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Dollar Cheered in Press, But Data and Fed Chatter Turning

Dollar Cheered in Press, But Data and Fed Chatter Turning

2014-09-30 04:26:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • Dollar Cheered in Press, But Data and Fed Chatter Turning
  • Euro Faces Bloated Calendar Between German Jobs and Eurozone CPI
  • New Zealand Dollar Suffers Another Collapse as RBNZ Confirms Intervention

Dollar Cheered in Press, But Data and Fed Chatter Turning

Despite the boom in headlines and volatility measures, risk aversion has yet to set in. At the same time, the market’s bias on the Fed’s drive towards its first rate hike has moderated somewhat. These are the key fundamental drivers for the greenback; and after an 11-week rally, the high water market for continuation is pretty high. On the rate speculation front, the collective data and central bank speak was not conducive to further gains. The Fed’s preferred inflation gauge (the PCE)cooled further to 1.5 percent – though it wasn’t as sharp a slowdown as was expected. Meanwhile, perpetual dove Charles Evans from the Chicago Fed reiterated his belief that language of a more imminent hike should be dropped while further making mention of the high dollar. Neither update is definitive, and the quality of today’s docket is in a similar category. FX traders should instead watch volatility measures closely. If a more systemic capital shift is triggered, the greenback may continue its charge.

Euro Faces Bloated Calendar Between German Jobs and Eurozone CPI

The Euro gained ground against all of its major counterparts Monday – though it was a very modest advance. Top event risk though the opening session did little to inspire the bulls. Eurozone sentiment figures for September were still mired in the fear of a stalled recovery and Germany’s CPI figure for the same month offered little hope of stabilization. From the capital markets, the region’s equity indexes were stained red and periphery bond yields advanced. Technical reprieve likely comes as the market holds its breath in anticipation of forthcoming event risk. Today, we have Germany employment data which is good for volatility; but the Eurozone unemployment rate and CPI data are important lead-ins to Thursday’s ECB rate decision. Whether the policy authority introduces its asset purchase program details or not weighs heavy.

New Zealand Dollar Suffers Another Collapse as RBNZ Confirms Intervention

With the New Zealand currency already suffering a near, 1,000-pip drop (versus the dollar) in less than three months; policy officials are redoubling their effort to find exchange rate relief. Last week, the currency was driven lower by surprisingly explicit threats by the RBNZ Governor that an ‘expensive’ currency could warrant intervention. This was more than enough to drive NZDUSD 0.8000. Yet, that wasn’t enough. Over the weekend, the central bank reported data that showed that it had sold a net NZ$521 million last month – the most in seven years. To reinforce the effort, Prime Minister John Key (formerly Merrill Lynch’s global head of FX) said the intervention was appropriate and he saw a fair value for the exchange rate closer to 0.6500 – more than 1,000 pips lower.

Japanese Yen Faces a Wave of Data but Still Doesn’t Change Gears

The Japanese economic calendar has been begun a serious run of important event risk this morning. Follow on last week’s inflation figures, the August employment and consumption figures this week are showing greater deviation from consensus…and yet, they are garnering the same level of disinterest through Yen volatility. On the employment front, the August unemployment rate dropped unexpectedly to 3. 5 percent to match its lowest level since the close of 1997. Meanwhile, overall household spending dropped for a fifth consecutive month and industrial production slipped. Ahead, we have small business confidence and Takan 3Q figures; but the market’s real interest rest with ‘risk trends’.

Chinese Renminbi Drops Alongside Hong Kong Dollar on Protests

Protests in Hong Kong are unnerving investors in Asia. Heightened tensions in the country over universal suffrage with the 2017 election of the city’s leader escalated over the weekend in clashes between protestors and policy. Though the government has announced it was pulling back its riot force, there seemed little relief in the market’s anxiety. The Hang Seng equity index dropped 1.9 percent to start the week and is currently down another 1.5 percent in the new trading session. As for the Hong Kong Dollar, has tumbled 173 pips in the three day’s through Monday. That may seem inconsequential, but the average daily range for USDHKD over the past month was only 6 pips. The political and economic connections would spill over for mainland China as well. The Chinese Renminbi dropped 340 pips versus the dollar – the most in 3 years.

Emerging Market Currencies Extend Tumble, Capital Flight Picking Up Pace

Though risk aversion may not be universal, it is certainly showing through in emerging markets. On the capital market side, the MSCI’s ETF gapped to open the week and close out Monday down 2.0 percent. That is two 2 percent declines in the span of less than a week when we haven’t previously seen a bearish move of this magnitude in six months. The financial market concern of a developed-world slowdown, Fed shift away from accommodation and global volatility is clearly taking its toll with EM default premiums rising and the segment’s volatility measures hitting five month highs. On the currency side, liquid and thinner units alike suffered. The Brazilian Real maintains its unceremonious descent versus the USD losing another 1.1 percent to approach six-year lows.

Gold Works Deeper into Consolidation as Futures Traders Sell Longs a Sixth Straight Week

The walls are contracting for gold. The precious metal slipped a modest 0.2 percent on the day (to $1,215.81), but this was hardly a contribution to a prevailing trend. While the past 11 weeks have generally supported the bears, the past two have leveled off from the slide. The market is now carving out a diminishing range with extremes around $1,232 and $1,208. This quiet trading band belies a more active backdrop in positioning. At the end of this past week, we learned speculative futures traders cut their long exposure for a sixth consecutive week – the longest streak in 16 months. We haven’t seen a seven-week drop since November 2008. Meanwhile, ETF holdings have dropped to a five year low. Peace and quiet looks even less likely on activity. Futures volume is building in this range and its Volatility Index is trending higher. **Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

5:00

JPY

Small Business Confidence (SEP)

47.7

5:00

JPY

Housing Starts (YoY) (SEP)

-14.2%

-14.1%

6:00

GBP

Nationwide House Prices n.s.a. (YoY) (SEP)

10.4%

11.0%

7:00

CHF

KOF Leading Indicator

99

99.5

7:55

EUR

German Unemployment Change

-2K

2K

7:55

EUR

German Unemployment Rate s.a.

6.7%

6.7%

8:00

EUR

Italian Unemployment Rate

12.6%

12.6%

8:30

GBP

UK Lloyds Business Barometer (SEP)

47

8:30

GBP

Gross Domestic Product (QoQ) (2Q F)

0.8%

0.8%

8:30

GBP

Gross Domestic Product (YoY) (2Q F)

3.2%

3.2%

8:30

GBP

Current Account (Pounds) (2Q)

-18.0B

-18.5B

9:00

EUR

Euro-Zone Unemployment Rate

11.5%

11.5%

9:00

EUR

Euro-Zone Consumer Price Index - Core (YoY)

0.9%

0.9%

9:00

EUR

Euro-Zone Consumer Price Index Estimate (YoY)

0.3%

0.4%

12:30

CAD

Gross Domestic Product (YoY) (JUL)

2.8%

3.1%

12:30

CAD

Gross Domestic Product (MoM) (JUL)

0.3%

0.3%

13:00

USD

S&P/CS 20 City s.a. (MoM) (JUL)

0.0%

-0.2%

13:00

USD

S&P/Case-Shiller Composite-20 (YoY) (JUL)

7.4%

8.1%

13:45

USD

Chicago Purchasing Manager

62

64.3

14:00

USD

Consumer Confidence (SEP)

92.5

92.4

23:30

AUD

AiG Performance of Manufacturing Index

47.3

23:50

JPY

Tankan Large All Industry Capex

7.0%

7.4%

23:50

JPY

Tankan Large Manufacturers Outlook

13

15

23:50

JPY

Tankan Non-Manufacturing Outlook

18

19

23:50

JPY

Tankan Small Mfg Outlook

0

3

23:50

JPY

Tankan Small Non-Mfg Outlook

-2

0

GMT

Currency

Upcoming Events & Speeches

7:30

CHF

CHF SECO Publishes Revised GDP figures under ESA2010 Framework

9:30

GBP

UK to Sell 13-Year Bonds

10:00

EUR

Portugal Releases Excessive Deficit Procedure Report

14:45

USD

Fed's Powell Speaks on Government Debt Panel in Washington

-:-

ALL

Quarter End Rollover

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

14.0100

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.7400

Resist 1

13.5800

2.3000

11.8750

7.8075

1.3250

Resist 1

7.3285

5.8475

6.5135

Spot

13.3930

2.2618

11.2060

7.7538

1.2697

Spot

7.2098

5.8372

6.3980

Support 1

13.0300

2.0700

10.2500

7.7490

1.2000

Support 1

6.7750

5.3350

6.3145

Support 2

12.8350

1.7500

9.3700

7.7450

1.1800

Support 2

6.0800

5.2715

6.1300

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

1.2850

1.6421

109.56

0.9547

1.1181

0.8873

0.8008

139.63

1245.51

Res 2

1.2825

1.6394

109.33

0.9526

1.1159

0.8851

0.7987

139.35

1239.83

Res 1

1.2801

1.6367

109.10

0.9506

1.1137

0.8830

0.7966

139.08

1234.16

Spot

1.2752

1.6314

108.64

0.9466

1.1093

0.8786

0.7925

138.53

1222.81

Supp 1

1.2703

1.6261

108.18

0.9426

1.1049

0.8742

0.7884

137.98

1211.46

Supp 2

1.2679

1.6234

107.95

0.9406

1.1027

0.8721

0.7863

137.71

1205.79

Supp 3

1.2654

1.6207

107.72

0.9385

1.1005

0.8699

0.7842

137.43

1200.11

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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