufacturing PMI

51.20

51.10

PMI has picked back up since summer lows, but still barely hanging above 50 since mid-2012.

01:45

CNY

CNY HSBC/Markit Manufacturing PMI

50.70

50.20

05:00

JPY

JPY Vehicle Sales (YoY)

12.40%

Last month was the best pring since the summer of 2012.

05:30

AUD

AUD Commodity Index

90.20

The RBA commodity index has been negative since January of 2012.

05:30

AUD

AUD RBA Commodity Index SDR (YoY)

-3.10%

08:30

CHF

CHF SVME-Purchasing Managers Index

55.30

55.30

09:30

GBP

GBP Purchasing Manager Index Manufacturing

56.40

56.70

12:58

USD

USD Markit US PMI Final

Total vehicle sales have slowly come back to pre-crisis levels, but have come off summer highs.

14:00

USD

USD ISM Manufacturing

55.10

56.20

14:00

USD

USD ISM Prices Paid

55.10

56.50

21:00

USD

USD Total Vehicle Sales

15.40M

15.21M

21:00

USD

USD Domestic Vehicle Sales

11.73M

11.66M

GMT

Currency

Upcoming Events & Speeches

13:10

USD

USD Fed's Bullard Speaks on Monetary Policy in St. Louis

15:15

USD

USD Fed's Kocherlakota Speaks on Health in Minnesota

16:00

USD

USD Fed's Lacker Speaks to Global Group in Philadelphia

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 GMT

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

13.4800

2.0500

10.7250

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.2400

2.0100

10.5000

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.9582

1.9970

9.9419

7.7531

1.2385

Spot

6.4016

5.4372

5.9072

Support 1

12.6000

1.9140

9.3700

7.7490

1.2000

Support 1

6.0800

5.3350

5.7450

Support 2

12.4200

1.9000

8.9500

7.7450

1.1800

Support 2

5.8085

5.2715

5.5655

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.3817

1.6138

99.41

0.9087

1.0543

0.9587

0.8346

136.42

1367.50

Res 2

1.3792

1.6109

99.18

0.9068

1.0527

0.9565

0.8323

136.09

1360.21

Res 1

1.3767

1.6081

98.95

0.9048

1.0511

0.9543

0.8301

135.76

1352.92

Spot

1.3717

1.6023

98.49

0.9010

1.0479

0.9499

0.8256

135.10

1338.34

Supp 1

1.3667

1.5965

98.03

0.8972

1.0447

0.9455

0.8211

134.44

1323.76

Supp 2

1.3642

1.5937

97.80

0.8952

1.0431

0.9433

0.8189

134.11

1360.21

Supp 3

1.3617

1.5908

97.57

0.8933

1.0415

0.9411

0.8166

133.78

1367.50

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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