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Euro and EZ Capital Market Investors Watch Important ECB Court Ruling

Euro and EZ Capital Market Investors Watch Important ECB Court Ruling

Talking Points:

  • Dollar Weighs Growth Forecast Upgrade, FOMC Fodder and Active Counterparts
  • Euro and EZ Capital Market Investors Watch Important ECB Court Ruling
  • Pound Mixed After Headline CPI Hits 15-Year Low

Dollar Weighs Growth Forecast Upgrade, FOMC Fodder and Active Counterparts

The Dollar struggled for both direction and conviction this past session, but the fundamental seas look heavier ahead. On an individual, the Dow Jones FXCM Dollar Index (ticker = USDollar) was little changed through the past session. On the economic front, the day’s docket was generally positive. Of the scheduled data to print, the NFIB small business optimism survey neared an eight-year high withjob openings at 14-year highs and the largest group reporting wage growth in seven. Considering small businesses account for the majority of jobs in the US economy, this was a particularly credible read of labor conditions after last week’s NFPs stirred concerns with its participation and wage measures. Furthering the positive read of the US economic backdrop, the World Bank also issued its updated 2015 growth forecasts from 3.0 to 3.2 percent which provides direct contrast to the downgraded Global expected pace from 3.4 to 3.0 percent.

This past session’s event risk touched upon all three major veins of Dollar strength: growth potential, support for the hawkish policy path and weakened competition. All three venues will be explored further this upcoming session. On the economic front, retail sales and MBA mortgage applications doesn’t hold the same level of poignant appeal as the NFIB figure, but they tend to generate more recognition and often volatility. The monetary policy implications will be leveraged with the Fed’s Beige Book – the assessment of economic conditions across districts to be used at the January 28 FOMC rate decision. Perhaps the greatest potential for the Greenback though lies with the contrast the Euro will present with the EU court ruling that could redefine the ECB’s stimulus path.

Euro and EZ Capital Market Investors Watch Important ECB Court Ruling

Top event risk over the coming 24 hours can be found in the Euro’s economic docket. An advisor for the EU Court of Justice is set to weigh in on legality of the OMT (Outright Monetary Transaction) program the ECB introduce back in 2012 to reinforce the vow made to do whatever was necessary to ensure the region’s financial and economic stability. Though non-binding, the courts tend to follow the assessment; and this opinion can undermine a significant safety net and shape the central bank’s next big step on a path of heavy policy easing. If the outcome is critical of the ECB’s reach, shaping an outright QE program similar to those of the US, UK and Japan will be extremely difficult, if not impossible. A hurdle to a full-scale government bond purchase program doesn’t condemn the group’s objective of increasing the balance sheet by €1 trillion. However, it will make it materially more difficult and likely piecemeal. If the Euro found some kind of relief from such an outcome as there isn’t a direct tap to stimulus, it wouldn’t last long. Furthermore, Europe’s capital markets would likely be unnerved by the limitations. As such, this could prove a global risk catalyst. Alternatively, an ‘all clear’ sign on QE would embolden ECB expectations for next week.

Pound Mixed After Headline CPI Hits 15-Year Low

Rate expectations for the UK have collapsed over the past six months. After Tuesday’s release of the December inflation figures, those diminished forecasts were reinforced. From an array of price measures (factory, retail, housing), the CPI was the market’s primary concern. Already expected to cool significantly due in large part to energy prices, the headline pace actually dropped to a near-15 year low of 0.5 percent. Alone, that may have crippled BoE rate expectations even further, but the core reading would mitigate it somewhat with an uptick to 1.3 percent. The Short Sterling futures market is now showing the first rate hike isn’t fully priced in until after December (at 0.74 percent).

Yen Crosses Retreat as Key Milestones in Capital Markets Come Into View

The correlation (rolling, 20-day) between the USDJPY and S&P 500 is 0.86 – strongly positive. This is not to suggest one leads the other, but rather they are operating on the same underlying fundamental theme: risk trends. Volatility continues to trend higher with short-term measures in the FX up to 10.1 and equities jumping to 19.6 percent. The dominos on sentiment are precariously set.

Copper Price Plunge, Aussie Dollar Feels the Pinch

Copper has collapsed the past few days, and this session’s tumble – at one point over 8 percent – is the worst since October 2011. The direct commodity-currency correlation isn’t as distinct as many believe, but a move of that magnitude and a tumble in the broader commodity group certainly weighs on countries considered large resource exporters. Therefore, it’s not surprising to see AUD down across the board.

Emerging Markets Receive Optimistic World Bank Growth Forecast

Emerging Markets have been roiled recently and their economic forecast has suffered the downgraded view given their Developed world trade partners. However, the World Bank’s growth outlook still sees the group on an upgraded trajectory going forward. The optimism hasn’t engendered much strength for the EM FX world. In particular, a downgraded Russian GDP view sent the Ruble down 3.2 percent Tuesday.

Gold Searching for Fundamental Demand Versus Speculative Appetite

A two week advance has pushed gold back up to a two-month high and within reach of $1,250. Yet traders have to wonder what the source of this strength is. A speculative drive that is supported by the rise in net speculative futures holdings reported by the COT (122,178 contracts net long is the most bullish positioning since August) lacks the appeal of long-term interest. ETF holdings of the precious metal – a gauge of speculative interest for a cheaper entry – hit its lowest level since April of 2009 (51.311 mln ounces) this past session. Fundamental demand for the precious metal comes through financial collapse or a Dollar tumble (alternative to FX). Neither theme has yet to take.

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23:00NZDQV House Prices (YoY) (DEC)5.10%Has been increasing on a YoY basis in 2014
23:50JPYJapan Money Stock M2+CD (YoY) (DEC)3.60%3.60%Tends to increase with monetary stimulus
23:50JPYJapan Money Stock M3 (YoY) (DEC)3.00%2.90%
0:30AUDJob vacancies (QoQ) (NOV) -0.70%Showed contraction last quarter.
6:00JPYMachine Tool Orders (YoY) (DEC P)36.60%Has been increasing at a positive pace in 2014 on a YoY basis.
10:00EUREurozone Industrial Production (MoM) (NOV)0.00%0.10%A strong measure might show a stronger Eurozone. However, this measure isn’t likely going to change the markets’ expectation on future ECB policy.
10:00EUREurozone Industrial Production (YoY) (NOV)-0.70%0.70%
12:00USDMBA Mortgage Applications (Jan 9)11.10%A volatile measure that isn’t likely to be market moving
13:30CADTeranet/National Bank HPI (MoM) (DEC)-0.30%Has been increasing at positive pace on a YoY basis in 2014. IMF voiced concerns on the housing market.
13:30CADTeranet/National Bank HPI (YoY) (DEC)5.20%
13:30CADTeranet/National Bank HP Index (DEC)167.51
13:30USDAdvance Retail Sales (DEC)-0.10%0.70%Has been increasing at a positive pace for 10 months in 2014. A strengthening labor market and lower oil prices may have been leading to an increase in retail spending.
13:30USDImport Price Index (MoM) (DEC)-2.70%-1.50%Has been showing contraction since August 2014. A strong US Dollar might be adding to the deflationary pressures from imports.
13:30USDImport Price Index (YoY) (DEC)-5.20%-2.30%
15:00USDBusiness Inventories (NOV0.30%0.20%It has been positive for every month in 2014. Might indicate increased optimism in US consumption.
23:50JPYDomestic Corporate Goods Price Index (MoM) (DEC)-0.30%-0.20%A measure in 2014 that might be inflated due to Japan’s sales tax hike
23:50JPYDomestic Corporate Goods Price Index (YoY) (DEC)2.10%2.70%
23:50JPYMachine Orders (MoM) (NOV)4.40%-6.40%Has been contracting in October 2014 as Japan recorded a recession in third quarter of 2014.
23:50JPYMachine Orders (YoY) (NOV)-6.30%-4.90%
GMTCurrencyUpcoming Events & Speeches
8:30EUREU Top Court Gives Non-Binding Advice on ECB's OMT Mechanism
10:00EURGreece to Sell €625 Mln in 3 Month Bills
10:30EURGermany to Sell €5 Bln in 10-Year Notes
13:00USDFed's Plosser Speaks on the Economy in Philadelphia
14:15GBPBOE Governor Carney Policy Makers Testify to Lawmakers
18:00USDUS to Sell $13 Bln 30 Year Notes
19:00USDU.S. Federal Reserve Releases Beige Book


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


Resist 215.59002.500012.70007.81651.3650Resist 28.74006.85008.4735
Resist 115.00002.400011.87507.80751.3475Resist 18.13756.33257.8360
Support 114.38002.190010.25007.74901.3200Support 17.52005.91007.2945
Support 213.68002.07009.37007.74501.2000Support 27.32855.77756.7280


Res 31.19861.5261120.521.02251.19330.81590.7844143.031243.42
Res 21.19571.5229120.171.01981.19070.81360.7820142.621236.80
Res 11.19281.5198119.831.01721.18810.81130.7796142.221230.19
Supp 11.18121.5072118.431.00661.17770.80190.7702140.601203.71
Supp 21.17831.5041118.091.00401.17510.79960.7678140.201197.10
Supp 31.17541.5009117.741.00131.17250.79730.7654139.791190.48


--- Written by: John Kicklighter, Chief Strategist for

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