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Dollar Traders Watch S&P 500 Deceleration, EURUSD Volatility, G-20

Dollar Traders Watch S&P 500 Deceleration, EURUSD Volatility, G-20

John Kicklighter, Chief Strategist

Talking Points:

  • Dollar Traders Watch S&P 500 Deceleration, EURUSD Volatility, G-20
  • Euro Faces Breakout with Euro-area GDP Figures on Tap
  • British Pound Continues to Lose Ground on Rate Forecasts

Dollar Traders Watch S&P 500 Deceleration, EURUSD Volatility, G-20

There wasn’t much to charge Dollar traders this past session, but the fundamental theater looks significantly more treacherous directly ahead. On its current course, the Dow Jones FXCM Dollar Index (ticker = USDollar) is on pace to set a new five-and-a-half year high to end the week; but that is very much dependent on what motivates its next steps. Thursday, the currency was more or less taking the cues from its more active counterparts. From its own newswires, updates weren’t making it to the deeper fundamental waters. For data, the initial jobless claims rising more than expected, an October budget deficit that was slightly smaller than forecast and inline Bloomberg economy survey come up short for traders seeking out fodder for interest rate speculation and signs of liquidity gaps. The most prominent item on the calendar was Fed Chairwoman Janet Yellen’s opening remarks to the joint Fed-ECB meeting on global trends. Yet she would not stray into the speculative.

Ahead, there is tinder for all the high-level matters that can ignite more meaningful Dollar volatility. While there will be plenty of interest on the data scheduled for release (retail sales, import inflation, 3Q mortgage foreclosures and the University of Michigan consumer sentiment survey), activity is more likely to follow the less ‘convenient’ updates. Monetary policy speculation will be fed by Fed speakers – Vice Chair Fisher and board member Tarullo – who are not already pegged for the expected timing for their first rate hike vote. Furthermore, the G-20 meeting Saturday and Sunday will no doubt weigh in on the Fed’s move towards tightening – and much of the global community seems to support its exit from stimulus. The financial system’s appetite for yield or safety will be determined on less definable terms, but a distinct slowing in US equities’ climb will be drawing a lot of concern and negative attention. Perhaps one of the most capable but underappreciated drivers for the Dollar to close the week though is the volatility of its major counterparts, most notably the Euro.

Euro Faces Breakout with Euro-area GDP Figures on Tap

Top event risk through the final 24 hours of the trading week goes to the Euro. The past session’s universal advance (against all of its most liquid counterparts) confuses those that noted the ECB’s survey of professional forecasters downgraded growth and inflation projections, while the central bank’s monthly statement reflected a group ready to further escalate its monetary accommodation. As significant as these sentiments are – especially when contrasted with the Fed – they are a reiteration of a heavily discounted theme. A further shift into a ‘dovish’ monetary policy regime can fuel further Euro losses, but the bar is set higher for progress. The upcoming 3Q GDP readings can materially alter the consensus – for the bulls or bears. Should the data show a ‘periphery’s’ recovery stalling and the ‘core’ moving towards recession, it can cement expectations of an inevitable upgrade to the disjointed stimulus effort to this point. This data could further shape fundamental themes that have yet to be truly tapped: reverse sovereign yields and/or trigger global speculative flows if it strikes a ‘risk’ nerve.

British Pound Continues to Lose Ground on Rate Forecasts

We are 36 hours removed from the Bank of England’s Quarterly Inflation Report, but the Sterling and interest rate expectations continue to lose ground on the update. Though more measured, the currency lost ground to all of its counterparts with EURGBP proving the most costly on a 0.8 percent move. Overnight swaps now put the 12-month interest rate forecast for the Bank of England (BoE) at 26 basis points – pricing in only one fully hike through November 2015 when four months ago it was a 75 bps forecast over the same period. The first hike is now not priced in until the third quarter according to 90-day Sterling futures. Next Tuesday’s CPI figures will help shape this debate.

Japanese Yen Traders Watch the G-20, 3Q GDP and BoJ Decision

With USDJPY testing seven-year highs above 116 this morning, the Yen crosses look steadfast in their climb. However, their bearings are anything but clear. Beyond the exposure to risk – the same sentiment that the Euro and Dollar are tethered to – the fundamental high points through the coming week are profound enough to alter expectations on stimulus efforts, calls to delay the tax hike and worries of a snap election. The weekends G-20 meeting will almost certainly tap on currency manipulation. Next week, we absorb Japanese GDP and a BoJ rate decision.

US and UK Oil Hit Four-Year Lows

US-based WTI crude is trading at $74.21 while UK-favored Brent settled at $77.92. Both of these markets are hitting multi-year lows.Most of the energy complex took a tumble this past session with US reporting production levels last week of over 9 million barrels of oil. The country is producing at the fastest pace in nearly 30 years and the counterbalance in OPEC seems content to stick to its vow not to curb its supply.

Emerging Market: Russian Ruble Drops Despite 3Q GDP Beat

Broadly speaking, Emerging Markets were as lacking in commitment as the developed-world risk benchmarks. Yet, within the group, Russia was once more standing out. The country reported 3Q GDP of 0.7 percent – the slowest expansion since 4Q 2009 but materially better than the 0.3 percent consensus. Nevertheless, the RSX ETF dropped to a five-year low on heavy volume and the Ruble dropped 2.1 percent.

Gold Moves Towards its Breakout with the Global Community Discussing Growth, Stimulus

Gold for most intents and purposes is out of room. A decision will need to be made on a bullish or bearish push over the next 36 hours of active trading (perhaps early Monday). This week’s gold range has shrunk to approximately $20 positioning is growing to greater extremes. With that said, volatility from the Dollar (even indirect) or a G-20 shift on global policy and financial forecast can spur a meaningful break.

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

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

2:00

NZD

Non Resident Bond Holdings (OCT)

65.90%

The rate of non-resident’s bond holdings is high due to New Zealand historically having a high interest rate when compared to other G10 countries

6:30

EUR

French Gross Domestic Product (QoQ) (3Q P)

0.10%

0.00%

All three of these countries have been experiencing a marked slowdown in GDP Growth this year. Italy’s GDP has been contracting. The largest economy in the EU Germany has been experiencing a marked slowdown in GDP.

6:30

EUR

French Gross Domestic Product (YoY) (3Q P)

0.40%

0.10%

7:00

EUR

German Gross Domestic Product. (QoQ) (3Q P)

0.10%

-0.20%

7:00

EUR

German Gross Domestic Product (YoY) (3Q P)

1.10%

1.20%

7:00

EUR

German Gross Domestic Product (YoY) (3Q P)

1.00%

0.80%

9:00

EUR

Italian Gross Domestic Product (QoQ) (3Q P)

-0.10%

-0.20%

9:00

EUR

Italian Gross Domestic Product. (YoY) (3Q P)

-0.40%

-0.20%

9:30

EUR

Italian General Government Debt (SEP)

2148.4B

Has been rising this year; however, lower than the high at March 2014

9:30

GBP

Construction Output s.a. (MoM) (SEP)

4.00%

-3.90%

Construction output has been rising on a YoY basis this year. Only recently showed contraction last month.

9:30

GBP

Construction Output s.a. (YoY) (SEP)

4.30%

-0.30%

10:00

EUR

EURo-Zone Consumer Price Index (MoM) (OCT)

0.00%

0.40%

Inflation has been trending lower this year. Inflation rate is well below the ECB’s inflation target of being just below 2%

10:00

EUR

EURo-Zone Consumer Price Index (YoY) (OCT F)

0.40%

0.40%

10:00

EUR

EURo-Zone Consumer Price Index - Core (YoY) (OCT F)

0.70%

0.70%

10:00

EUR

Euro-Zone Gross Domestic Product s.a. (QoQ) (3Q A)

0.10%

0.10%

GDP Growth in the Eurozone has been growing anemically this year when compared to other G10 countries. There are fears of the Eurozone entering into a deflationary economic environment. The ECB has responded so far by cutting benchmark rates close to zero and initiating a covered bond purchase program.

10:00

EUR

Euro-Zone Gross Domestic Product s.a. (YoY) (3Q A)

0.70%

0.80%

13:30

USD

Advance Retail Sales (OCT)

0.20%

-0.30%

The strength of consumption is important as it makes up over 70% of US GDP. It would be interesting to see if retail sales are going to get a boost from lower oil prices.

13:30

USD

Retail Sales Less Autos (OCT)

0.20%

-0.20%

13:30

USD

Retail Sales Ex Auto and Gas (OCT)

0.40%

-0.10%

13:30

USD

Retail Sales Control Group (OCT)

0.40%

-0.20%

14:55

USD

U. of Michigan Confidence (NOV P)

87.5

86.9

With economic conditions improving, confidence has been getting a boost as well this year.

15:00

USD

Business Inventories (SEP)

0.20%

0.20%

The growth rate has been expanding this year

15:00

USD

Mortgage Delinquencies

6.04%

Both measures have showed declines this year; might indicate a housing market with a stronger base

15:00

USD

MBA Mortgage Foreclosures

2.49%

GMT

Currency

Upcoming Events & Speeches

11:00

EUR

ECB Announces 3 Year LTRO Repayment

14:10

USD

Fed's Bullard Speaks on U.S. Economy in St. Louis

21:00

USD

Fed's Vice Chairman Stanley Fischer moderates panel at Fed/ECB Event

21:00

EUR

ECB's Coeure/ Fed’s Powell Speak at FED/ECB Event

-:-

ALL

G-20 Meeting Brisbane, Australia

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

6.1750

7.2900

Resist 1

13.6800

2.3000

11.8750

7.8075

1.3250

Resist 1

7.5000

6.0900

7.0000

Spot

13.6388

2.2647

11.2617

7.7529

1.2960

Spot

7.4348

6.0094

6.8655

Support 1

13.0300

2.0700

10.2500

7.7490

1.2000

Support 1

6.7750

5.8000

6.3145

Support 2

12.8350

1.7500

9.3700

7.7450

1.1800

Support 2

6.0800

5.7300

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

1.2483

1.5947

116.41

0.9829

1.1519

0.8652

0.7777

143.90

1170.60

Res 2

1.2456

1.5919

116.09

0.9805

1.1496

0.8630

0.7755

143.55

1163.67

Res 1

1.2429

1.5891

115.78

0.9781

1.1474

0.8608

0.7734

143.21

1156.74

Spot

1.2376

1.5835

115.15

0.9733

1.1429

0.8564

0.7690

142.51

1142.87

Supp 1

1.2323

1.5779

114.52

0.9685

1.1384

0.8520

0.7646

141.81

1129.00

Supp 2

1.2296

1.5751

114.21

0.9661

1.1362

0.8498

0.7625

141.47

1122.07

Supp 3

1.2269

1.5723

113.89

0.9637

1.1339

0.8476

0.7603

141.12

1115.14

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

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