http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2010/12/30/Dollar_Suffers_its_Biggest_Loss_in_Over_Two_Weeks.html
- Dollar Suffers its Biggest Loss in Over Two Weeks – Too Far Too Fast?
- Euro Quiet Despite an Acceleration in Inflation and Worrisome Comments from Forecasters
- British Pound Traders Slowly Sell the Sterling as Reality Sets in about the Future of Austerity
- Japanese Yen: What Does a Tempered Rise from the Yen while The S&P 500 Climbs Suggest
- New Zealand Dollar Shows a Remarkable Deviation in Strength to its Aussie Counterpart
- Swiss Franc: Is this the most Fundamentally Appealing Currency in the Market?
Dollar Suffers its Biggest Loss in Over Two Weeks – Too Far Too Fast?
It seems unusual that the dollar would put in for its biggest daily loss since December 13th just a few days before the end of the year. Doesn’t the high volatility traditionally attributed to this period also dampen the progress of any meaningful trends? In a word: yes. However, thinned speculative interest doesn’t completely prevent price developments. To prove this fact, we need only look back to the developments back in December of 2009 and 2008. That said, the market flow and fundamental considerations back then are much different than they are today. Taking stock of what has transpired fundamentally over the past 24 hours, there is very little to support this unique move; and that may be a sign that the greenback may have moved too aggressively and is therefore exposed to a potential reversal.
Running through the traditional fundamental drivers for the benchmark dollar, it is difficult to come to the specific catalyst that would lead the currency to such a sharp decline – one that seems to have tentatively altered the short-term technical picture from a neutral to bearish. Starting with the most readily identifiable medium for price action for the safe haven currency (risk appetite trends); we note that indeed, the benchmark S&P 500 rose on the day to a fresh two-year high. However, the lack of conviction in this move and relatively mundane ability to set a new high doesn’t carry much weight. This is a reality we can further assess in the comparatively modest moves of other traditionally sensitive assets and currencies. The next possibility on the list is the influence the stimulus drive. Indeed, the Fed made another $5.39 billion purchase in its Permanent Open Market Operation (POMO) facility to inject the market with funds and water down the value of the dollar. Once again, this would be meaningful if the market hadn’t generally accounted for the larger $600 billion program; and it is further debunked knowing that the dollar’s losses happened well in advance of the actual purchase. Furthermore, we note that a $29 billion sale of 7 year Treasuries (a normal operation aimed at covering funding for the dollar – not a stimulus activity) was met a strong demand from the market while government bonds on the secondary market actually surged on the day. Typically, a strong sovereign debt performance is a strong sign for the dollar as a portion of this interest is foreign and thereby necessitates the purchase of dollars. How about regular fundamental developments? There were no major economic releases on the docket; and the headlines were far from remarkable. So, altogether, there was relatively little fundamentally to encourage this move; and other markets would offer little speculative backup. As a result, the risk of a correction – especially in these thin and congestive trading conditions – is particular high.
Looking ahead to the coming trading day, the greenback will have a little more on its plate in the way of scheduled event risk. The Chicago Purchasing Manager Index and Pending Home Sales figures for December and November respectively are notable indicators covering important areas of the economy. That said, they are second tier readings. Therefore, their value is limited to setting expectations for future of the housing market and business activity. Instead, we should keep a close eye on speculative interests and the pace of capital flows. Chop should not be mistaken for the development of a new trend.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Dollar Momentum Sets up a Potential GBPUSD Fade Opportunity
Euro Quiet Despite an Acceleration in Inflation and Worrisome Comments from Forecasters
There were two sides to the fundamental picture of the euro Wednesday. On the one hand, we were presented with bullish inflation data. The Euro Zone M3 figure for November (the ECB’s favored inflation report) rose more quickly than expected to a 1.3 percent clip. Carrying more weight with rate hawks though, the preliminary December readings of German CPI was far more interesting with a 1.2 percent monthly jump that was the largest since December 2002 and a 1.9 percent annual clip that marked a level not seen since October 2008. This data would encourage speculation of impending rate hikes were it not for the unbalanced health of the Euro-region. A number of year-end financial reports are doing a good job at reminding the global community that while some EU economies are stable, others are falling into debt-ridden recessions.
British Pound Traders Slowly Sell the Sterling as Reality Sets in about the Future of Austerity
At present, the British pound is looking at a relatively strong economy and a financial appeal that can only be found through a conservative fiscal path. However, the future does not look so encouraging – and it is this reconciliation that threatens the sterling’s future. We were reminded of the side effects of austerity today when the CIPD released a report that projected a 9 percent jobless rate and pay growth less than inflation in 2011.
Japanese Yen: What Does a Tempered Rise from the Yen while The S&P 500 Climbs Suggest
Aside from the relatively staid performance of equities and other risk-sensitive capital markets, the Japanese yen’s restrained performance suggests speculative drive is overall weak into the end of the year. That said, what are we to take away from a steady rise from the S&P 500 and drop by USDJPY? Both currencies exhibit traits of ‘safe havens,’ but simple carry appeal will generally favor the Japanese currency.
New Zealand Dollar Shows a Remarkable Deviation in Strength to its Aussie Counterpart
Looking across the majors, it is difficult to spot the relative strength of the Kiwi dollar. However, looking at AUDNZD we see the very remarkable climb. Sure, the New Zealand currency may have a slight advantage for interest rate potential; but growth as well as financial conditions favor Australia. Perhaps this is where the China effect truly comes into play – that is until things really heat up for Asian giant.
Swiss Franc: Is this the most Fundamentally Appealing Currency in the Market?
If we were to make a quick analysis of the franc; we would note that the SNB is leaning toward rate hikes, risk appetite trends favor the safe haven currency and European financial troubles provide a natural funnel for capital. Is this the most appealing major in the FX market? That may be the case if both EURCHF and USDCHF standing at record lows…
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
Currency | GMT | Release | Survey | Previous | Comments |
JPY | 23:15 | Nomura/JMMA Manufacturing Purchasing Manager Index (DEC) | 47.3 | Rose slightly from October’s 17-month low. | |
JPY | 23:50 | Japan Buying Foreign Bonds (Yen) (DEC 24) | -184.5B | Japanese investors sold 184.5 billion yen in overseas bonds and notes, sold 33.3 billion yen in overseas stocks and bought 72.1 billion yen in overseas short term securities, resulting in a total net sale of 145.8B yen. | |
JPY | 23:50 | Japan Buying Foreign Stocks (Yen) (DEC 24) | -33.3B | ||
JPY | 23:50 | Foreign Buying Japan Bonds (Yen) (DEC 24) | -28.5B | ||
JPY | 23:50 | Foreign Buying Japan Stocks (Yen) (DEC 24) | 224.4B | ||
CNY | 2:30 | HSBC Purchasing Manager Index Manufacturing | 55.3 | China’s manufacturing PMI rose from 54.8 to 55.3 in November. | |
EUR | 8:30 | Italian Business Confidence (DEC) | 102.0 | 101.6 | Likely rose to a 33-month high in December. |
EUR | 9:00 | Italian Producer Price Index (MoM) (NOV) | 0.4% | -0.2% | Producer prices rose 4.0% YoY in October, led by basic metals and coke and refined oil. |
EUR | 9:00 | Italian Producer Price Index (YoY) (NOV) | 3.9% | 4.0% | |
USD | 13:30 | Initial Jobless Claims (DEC 25) | 415K | 420K | Initial claims likely fell last week to their second-lowest level since July 2008. |
USD | 13:30 | Continuing Claims (DEC 18) | 4084K | 4064K | |
USD | 14:45 | Chicago Purchasing Manager Index (DEC) | 61.0 | 62.5 | Chicago PMI rose to a 7-month high in Nov. |
USD | 15:00 | Pending Home Sales (MoM) (NOV) | 0.8% | 10.4% | Pending home sales likely rose in November for a fourth time in the last five months. |
USD | 15:00 | Pending Home Sales (YoY) (NOV) | -22.4% | ||
USD | 16:00 | DOE U.S. Crude Oil Inventories (DEC 24) | -2850K | -5333K | U.S. crude oil refinery inputs averaged 14.9 million barrels per day last week, 48K barrels per day below the previous week’s average as refineries operated at 87.7% of capacity. |
USD | 16:00 | DOE U.S. Gasoline Inventories (DEC 24) | 1500K | 2400K | |
USD | 16:00 | DOE U.S. Distillate Inventory (DEC 24) | -625K | -589K |
SUPPORT AND RESISTANCE LEVELS
CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT
Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
Resist 2 | 1.3840 | 1.6420 | 89.00 | 1.0000 | 1.0922 | 1.0600 | 0.8230 | 127.60 | 146.05 |
Resist 1 | 1.3700 | 1.5910 | 86.00 | 0.9735 | 1.0750 | 1.0200 | 0.8000 | 120.00 | 140.00 |
Spot | 1.3235 | 1.5507 | 81.63 | 0.9458 | 1.0003 | 1.0180 | 0.7673 | 108.04 | 126.58 |
Support 1 | 1.3000 | 1.5312 | 80.00 | 0.9400 | 0.9950 | 0.9600 | 0.6850 | 103.80 | 125.00 |
Support 2 | 1.2925 | 1.5186 | 75.00 | 0.9000 | 0.9700 | 0.9375 | 0.6585 | 100.00 | 119.00 |
CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
Currency | USD/MXN | USD/TRY | USD/ZAR | USD/HKD | USD/SGD | Currency | USD/SEK | USD/DKK | USD/NOK | |
Resist 2 | 14.4500 | 1.6755 | 8.7915 | 7.8165 | 1.4945 | Resist 2 | 7.7500 | 5.7800 | 6.2750 | |
Resist 1 | 13.8500 | 1.5931 | 8.3675 | 7.8075 | 1.4655 | Resist 1 | 7.5800 | 5.6625 | 6.1150 | |
Spot | 12.3721 | 1.5527 | 6.6622 | 7.7829 | 1.2933 | Spot | 6.8068 | 5.6327 | 5.9101 | |
Support 1 | 12.0500 | 1.4724 | 6.6350 | 7.7490 | 1.2750 | Support 1 | 6.4500 | 5.2625 | 5.7030 | |
Support 2 | 11.7200 | 1.3475 | 6.4300 | 7.7450 | 1.2500 | Support 2 | 6.1250 | 5.1000 | 5.5200 |
INTRA-DAY PIVOT POINTS 18:00 GMT
Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
Resist 2 | 1.3341 | 1.5626 | 82.76 | 0.9559 | 1.0094 | 1.0246 | 0.7764 | 108.50 | 127.19 |
Resist 1 | 1.3288 | 1.5566 | 82.20 | 0.9509 | 1.0048 | 1.0213 | 0.7718 | 108.27 | 126.89 |
Pivot | 1.3186 | 1.5459 | 81.90 | 0.9482 | 1.0012 | 1.0151 | 0.7630 | 107.95 | 126.50 |
Support 1 | 1.3133 | 1.5399 | 81.34 | 0.9432 | 0.9966 | 1.0118 | 0.7584 | 107.72 | 126.20 |
Support 2 | 1.3031 | 1.5292 | 81.04 | 0.9405 | 0.9930 | 1.0056 | 0.7496 | 107.40 | 125.81 |
INTRA-DAY PROBABILITY BANDS 18:00 GMT
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Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
Resist. 3 | 1.3430 | 1.5679 | 82.61 | 0.9580 | 1.0112 | 1.0326 | 0.7785 | 109.71 | 128.42 |
Resist. 2 | 1.3381 | 1.5636 | 82.36 | 0.9550 | 1.0085 | 1.0290 | 0.7757 | 109.30 | 127.96 |
Resist. 1 | 1.3333 | 1.5593 | 82.12 | 0.9519 | 1.0057 | 1.0253 | 0.7729 | 108.88 | 127.50 |
Spot | 1.3235 | 1.5507 | 81.63 | 0.9458 | 1.0003 | 1.0180 | 0.7673 | 108.04 | 126.58 |
Support 1 | 1.3137 | 1.5421 | 81.14 | 0.9397 | 0.9949 | 1.0107 | 0.7617 | 107.20 | 125.66 |
Support 2 | 1.3089 | 1.5378 | 80.90 | 0.9366 | 0.9921 | 1.0070 | 0.7589 | 106.78 | 125.20 |
Support 3 | 1.3040 | 1.5335 | 80.65 | 0.9336 | 0.9894 | 1.0034 | 0.7561 | 106.37 | 124.74 |
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Written by: John Kicklighter, Currency Strategist for DailyFX.com
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