Talking Points:
Dollar Outlook Improves after Hawkish FOMC Minutes
Euro: What’s the Probability of an ECB-Led Collapse?
British Pound Traders Won’t Hold Their Breath for the BoE
Dollar Outlook Improves after Hawkish FOMC Minutes
A clear, hawkish tone from the FOMC minutes this past session fortified the central bank’s Taper bearing and in turn supported the dollar to further gains. Looking at the currency’s performance on the day, the unit advanced against all but the sterling – although the gains were relatively modest (between 0.2 and 0.5 percent). The restraint speaks volumes to technical trader who see meaningful dollar resistance for pairs like EURUSD and USDJPY in the immediate foreground. The same boundary is reflected on the Dow Jones FXCM Dollar Index (ticker = USDollar) which has held below 10,720 for the past three weeks. Yet, as this ceiling has held in place, progress in general has floundered – so much so that the Average True Range (ATR, a good volatility gauge) has dropped to its lowest level in 12 months. What does this mean? The market is exceptionally quiet for the dollar and a breakout is a high probability. Just in time for a Friday NFPs on the heels of the Taper…
Meanwhile, many traders are still surprised by the dollar’s and S&P 500’s lack of response to the Fed’s change in monetary religion. The chart comparing the performance of risk-laden capital markets and the central bank’s balance sheet (one that I have and will continue to refer to often) has increased the anxiety and appetite for an abrupt change in investor habits. Yet, the implications of an untethered risk backdrop have yet to upset the balance of complacency. It is making progress though…
In the minutes for the Fed’s December 17-18 meeting, the central bank noted “many” supported tapering the QE program in “measured steps” as labor markets show ongoing improvement and inflation moves slowly back towards the 2 percent target. That sets objective and justification. More interesting was the suggestion that there was a sense of waning benefit in the monthly purchases and rumination that stimulus could generate financial stability risks due to its support of excessive risk taking. Some may take the S&P 500’s 0.6 percent advance (notably the largest since the Taper) evidence that the market in apathetic to the policy implications, but Treasuries paint a different picture. Two-year yields advanced to their highest level since September 13. Pressure is building. Perhaps the eruptions comes with a catalyst like Friday NFPs.
Euro: What’s the Probability of an ECB-Led Collapse?
Most major central banks have a dual mandate: to promote steady inflation and full ‘natural’ employment. This past Tuesday, core inflation for the Eurozone dropped to a record low (0.7 percent) and this past session the region’s unemployment rate held at a record high (12.1 percent). That is a nerve-racking position to be in just before the ECB’s monetary policy decision. The central bank’s 25 bp rate cut in November is still fresh in traders’ minds, but we know the rope has run out along this standard line of monetary policy. A further cut to zero would yield little benefit. Speculation of further accommodation has focused on negative deposit rates or introducing a new, targeted stimulus program. Yet, these are moves not easily decided. Either would be euro negative as it would reduce market rates and draw a stark contrast to the dollar. However, neither is likely as there is little of the financial pressure of years’ past and they would likely sound the alarm well in advance.
Sign up for DailyFX-Plus to have access to Trading Q&A’s, educational webinars, updated speculative positioning measures, trading signals and much more!
British Pound Traders Won’t Hold Their Breath for the BoE
The Bank of England policy rate decision Thursday is ‘the other’ monetary policy event for the day. In contrast to the ECB where there is a material possibility of policy changes and President Draghi offers impressions for the market to assess future bearings, the UK’s central bank is typically mum when there are no meaningful changes to the schema. No update helps the sterling’s position. The fundamental trend for the currency is a six-month rally forged out of a dramatic shift forward in rate expectations (seeing a hike now as early as late 2014). Anything that definitively undermined that view could seriously deflate the rally. To that point, the trade report may carry more impact than the BoE.
Yen Crosses Struggling to Return to Prevailing Trend
The yen crosses’ recovery effort following the correction between January 1st and 6th is uneven and unconvincing. While a strong risk appetite element is certainly absent, a low volatility (as a measure of ‘risk’) environment should theoretically still promote dominant trends and a reversion back to a relative monetary policy view where the BoJ is considered the world’s most liberal stimulus purveyor. One or both of these themes is shaken. Short-term FX-based risk measures are elevated. As for stimulus, we are still months out and we’ve had few reassurances recently.
Canadian Dollar Extends Decline after Poloz Says Not Under Pressure to Hike
There was little doubt that the Canadian dollar was the worst performer amongst the majors for the day. The currency dropped against all of its counterparts, with a notable performance from USDCAD as it broke to fresh three-year highs above 1.0800. This loonie tumble is a fundamental snowball building girth on Flaherty talking down the currency Monday, weak data Tuesday and Poloz writing off rate pressure Wednesday.
Australian Dollar Close to Fresh Five-Year Lows Versus Kiwi
The two favored carry currencies amongst the majors are close to hitting a fresh extreme in a technical sense. Yet, the fundamental gap continues to close. AUDNZD is just above the December 18 low – a five year low – and the Aussie dollar is under pressure in other corners of the market. Yet, the 10-year yield differential is only 40 bps wide and the yield forecast gap is 7 bps narrower this past week.
US Oil Revives the Bear, Drops Below $93
So much for the effort to turn the bear tide on oil. After Tuesday’s indecisive performance, the commodity dropped another 1.4 percent this past session. Form the December 27 peak, the commodity is down 8.4 percent. If the market slips below $92, we will return to lows not seen in eight months. For supply and demand, DoE implied demand hit a January 3, 2013 low. But the issue is likely structural as the Brent spread shows.
Gold Likely to Overlook ECB and BoE in Favor of Friday NFPs
There are three major roles gold played in its incredible rally through 2011. We may see the market revisit one of those lost titles through the final 48 hours of the trading week. On deck, we have the ECB and BoE rate decisions. Given the latter will likely be silent and the former is hesitant to move to QE, gold’s hopes are minimized. This is especially true with the NFPs potentially leveraging the dollar Friday.**Bring the economic calendar to your charts with the DailyFX News App.
ECONOMIC DATA
GMT
Currency
Release
Survey
Previous
Comments
0:30
AUD
Retail Sales MoM (Nov)
0.4%
0.5%
September’s print was the best since early 2013.
0:30
AUD
Building Approvals MoM (Nov)
-1.0%
-1.8%
MoM was est. -3.0% last week. YoY was est. 20.1% last week.
0:30
AUD
Building Approvals YoY (Nov)
21.1%
23.1%
01:30
CNY
CPI YoY (Dec)
2.70%
3.00%
Market participants will view lower inflation levels as China/AUD bullish as it leaves room for further accommodation by the PBOC.
01:30
CNY
PPI YoY (Dec)
-1.30%
-1.40%
7:45
EUR
France Trade Balance (Nov)
-4600M
-4697M
The French print has been south of -4000 all but once since 2011.
9:00
EUR
Italy Deficit to GDP YTD (3Q)
4.10%
9:30
GBP
Visible Trade Balance GBP/Mn (Nov)
-£9450
-£9732
Visible Trade Balance GBP/Mn is just above all-time lows.
9:30
GBP
Trade Balance Non EU GBP/Mn (Nov)
-£3254
9:30
GBP
Trade Balance (Nov)
-£2619
10:00
EUR
Economic Confidence (Dec)
99
98.5
Price action may be limited / moves may be faded here ahead of event risk with the ECB at 12:45GMT. Industrial Orders out of Germany may support the Euro following better than expected German Factory Orders on Wednesday.
10:00
EUR
Business Climate Indicator (Dec)
0.18
10:00
EUR
Consumer Confidence (Dec F)
-13.6
-13.6
10:00
EUR
Services Confidence (Dec)
-0.8
10:00
EUR
Industrial Confidence (Dec)
-3
-3.9
11:00
EUR
Germany Industrial Production SA MoM (Nov)
1.50%
-1.20%
11:00
EUR
Germany Industrial Production WDA YoY (Nov)
3.00%
1.00%
12:00
GBP
Bank of England Bank Rate
0.50%
0.50%
BoE price action has remained limited as Carney’s BoE has been light on the statements.
12:00
GBP
BOE Asset Purchase Target (Jan)
375B
375B
12:30
USD
Challenger Job Cuts YoY (Dec)
-20.60%
The Challenger Job Cuts print has been on the decline since August.
12:30
USD
RBC Consumer Outlook Index (Jan)
49.7
12:45
EUR
ECB Announces Interest Rates
0.25%
0.25%
Any serious mention of Negative Deposit Facility Rates or new QE would adversely impact the Euro when the Fed is Tapering
12:45
EUR
ECB Deposit Facility Rate
0.00%
0.00%
12:45
EUR
ECB Marginal Lending Facility
0.75%
0.75%
13:15
CAD
Housing Starts (Dec)
192.2K
With USD/CAD pushing multi-year highs, negative data out of Canada may add more fuel to its push higher.
13:30
CAD
Building Permits MoM (Nov)
7.40%
13:30
CAD
New Housing Price Index MoM (Nov)
0.10%
13:30
CAD
New Housing Price Index YoY (Nov)
1.50%
13:30
USD
Initial Jobless Claims (Jan 4)
320K
339K
This will be the last insight into the U.S. jobs market before NFPs on Friday. ADP Employment Change figures beat on Wednesday.
13:30
USD
Continuing Claims (Dec 28)
2833K
14:45
USD
Bloomberg Consumer Comfort (Jan 5)
-28.7
23:50
JPY
Official Reserve Assets (Dec)
$1275.4B
Foreign buying of Japanese bonds last week was the lowest since late September.
23:50
JPY
Japan Buying Foreign Bonds (Jan 3)
-¥680.6B
23:50
JPY
Japan Buying Foreign Stocks (Jan 3)
-¥141.4B
23:50
JPY
Foreign Buying Japan Bonds (Jan 3)
-¥776.7B
23:50
JPY
Foreign Buying Japan Stocks (Jan 3)
¥838.3B
GMT
Currency
Upcoming Events & Speeches
1:00
JPY
Bloomberg Jan. Japan Economic Survey
10:00
EUR
Italy Bank of Italy Report on Balance-Sheet Aggregates
13:30
EUR
ECB President Draghi Presser
15:00
USD
House Monetary Policy Subcommittee Hearing on Fed Bond Buying
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
13.4800
2.2500
11.8750
7.8165
1.3650
Resist 2
7.5800
5.8950
6.5135
Resist 1
13.2400
2.2000
10.7250
7.8075
1.3250
Resist 1
6.8155
5.8475
6.2660
Spot
13.1270
2.1840
10.7668
7.7544
1.2722
Spot
6.5748
5.4941
6.1988
Support 1
12.6000
2.1000
10.2500
7.7490
1.2000
Support 1
6.0800
5.3350
5.7450
Support 2
12.4200
1.7500
9.3700
7.7450
1.1800
Support 2
5.8085
5.2715
5.5655
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
1.3681
1.6565
105.91
0.9204
1.0923
0.8969
0.8343
144.00
1252.06
Res 2
1.3655
1.6535
105.65
0.9183
1.0903
0.8947
0.8321
143.60
1245.82
Res 1
1.3630
1.6506
105.38
0.9162
1.0882
0.8925
0.8300
143.20
1239.58
Spot
1.3579
1.6447
104.86
0.9121
1.0842
0.8881
0.8256
142.40
1227.10
Supp 1
1.3528
1.6388
104.34
0.9080
1.0802
0.8837
0.8212
141.60
1214.62
Supp 2
1.3503
1.6359
104.07
0.9059
1.0781
0.8815
0.8191
141.20
1208.38
Supp 3
1.3477
1.6329
103.81
0.9038
1.0761
0.8793
0.8169
140.80
1202.14
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
Sign up for John’s email distribution list, here.
The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
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