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Forex: Euro Pushes EURUSD to 1.3600 as Inflation Eases ECB Speculation

Forex: Euro Pushes EURUSD to 1.3600 as Inflation Eases ECB Speculation

2013-11-28 22:24:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Dollar Volatility Falls Back to Breakout Warning Levels
  • Euro Pushes EURUSD to 1.3600 as Inflation Eases ECB Speculation
  • Yen Crosses Ready for Data Run, Stimulus Speculation

Dollar Volatility Falls Back to Breakout Warning Levels

While EURUSD and GBPUSD offered up the dollar notable losses, the benchmark currency on a market-wide basis was little changed through this past session. That is to be expected with both risk trends and Fed Taper speculation on hold during the holiday trading period. As would be expected of this lull, we have seen activity levels (measured rudimentarily via the average true range) drop to lows not seen since October16. The comparison is an appropriate one as that previous period of quiet preceded a meaningful breakout and trend development for the benchmark currency. Yet, a ‘breakout’ in these market conditions is not enough to derive a meaningful trade from – much less develop the foundation for a lasting momentum. We need fundamental backing that may not emerge until next week.

As always, the greatest potential for the dollar and markets at large is a possible change in risk trends. Looking to the S&P 500 as a barometer for investor sentiment, we see congestion that look suspiciously prone to a jump start of its own. A downdraft in risk appetite could blow a wide hole in the market – and generate a serious bid for the dollar – but that lean has continuously eluded us. Furthermore, we will enter the final trading month of the year next week, and December is historically the best month for US equity gains. Looking at the docket, there are a few bottom-tier indicators scheduled for release; but the real interest is in what we will find next week. Manufacturing, housing, services and trade figures are all important; but the stimulus wars for the global economy will ensure Friday’s employment statistics (NFPs and jobless rate) are the market’s primary focus.

Euro Pushes EURUSD to 1.3600 as Inflation Eases ECB Speculation

The euro managed to gain enough traction this past session to push EURUSD 1.3600. The performance was noteworthy in part because the fundamentals were uneven. On the docket, we were presented with a 10,000-payroll increase in German Unemployment which was worse than expected. Alternatively, Euro-area confidence indicators showed a pick up in the first readings of economic and business sentiment. The market’s real interest, however, rested in the German inflation figures. As the largest economy in the region, Germany’s health is seen as a guide for Europe. That is encouraging for rate watchers who witnessed an unexpected pick up in the November CPI figures. The 1.3 percent core reading curbed a steady deflating trend while the 1.6 percent core reading was the biggest beat in years.

This data carries particular weight because the upcoming session brings the same two data series that led the market to sell the Euro off aggressively last month: the Eurozone CPI and employment figures (10:00 GMT). This scenario is remarkably similar to what we witnessed last month…and the stakes are higher. With the ECB rate decision due next week and the market still reeling from the surprise rate cut at the last meeting, speculation is now turning to the possibility for more stimulus out of Europe which would materially undermine the currency’s recent appreciation. If the inflation report is softer than expected, it would significantly amplify expectations for another LTRO-like program to replace the stimulus effort that is currently being reduced.

Yen Crosses Ready for Data Run, Stimulus Speculation

A dense round of event risk is scheduled for the Japanese yen this morning, and the market is more than willing to pick back up an important fundamental theme for the currency: stimulus. The yen crosses are up across the board for the month (GBPJPY leading the charge with a 6.0 percent advance) due in large part to expectations that the Bank of Japan will offer a follow up stimulus program to this past April’s unprecedented injection. A situation that is remarkably similar to the epic advance in these crosses the same time a year ago in anticipation of the same fundamentals we see now, the market is absorbing all evidence of new stimulus. This morning’s unemployment rate, household spending, manufacturing activity and especially inflation data will help improve the probability scheme for this speculation. If the National CPI figure picks up materially above the 1.1 percent pace, it could feed fear that the second round of stimulus may not be needed. Alternatively, a miss only solidifies the need and pushes for a nearer time frame.

British Pound Muscles Higher after BoE Financial Stability Report

Bank of England Governor Carney delivered the policy group’s Financial Stability Report Thursday. The report noted stability risks from debt levels on the sovereign and household level, but the authority didn’t seem too concerned with an imminent threat. What many were latched on to was the Funds for Lending Scheme’s alternation such that it would not be used to fund mortgage lending – a step to curb the bubble they do not see. This is a dubious move in its ability to cool what is undoubtedly a problem, but the market took it as a positive step regardless. GBPUSD extended its move – though moderately – above 1.6250. Coming up, we have lending figures and mortgage approvals.

Canadian Dollar Steady Through Trade Miss, Unlikely to Write Off GDP So Readily

Canada’s current account deficit was larger in the third quarter than was expected. The C$15.5 billion shortfall missed expectations to tighten and the previous reads was increased. That being said, the currency managed to hold steady. It will be more difficult to overlook the upcoming data: September and 3Q GDP figures. For CAD pairs with immediate breakout risk, this could be interesting.

Australian Dollar Finally Posts Positive Day, But Will Rate Forecasts Stick?

The Australian dollar was up against all of its counterparts this past session, but there was little momentum behind the bullish endeavor. AUDUSD’s first advance in seven trading days is a good allegory for the individual currency’s performance – pushed consistently lower, there was room for moderation. Rate expectations are still the currency’s best opportunity for gains moving forward and the RBA is due next week.

Gold Carves Wide Range in Holiday Trade, But Still Missing Momentum

A $22.19-range for gold was notable given the holiday-dampened trading conditions. However, an increase in intraday activity didn’t offer the metal a meaningful bearing one way or the other. The market will weigh anti-currency sentiment in the upcoming session with the Eurozone inflation data, but the real interest is fixed on Fed Taper speculation next week related to the NFPs.

**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:05

GBP

GfK Consumer Confidence Survey (NOV)

-9

-11

0:30

AUD

Private Sector Credit (MoM) (OCT)

0.4%

0.3%

0:30

AUD

Private Sector Credit (YoY) (OCT)

3.5%

3.3%

2:00

NZD

Money Supply M3 (YoY) (OCT)

7.3%

4:00

JPY

Vehicle Production (YoY) (OCT)

13.0%

5:00

JPY

Housing Starts (YoY) (OCT)

5.0%

19.4%

5:00

JPY

Annualized Housing Starts (OCT)

0.999M

1.044M

5:00

JPY

Construction Orders (YoY) (OCT)

89.8%

7:00

EUR

German Retail Sales (MoM) (OCT)

0.5%

-0.4%

7:00

EUR

German Retail Sales (YoY) (OCT)

1.5%

0.2%

7:45

EUR

French Producer Prices (MoM) (OCT)

0.3%

7:45

EUR

French Producer Prices (YoY) (OCT)

-0.8%

7:45

EUR

French Consumer Spending (MoM) (OCT)

0.3%

-0.1%

7:45

EUR

French Consumer Spending (YoY) (OCT)

0.1%

-0.1%

8:00

CHF

KOF Swiss Leading Indicator (NOV)

1.81

1.72

9:00

EUR

Italian Unemployment Rate (OCT P)

12.5%

9:00

EUR

Italian Unemployment Rate s.a. (3Q)

12.1%

9:30

GBP

Net Consumer Credit (OCT)

0.7B

0.9B

9:30

GBP

Net Lending Sec. on Dwellings (OCT)

1.3B

1.0B

9:30

GBP

Mortgage Approvals (OCT)

68.3K

66.7K

9:30

GBP

M4 Money Supply (MoM) (OCT)

0.6%

9:30

GBP

M4 Money Supply (YoY) (OCT)

2.6%

9:30

GBP

M4 Money Supply ex IOFCs (3M) (Annualised) (OCT)

4.3%

10:00

EUR

Euro-Zone CPI Estimate (YoY) (NOV)

0.8%

0.7%

10:00

EUR

Euro-Zone CPI - Core (YoY) (NOV A)

0.9%

--

10:00

EUR

Euro-Zone Unemployment Rate (OCT)

12.2%

12.2%

10:00

EUR

Italian CPI (NIC incl. tobacco) (YoY) (NOV P)

0.8%

0.7%

10:00

EUR

Italian CPI - EU Harmonized (YoY) (NOV P)

0.9%

0.8%

11:00

EUR

Italian Producer Price Index (YoY) (OCT)

-2.2%

13:30

CAD

Quarterly Gross Domestic Product Annualized (3Q)

2.3%

1.7%

13:30

CAD

Gross Domestic Product (MoM) (SEP)

0.1%

0.3%

13:30

CAD

Gross Domestic Product (YoY) (SEP)

2.0%

14:00

USD

NAPM-Milwaukee (NOV)

57.1

1:00

CNY

SAT: PMI Manufacturing (NOV)

51.0

51.4

GMT

Currency

Upcoming Events & Speeches

8:15

EUR

ECB's Yves Mersch Speaks on Central Banking

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

2.1000

10.7250

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.2400

2.0850

10.5000

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

13.0452

2.0137

10.1936

7.7528

1.2554

Spot

6.5441

5.4819

6.0879

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

1.3708

1.6461

103.31

0.9129

1.0664

0.9204

0.8223

140.61

1270.20

Res 2

1.3683

1.6432

103.04

0.9111

1.0645

0.9181

0.8200

140.23

1263.77

Res 1

1.3657

1.6403

102.77

0.9092

1.0626

0.9159

0.8177

139.86

1257.33

Spot

1.3606

1.6345

102.24

0.9055

1.0587

0.9113

0.8130

139.11

1244.47

Supp 1

1.3555

1.6287

101.71

0.9018

1.0548

0.9067

0.8083

138.36

1231.61

Supp 2

1.3529

1.6258

101.44

0.8999

1.0529

0.9045

0.8060

137.99

1263.77

Supp 3

1.3504

1.6229

101.17

0.8981

1.0510

0.9022

0.8037

137.61

1270.20

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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