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Dollar Advances Across the Board as Sentiment Breaks, CPI Steady

Dollar Advances Across the Board as Sentiment Breaks, CPI Steady

2014-10-23 03:36:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Dollar Advances Across the Board as Sentiment Breaks, CPI Steady
  • Euro Worst Performing Major Braces for Growth Update
  • British Pound Mixed as Tone of BoE Minutes Softens

Dollar Advances Across the Board as Sentiment Breaks, CPI Steady

A fever of risk appetite in the equities market broke this past session and September inflation statistics for the US printed a steady – if below target – pace. How did the Dollar respond? It climbed further. The Dow Jones FXCM Dollar Index (ticker = USDollar) rose a second consecutive day, but it was its breadth rather than pace that impressed. Looking across the ‘majors’, the Greenback rose against all of its most liquid pairings. Once again, the fundamental motivations were of questionable provenance. The first slip for the S&P 500 in five trading days – especially after the biggest single day rally in 12 months – was a high profile development for those trading the safe haven currency. However, the Dollar experienced limited connection to the initial sentiment swell; so it is fitting that it would be little motivated by the moderation. Through the equities rally, the appetite for risk never hit a cadence to buoy all markets (suggesting it wasn’t a definitive move), so its correction inherently fall short on the needed intensity of risk aversion to truly leverage the extreme version of safe haven the currency represents.

Comparatively, the changing winds of Fed rate forecasts have proven a more active fuel for the Dollar. That made this past session’s September CPI reading an important release. Considering the market has significantly downgraded its forecast for the timing of the first FOMC rate forecast and the subsequent pace, there was a skew for how much impact the data would likely have under different scenarios. The 1.7 percent pace of price growth in headline and core price measures steadied from a cooling trend – though it does so below the central bank’s medium-term target. Downplaying the argument that this has nevertheless revived rate hopes; medium-term Treasury yields, Eurodollar futures and Fed Fund futures were all little moved on the day. Looking for a catalyst on the relative growth or relative interest rate front for the Dollar requires heavy-impact data. Today’s Chicago Fed National Activity Index and factory PMI is limited compared to next week’s FOMC decision and 3Q GDP.

Euro Worst Performing Major Braces for Growth Update

Scheduled event risk was limited once against for the Euro this past session. A multi-year high in Irish housing inflation and a strong 30-year German bond auction don’t touch upon the factors that are most interesting/concerning to FX traders. What was interesting through this past session were reports of a third straight day of asset purchases by the ECB. Though they reportedly bought Spanish covered bonds, there wasn’t a particularly remarkable move in the sovereign yields or the country’s capital market benchmarks. We will reportedly learn how much was purchased through this week next Monday. Meanwhile, the region’s economic and financial health are under the microscope. The ECB cautioned against positioning on conjecture over possible bank failures in the stress test results due Sunday, but the markets know the stakes. On the economic front, today’s docket offers up the Eurozone October PMI figures – the best leading data to GDP.

British Pound Mixed as Tone of BoE Minutes Softens

There is still a very vocal minority in the Monetary Policy Committee of the BoE. According to the minutes of the central bank’s last meeting – released this past session – members Weale and McCafferty once again voted for a 25 bp hike to the benchmark rate. They were overruled 7-2. Yet, despite the persistence of the group’s hawks, the ‘majority’ seems to be growing increasingly wary of their optimism. Remarks of evidence showing a slowing pace of growth and weak wage pressures builds on last week’s five-year low CPI reading. That same majority would also voice concern that a rate hike could leave the country vulnerable to shocks. Gilts and swaps were little changed for the day, but impliedrates are pushing back the time frame for the first hike. It now stands closer to mid-2015.

Japanese Yen: Official Says a Currency Decline is Good if Gradual

Bank of Japan Governor Haruhiko Kuroda remarked the other day that the Japanese Yen was rising due to a bout of international risk aversion amid economic turmoil. This past session Vice Economy Minister Yasutoshi Nishimura stated that a gradual drop in the currency was “good for Japan”. The stream of commentary from policymakers (the central bank and government) has grown steady. Yet, will it be effective? Effective ‘jawboning’ relies on either a favor market (already moves your way) or thinly veiled threats to alter stimulus. They currently have neither.

New Zealand Dollar More Responsive to its CPI than Aussie

Where the Australian Dollar was virtually unmoved by its 3Q CPI reading, New Zealand produced a substantial decline after its own inflation report. The difference is that the Kiwi is already suffering a tumble for the loss of its high profile yield forecast just a few months ago, and a curb of future hikes carries weight here. The 1.0 percent annual CPI reading is only a 5 quarter low, but far from the 2-3 percent target.

Emerging Market Capital Markets and Currencies Drop

Though FX was little effected by the shift in sentiment this past session, the Emerging Markets felt the pressure. The MSCI EM ETF fell for the first time in four days (0.7 percent). Meanwhile, the currency crosses were broadly read versus the US Dollar. Russia’s Economy Minister Ulyukayev offered a growth update that suggested the country’s economy stalled in September. The Ruble dropped 1.1 percent to a record low.

Gold Recovery Falling Far Short in Silver Counterpart

From its test of a multi-year low earlier this month, gold has rallied as much as 6.1 percent. As tepid as the market’s speculative interest in the move has been in ETF and derivatives demand, the price was nevertheless advancing. For silver – gold’s cheaper and sometimes speculative equivalent – the confidence has been far slower to find footing. The Gold-Silver ratio hit its highest level since May 2009 today.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

NAB Business Confidence (3Q)

6

Though easing, not reflecting fears of broader slowdown just yet

1:35

JPY

Markit/JMMA PMI Manufacturing (OCT P)

52.0

51.7

Steady climb has developed 9 mths

1:45

CNY

HSBC PMI Manufacturing (OCT P)

50.2

50.2

Impact sapped after GDP

6:45

EUR

French Business Confidence Indicator (OCT)

95

96

France is following in the steps of Italy as fears of a stalled economy will find measure in this data

6:45

EUR

French Business Confidence (OCT)

91

91

7:00

EUR

French Markit PMI Composite (OCT P)

48.7

48.4

7:30

EUR

German Markit PMI Manufacturing (OCT P)

49.5

49.9

The EZ and Germany PMIs are good, leading measures of the Euro-area’s economic health; and forecasts are unfavorable

7:30

EUR

German Markit PMI Composite (OCT P)

53.6

54.1

8:00

EUR

Euro-Zone Markit PMI Manufacturing (OCT P)

49.9

50.3

8:00

EUR

Euro-Zone Markit PMI Composite (OCT P)

51.5

52.0

8:30

GBP

Retail Sales ex Auto (MoM) (SEP)

0.0%

0.2%

Prone to wild changes and significant breaks from consensus, this is not a market-moving data

8:30

GBP

Retail Sales ex Auto (YoY) (SEP)

3.4%

4.5%

8:30

GBP

Retail Sales inc Auto (MoM) (SEP)

-0.1%

0.4%

8:30

GBP

BBA Loans for House Purchase (SEP)

41450

41588

Has moderated most of 2014

9:00

EUR

Euro-Zone Government Debt (2Q)

An economic slowdown is expected to slow the reduction in deficits

9:00

EUR

Euro-Zone Government Deficit (2Q)

10:00

GBP

CBI Trends Total Orders (OCT)

-3

-4

Sentiment in 2Q dropped from its highest level in 4 decades

10:00

GBP

CBI Business Optimism (OCT)

15

19

12:30

USD

Chicago Fed National Activity Index (SEP)

-0.21

Holds a strong long-run correlation to quarterly GDP

12:30

USD

Initial Jobless Claims (OCT 18)

264K

The jobless claims-to-work age population is at decades lows

12:30

USD

Continuing Claims (OCT 11)

2389K

13:00

USD

House Price Index (MoM) (AUG)

0.4%

0.1%

Concern of a plateau rising at Fed

13:45

USD

Markit PMI Manufacturing (OCT P)

57.3

57.5

Has deviated from ISM recently

14:00

EUR

Euro-Zone Consumer Confidence (OCT A)

-12.0

-11.4

Expected to drop a fifth month

14:00

USD

Leading Indicators (SEP)

0.7%

0.2%

Previous was lowest since January

21:45

NZD

Trade Balance (New Zealand dollars) (SEP)

-625M

-472M

A weakened trade backdrop would further curb fading rate hopes

21:45

NZD

Exports (New Zealand dollars) (SEP)

3.50B

3.52B

GMT

Currency

Upcoming Events & Speeches

-

EUR

EU Leaders Hold Summit (Oct 23-24)

17:00

USD

US to Sell $7 Bln in 30-Year TIPS (Inflation-Adjusted Treasuries)

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

7.2900

Resist 1

13.5800

2.3000

11.8750

7.8075

1.3250

Resist 1

7.3285

5.8475

6.7400

Spot

13.5441

2.2620

11.1073

7.7574

1.2733

Spot

7.1620

5.8173

6.5641

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

1.2902

1.6188

107.33

0.9518

1.1351

0.8865

0.8033

137.37

1263.72

Res 2

1.2877

1.6159

107.09

0.9497

1.1327

0.8842

0.8009

137.06

1257.34

Res 1

1.2851

1.6131

106.85

0.9475

1.1304

0.8818

0.7986

136.76

1250.96

Spot

1.2800

1.6073

106.37

0.9433

1.1258

0.8771

0.7939

136.15

1238.21

Supp 1

1.2749

1.6015

105.89

0.9391

1.1212

0.8724

0.7892

135.54

1225.46

Supp 2

1.2723

1.5987

105.65

0.9369

1.1189

0.8700

0.7869

135.24

1219.08

Supp 3

1.2698

1.5958

105.41

0.9348

1.1165

0.8677

0.7845

134.93

1212.70

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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