Talking Points:
Dollar Drops after FOMC Weighs in on Currency, But is this a Trend?
British Pound: Rate Forecasts Drop Before BoE Decision
Euro Traders Ready for ECB President Draghi Commentary
Dollar Drops after FOMC Weighs in on Currency, But is this a Trend?
Given the S&P 500’s impressive rally and the Dollar’s tumble this past session, it would seem that we have experienced a strong sentiment push. Yet, that doesn’t exactly match the quality of the fundamentals on the day. Top event risk this past session for both US and international markets were the FOMC minutes. Heading into the release, the speculative ranks were adrift having overlooked a disturbing assessment of financial stability released by the IMF – building on the concern in their economic forecasts from the previous day. After the 18:00 GMT FOMC minutes release, the situation changed dramatically. The benchmark S&P 500 equity index rallied 1.8 percent – the biggest rally since the opening day of 2013 – and the VIX volatility index dropped 12 percent to 15.1. On the FX side, the Dow Jones FXCM Dollar Index (ticker = USDollar) slipped a modest 0.3 percent but notched a third consecutive drop – the longest series since the bull wave began in July.
In the Fed’s transcript of its September 16-17 meeting, the central bank offered up a far more conservative view of the economic and financial outlook. The market made special note of the assessment that a global slowing in economic activity was a distinct risk to the United States’ health, and record of another discussion on financial stability reveals a deepening concern amongst global officials. With US equities are on the precipice of tumbling out of its 20-month bull trend, this could have been the push needed to tip sentiment into a correction. Instead, the S&P 500 rallied sharply and the safe haven dollar tumbled. Instead of interpreting the risks ahead, traders recognized a softened will for monetary policy normalization. Traders who have grown accustomed – perhaps dependent – on the extraordinary support from central banks were comforted by concerns over a possible harsh interpretation of a change in forward guidance and the negative inflation pressures the strong dollar would impart. Throwing cold water over a timely rate forecast is certainly a concern for the Dollar. However, is another few months of zero interest rate policy (ZIRP) reason to dive into new risky positions? Keep an eye on risk trends as a range of Fed officials speak today.
British Pound: Rate Forecasts Drop Before BoE Decision
The British Pound was a mixed back Wednesday. Splitting its performance on the day amongst its peers, the currency didn’t leverage much of a move one way or the other. Exchange rate price action aside, though, rate speculation seemed to take a significant stumble. Swap spreads for the time frame that the Bank of England (BoE) is expected to begin its tightening phase dropped this past session to their lowest levels in six months. Specifically the 12-month rate forecast has steadily slid to a five-month low of 36 basis points – indicating debate of more than one hike by October of next year. Data has certainly cooled hawkishness / optimism. The RICS House Price Balance specifically this past session furthered a cycle turn and added to cooling in other sectors. Ahead, we have the BoE decision. However, the central bank does not offer its assessment or sentiments when no change is made. So this will likely be more frustrating than illuminating.
Euro Traders Ready for ECB President Draghi Commentary
ECB President Draghi fell far short of speculators and investors expectations when he announced the asset purchase program ‘details’ last week. Those that short the Euro in anticipation of a program that would rival the Fed or BoJ at their peaks – and investors that expected a firm safety net – were instead met with ambiguity. Is Europe’s financial system safe from a reversal in foreign capital inflows and economic crunch? Has the Euro dropped too far in anticipation of stimulus’s influence over yields? The market is pondering this now. Perhaps Draghi will clarify his commitment today when he discusses Europe and central banking with the Fed’s Fischer in Washington at 15:00 GMT.
Australian Dollar Advances after Weak Employment Data, Negative Revisions?
Australia September employment figures were very unflattering. Furthermore, the revisions to August’s ‘too good to be true’ further undermined already shaky confidence in the economy and return to glory for a carry currency. According to the Bureau of Statistics, employers laid off a net 29,700 Australians while the unemployment rate held at its 11-year high 6.1 percent. The previous month’s 121,000-person increase was revised back to 32,100. So, why then did the Aussie recover from early losses? Traders were already prepared and preoccupied with China.
Yen Crosses Gain on Risk Appetite, But Doubt Trails Behind
Like equities, the Yen crosses were buoyed this past session by a hope for a longer draw on the rewards of cheap US funding after the FOMC minutes. Then again, the same doubt that clouds the idea of adding to near a record high and multi-decade low participation move in equities would linger with carry traders. Aggregate 10-year yields on the majors is currently at a 19 month low – a weak appeal on low volatility.
Emerging Market Currencies Mixed, Ruble Intervention Isn’t Working
Though volume was tepid in the deeper waters of the capital markets, turnover picked up heartily for the MSCI Emerging Market ETF to support its 1.5 percent rally. Another ‘risk’ sensitive asset class, it isn’t difficult to divine its motivation. Yet, it is reasonable to question its conviction when we see the mixed FX picture. Half dropped (some heavily) on the day. A standout is the Ruble, which Russia has been buying to curb.
Gold Retreats from Critical Break on Dollar’s Trouble
A sigh of relief from gold bugs. Like US equity indexes, the precious metal was on the verge of breaking through a key level ($1,180) and crashing to multi-year lows. Yet, the dollar’s misfortune seems to have stayed execution. A longer period of low rates in the US paired with growing stimulus in other major regions means an alternative to currencies has some value.**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 (OCT)
3.5%
0:30
AUD
Employment Change (SEP)
-30.0K
121.0K
0:30
AUD
Unemployment Rate (SEP)
6.2%
6.1%
0:30
AUD
Full Time Employment Change (SEP)
14.3K
0:30
AUD
Part Time Employment Change (SEP)
106.7K
0:30
AUD
Participation Rate (SEP)
65.0%
65.2%
2:00
JPY
Tokyo Average Office Vacancies (SEP)
6.02
6:00
JPY
Machine Tool Orders (YoY) (SEP P)
35.5%
6:00
EUR
German Trade Balance (euros) (AUG)
17.7B
23.4B
6:00
EUR
German Current Account (euros) (AUG)
13.8B
21.7B
6:00
EUR
German Exports s.a. (MoM) (AUG)
-4.0%
4.7%
6:00
EUR
German Imports s.a. (MoM) (AUG)
0.9%
-1.8%
6:45
EUR
French Trade Balance (euros) (AUG)
-5500M
-5539M
11:00
GBP
Bank of England Interest Rate Decision
0.50%
0.50%
11:00
GBP
Bank of England Asset Purchase Target
375B
375B
12:30
CAD
New Housing Price Index (MoM) (AUG)
0.0%
12:30
CAD
New Housing Price Index (YoY) (AUG)
1.40%
12:30
USD
Initial Jobless Claims (OCT 4)
287K
12:30
USD
Continuing Claims (SEP 27)
2398K
14:00
USD
Wholesale Inventories (AUG)
0.3%
0.1%
14:00
USD
Wholesale Trade Sales (MoM) (AUG)
0.7%
23:50
JPY
Tertiary Industry Index (MoM) (AUG)
0.1%
0.0%
23:50
JPY
Bank Lending Banks inc Trusts (YoY) (SEP)
2.2%
23:50
JPY
Bank Lending Banks ex Trusts (SEP)
2.3%
GMT
Currency
Upcoming Events & Speeches
-:-
ALL
G20 Finance Ministers and Central Bank Govs Meeting
8:00
EUR
European Central Bank Monthly Report
13:45
USD
Fed’s James Bullard Speaks on Monetary Policy
15:00
EUR
ECB President Mario Draghi Speaks on Monetary Policy
15:00
USD
Fed’s Richard Fisher Speaks on Monetary Policy
17:00
USD
US to Sell $13 Bln in 30-Year Bonds
17:10
USD
Fed’s Daniel Tarullo Speaks on Banking Regulation
17:15
USD
Fed’s Jeffrey Lacker Speaks on U.S. Economy
17:30
USD
Fed’s Richard Fisher Speaks on Monetary Policy
19:40
USD
Fed’s John Williams Speaks on U.S. Economy
23:50
JPY
Bank of Japan Meeting Minutes
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
6.7400
Resist 1
13.5800
2.3000
11.8750
7.8075
1.3250
Resist 1
7.3285
5.8475
6.5135
Spot
13.3930
2.2618
11.2060
7.7538
1.2697
Spot
7.2098
5.8372
6.3980
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
1.2850
1.6421
109.56
0.9547
1.1181
0.8873
0.8008
139.63
1245.51
Res 2
1.2825
1.6394
109.33
0.9526
1.1159
0.8851
0.7987
139.35
1239.83
Res 1
1.2801
1.6367
109.10
0.9506
1.1137
0.8830
0.7966
139.08
1234.16
Spot
1.2752
1.6314
108.64
0.9466
1.1093
0.8786
0.7925
138.53
1222.81
Supp 1
1.2703
1.6261
108.18
0.9426
1.1049
0.8742
0.7884
137.98
1211.46
Supp 2
1.2679
1.6234
107.95
0.9406
1.1027
0.8721
0.7863
137.71
1205.79
Supp 3
1.2654
1.6207
107.72
0.9385
1.1005
0.8699
0.7842
137.43
1200.11
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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.Learn forex trading with a free practice account and trading charts from FXCM.
Source: Daily fx