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Talking Points:

  • Dollar and S&P 500 Suffer Worst Declines Since October Panic
  • Euro Traders Prepare for Direct Stimulus Update
  • Swiss Franc Potential Lopsided in SNB Rate Decision

Dollar and S&P 500 Suffer Worst Declines Since October Panic

‘The Dollar’s safe haven status is broken’? That seems to be a claim be made more often these days and is reinforced by this past session where the currency suffered its worst single-session loss since mid-October…a similar record to the S&P 500’s 1.6 percent slump. Both Dollar and equities have advanced in tandem over the past weeks, and are now correcting together. Yet, this likely due to a strong drive in sentiment and is more likely a result of too staid a speculative backdrop. Looking out across the various asset classes that have strong to moderate connections to the mass ebb and flow in investor sentiment, we find that their trajectories are varied and pacing inconsistent. If we were experiencing a full-scale ‘risk aversion’ theme, we would expect all assets even close to a ‘rich’ valuation or exposed should capital flight kick in would be in retreat. We may yet get there with the proper coaxing, but it is an uphill battle as liquidity thins out heading into the yearend or at the very least before next week’s heavy-hitting event risk (like the FOMC rate decision). Before we hit a sentiment extreme and liquidity is the only thing investors prize, there is the natural pull in December seasonality where investors are looking to book (or ease up) on their successful trades – whether stocks or Dollar pairs. In the absence of a more provocative catalyst, this rebalancing can continue.

Euro Traders Prepare for Direct Stimulus Update

There are a number of concerns hanging over the Euro’s head, but speculation over and action from ECB policy easing has been the main rudder of the EURUSD’s 7-month, 1,400-pip tumble. Last week, the central bank struck a balanced tone at its policy meeting and confirmed to the market that hopes for a US or Japan-style quantitative easing for the Eurozone would not come at least until the first quarter of next year. Further, this past session, a supposed leaked draft for next week’s EU Summit suggested the region’s politicians are pushing back debate on a more uniform economic policy across its members that would lead to long-term improvement rather than the short-term salve of monetary policy. This eases back on this strong current, but the overriding objective to increase the balance sheet by €1 trillion burns in the market’s mind. That – and our proximity to critical, decade-long support for EURUSD – will keep the market focused on the update from one of the ECB’s holdover programs. The second allotment of the Targeted-LTRO program will be reported at 10:10 GMT. The first injection fell well short of the market’s expectations, but the currency offered limited immediate response. This time, with a dovish bias, a strong uptake may be seen as the market’s ‘need’ for support. A weak one conversely may be taken as a sign of the existing programs’ ineffectiveness. Another update worth watching is Ireland’s 3Q GDP. Given the growing turmoil in Greece, ‘periphery’ trouble can add another layer of complexity for the Euro.

Swiss Franc Potential Lopsided in SNB Rate Decision

Officials at the Swiss National Bank likely breathed a sigh of relief after the Gold Referendum was voted down and the group could maintain its primary policy of keeping the 1.2000-floor under EURCHF. However, that relief does little to change the market motivations to keep the pair anchored to the artificially-imposed level. The ECB’s stimulus ambitious are immense and keep the Euro under pressure. Holding the line can prove expensive for the SNB, but they would likely be successful. It would just be a long wait for the payoff. Alternatively, a new policy move – such as negative rates on foreign capital – could curb the capital flows that are truly causing the central bank so much trouble. Given their status quo approach, this is a low probability. That said, the impact should they upgrade could be huge. And, all of this against 35 pips of risk.

New Zealand Dollar Surges After RBNZ Revives Rate Hike Talk

With a broken record mantra that the New Zealand is unreasonably high, the market expected the RBNZ to maintain its ineffective worry over the exchange rate and avoid any speculation as to when the next policy shift would occur. That is why so many were caught off-guard when Governor Graeme Wheeler remarked that he expects a more gradual rise in rates and growth was stronger than expected. The central banker said he was surprised that his comments set off a rally, but talking about hikes when others (ECB, BoJ) are employing QE will do that.

Oil’s Break Ends, Extends Tumble to Fresh Five-Year Low

A day’s break from a heavy bear trend had many speculative traders trying to call a bottom on US Oil...again. Yet, this effort to catch another falling knife ended much like the previous efforts – with cuts. The WTI-grade benchmark futures contract dropped below $62-per-barrel for the first time since July 2009 after the OPEC forecast demand for the commodity would drop to 28.92 million barrels per day in 2015 – the lowest in over a decade. The supply-and-demand considerations are just as prolific as speculative pain at this point.

Emerging Market: Bank of Korea Keeps up Currency War Concern, Russia Rate Decision Ahead

The MSCI Emerging Market ETF gapped to an 8-month low Wednesday and the FX ranks fared little better. Thursday carries with it unusually heavy event risk from the EM world. The Bank of Korea announced earlier a hold on its benchmark lending rate but made sure to reiterate its concerns over the influence of the BoJ’s aggressive easing policy on its own economic health. Currency war concerns are growing once again. Ahead, Russia’s Central Bank will try again to stem the Ruble’s tumble with an expected 100 bp rate hike to 10.50 percent.

Gold’s Run Stalls Despite Dollar Troubles

A 2.3 percent rally from gold Tuesday projected the most optimism amongst bulls in some time. Yet, its ambitions don’t seem to be too firmly set. The commodity stalled this past session even though the Greenback tumbles. Perhaps monetary policy efforts by the ECB, SNB and Emerging Market central banks will offer the metal some alternative-to-traditional-currency appeal.

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

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:00

AUD

Consumer Inflation Expectation (DEC)

4.1%

Trending lower with rate forecasts

0:01

GBP

RICS House Price Balance (NOV)

15%

20%

Falling 6 months from 12 yr high

0:30

AUD

Employment Change (NOV)

15.0K

13.7K

Growth concerns have placed focus on individual sectors

0:30

AUD

Unemployment Rate (NOV)

6.30%

6.2%

1:00

JPY

Bloomberg Japan Economic Survey (Table) (DEC)

7:00

EUR

Germany CPI MoM (NOV F)

0.00%

0.0%

Regional dis-inflation troubles remain the primary concern of the EZ with policy, but recessions and market pressure are quickly building

7:00

EUR

Germany CPI YoY (NOV F)

0.60%

0.6%

7:00

EUR

Germany CPI EU Harmonized YoY (NOV F)

0.50%

0.5%

7:45

EUR

France CPI EU Harmonized YoY (NOV)

0.50%

0.5%

7:45

EUR

France CPI YoY (NOV)

0.40%

0.5%

8:30

CHF

SNB 3-Month Libor Target Rate

0.00%

0.00%

Focus on next moves, not policy

9:00

EUR

ECB Publishes Monthly Report

Looking for justification for 1Q QE

9:00

EUR

Italy Industrial Production MoM (OCT)

0.30%

-0.9%

A moderation would not be considered bullish for struggling Italy

9:00

EUR

Italy Industrial Production WDA YoY (OCT)

-1.40%

-2.9%

10:10

EUR

ECB Second Targeted-LTRO Results

Key ECB QE demand update

10:30

RUB

Russia Central Bank Rate Decision [EM]

10.50%

9.50%

Follows a 150 bp hike in October

11:00

EUR

Ireland GDP (3Q)

0.3%

1.5%

Is the recovery faltering?

13:30

CAD

New Housing Price Index YoY (OCT)

1.6%

BoC’s Poloz just recently said housing is 30% overvalued

13:30

CAD

New Housing Price Index MoM (OCT)

0.10%

0.1%

13:30

USD

Retail Sales Advance MoM (NOV)

0.40%

0.3%

A media-favorite release, retail sales has a dim history of dollar volatility short of massive surprises

13:30

USD

Retail Sales Ex Auto MoM (NOV)

0.10%

0.3%

13:30

USD

Retail Sales Ex Auto and Gas (NOV)

0.50%

0.6%

13:30

USD

Import Price Index MoM (NOV)

-1.80%

-1.3%

Upstream inflation figure likely to reflect energy price collapse

13:30

USD

Import Price Index YoY (NOV)

-2.60%

-1.8%

13:30

USD

Initial Jobless Claims (Dec 6)

297K

297K

Secondary US economic figures will help reinforce concerns over bigger topics (like the Fed forecast) but are unlikely to stoke their own volatility

13:30

USD

Continuing Claims (Nov 29)

2344K

2362K

13:45

USD

Bloomberg United States Economic Survey (DEC)

15:00

USD

Business Inventories (OCT)

0.20%

0.3%

17:00

USD

Household Change in Net Worth (3Q)

$1390B

21:30

NZD

BusinessNZ Manufacturing PMI (NOV)

59.3

Just shy of a 10-year high

GMT

Currency

Upcoming Events & Speeches

0:10

NZD

RBNZ Governor at Parliament Finance Committee

9:00

EUR

ECB's Liikanen Speaks at Bank of Finland Briefing in Helsinki

9:00

CHF

Swiss National Bank Holds Press Conference on Rate Decision

10:00

GBP

BOE'S Carney Speaks on Warsh Report, Reviews Findings

12:45

CAD

Bank of Canada Governor Poloz Talks to Economic Club in NYC

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

13.5823

2.2315

11.1048

7.7548

1.2974

Spot

7.4186

5.9681

6.7772

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

1.2573

1.5766

117.89

0.9723

1.1367

0.8812

0.8030

146.88

1214.79

Res 2

1.2548

1.5738

117.55

0.9700

1.1347

0.8790

0.8008

146.50

1207.54

Res 1

1.2523

1.5709

117.21

0.9677

1.1327

0.8769

0.7986

146.12

1200.28

Spot

1.2473

1.5652

116.54

0.9632

1.1286

0.8726

0.7943

145.36

1185.78

Supp 1

1.2423

1.5595

115.87

0.9587

1.1245

0.8683

0.7900

144.60

1171.28

Supp 2

1.2398

1.5566

115.53

0.9564

1.1225

0.8662

0.7878

144.22

1164.02

Supp 3

1.2373

1.5538

115.19

0.9541

1.1205

0.8640

0.7856

143.84

1156.77

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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