Dollar Slow to Offer EURUSD Progress While Stocks Plunge

  • Dollar Slow to Offer EURUSD Progress While Stocks Plunge
  • Euro: Be Careful of a Crisis Relief Rally
  • British Pound Lets its Stimulus Effort End, Sterling Exposed
  • Japanese Yen Rallies Across the Board, Outpaces Dollar
  • Swiss Franc May Stay Away from 1.2000 as Authorities Target Greece Tax Evasion
  • Canadian Dollar: Disappointing Data Amplifies Risk Aversion
  • Gold Taking Advantage of Dollar Weakness, Financial Uncertainty

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Dollar Slow to Offer EURUSD Progress While Stocks Plunge

Risk aversion has presented itself as a dominant theme this week, so why is the dollar struggling to gain traction? Taking a read on sentiment, we note that the benchmark US equity indexes had grazed serious resistance earlier in the opening 48 hours of the week and subsequently dove into a convincing bear trend. For the S&P 500, that downshift came with a break below 1,400; while the Dow Jones Industrial Average changed hands when it slipped below 13,000. Not only are equities a straight-forward and common measure of sentiment amongst the speculative ranks, but the Fed’s presence has imparted a persistent bias. In other words, expectations that the central bank would quickly absorb any risk that popped up in the market with QE has set the bar exceptionally high for the level of risk aversion needed to turn US stocks.

Yet, turn they did. And given the buildup in market levels against a steadily deteriorating fundamental backdrop (growth slowing, financial stability wavering, etc) it looks like we are still in the early stages of a downturn. That being said, in the height of the risk downturn this week, we have seen the dollar make no move to match the sentiment we’ve seen. The Dow Jones FXCM Dollar Index (ticker = USDollar) itself remains capped below 10,000. For the majors, EURUSD has added no momentum to its otherwise impressive break to two-month lows below 1.2800 and AUDUSD has proven unable to collapse 1.0400. We have seen a break in correlation signal a lack of conviction – a fact that has stalled numerous risk runs in the recent past. If the risk aversion move holds consistent, the dollar would most likely fall into line.

However, there is another possible explanation for the greenback’s unusual departure from sentiment: its safe haven appeal has been undermined. After the US election, we retain a divided Executive and Legislative branch which renders a budget agreement to prevent the fiscal cliff exceptionally difficult. The IMF highlighted the issue this past session when the group said a lack of resolution on the United State’s budget impasse would undermine the currency’s reserve status. Yet, as Standard & Poor’s (the agency that has already downgraded the US) noted, it is unlikely that some form of solution that avoids a $600 billion gouge can’t be found. Therefore, if the risk aversion drive maintains its momentum, the dollar will likely catch up with a rally of its own. On the other hand, a fiscal cliff answer could also lead to a relief rally…

Euro: Be Careful of a Crisis Relief Rally

If the US found a common ground to its budgetary dilemma, the subsequent risk rally would almost certainly benefit the fundamentally-troubled euro and drive EURUSD and EURJPY higher. That said, the burden for direction and conviction doesn’t lie solely on the US situation. The euro-area debt crisis is arguably on the same level in terms of importance – though it is a little more complex. In that multi-layered fundamental situation, though, lies the potential for relief rallies. This past session, officials tempted the bulls by pushing back the deadline on the decision for Greece’s bailout decision (from November 12 to 26). That news accompanied rumors that the country could be given a haircut (lower rates) on its debt and data that showed the jobless rates rose above 25 percent. Spain is the other sticking point as Prime Minister Rajoy continues to hold out for a full bailout request. If he does ask, ECB President Draghi said the OMT program is ready. Are rate cuts an option as well?

British Pound Lets its Stimulus Effort End, Sterling Exposed

A hold by the Bank of England (BoE) is usually a non-event for the sterling. However, this time around, the central bank’s decision not to act was a strategic move. The group’s latest increase to its asset purchase program has topped off at 375 billion pounds. No increase to the program indicates the balance sheet will level off. In the days and weeks before the decision, some MPC members have voiced their doubt that increases to the effort have marginal benefits to the economy due to transmission issues. What is unusual was the lack of a modification to the Funds for Lending program. Under the pinch of austerity, the UK economy is in a fragile position and the BoE seems to be offering little support.

Japanese Yen Rallies Across the Board, Outpaces Dollar

Whether you label it risk aversion or carry unwind, the move away from yield Thursday proved exceptionally beneficial to the Japanese yen. The currency outperformed all of its major counterparts (even posting a 0.66 percent increase over the dollar). Rallying against the investment and fundamentally-questionable foils is easy enough to understand. Yet, the performance of USDJPY - and to a lesser extent GBPJPY - speaks to an inherent strength. That is an issue for Japanese officials who will not take this strength lightly – and neither should we.

Swiss Franc May Stay Away from 1.2000 as Authorities Target Greece Tax Evasion

Economists, analysts and traders all spotted the short-comings of the SNB’s decision to impose a floor on EURCHF: it wouldn’t curb the natural flow of capital seeking safety and thereby rise off 1.2000. Recently, assuaged tail risk from the Euro-area crisis has offered buoyancy, but that confidence is flimsy at best. If policy officials want to change the structural issues while they have the chance, they need to answer the safe haven flow problem. News that authorities were working to identify Greek tax evaders is the exact approach that can dissuade safe haven flows.

Canadian Dollar: Disappointing Data Amplifies Risk Aversion

Though it was a mild performance, the Canadian dollar posted a notable slide against all but the New Zealand dollar this past session. The data on Canada’s docket certainly did little to bolster the currency’s position. The trade deficit contracted in September, but it is only two months up from a record outflow (and six months in the red). Housing starts similarly missed target. With sentiment fading, this was an accelerant.

Gold Taking Advantage of Dollar Weakness, Financial Uncertainty

The combination of risk aversion and dollar weakness is a perfect combination for gold. When investors are seeking haven and they can’t find it is dollars / treasuries, there are few assets for money managements that can match the precious metal for safety. However, if there is a fiscal cliff answer and the Euro-crisis is pushed back to the end of the month; gold may be rendered unnecessary quickly.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

1:30

CNY

PPI (YoY) (OCT)

-2.8%

-3.6%

Prices expected to be stable as China changes leadership; stable prices may give easing room

1:30

CNY

CPI (YoY) (OCT)

1.9%

1.9%

5:00

JPY

Consumer Confidence (OCT)

-

40.1

Confidence continues to lag industrial recovery

5:30

CNY

Industrial Production (YoY) (OCT)

-

9.2%

Secondary data showing Chinese economy relatively stable, decreasing chances of a hard landing in the short term

5:30

CNY

Industrial Production YTD (YoY) (OCT)

-

10.0%

5:30

CNY

Retail Sales (YoY) (OCT)

14.3%

14.2%

5:30

CNY

Retail Sales YTD YoY (OCT)

-

14.1%

5:30

CNY

Fixed Assets Inv Excl. Rural YTD (YoY)

-

20.5%

7:00

EUR

German CPI (MoM) (OCT F)

-

0.0%

Stable German inflation at 2% target may open doors for additional easing if needed; fiscal option remains on the table

7:00

EUR

German CPI (YoY) (OCT F)

2.0%

2.0%

7:00

EUR

German CPI - EU Harmonised (MoM) (OCT F)

0.1%

0.1%

7:00

EUR

German CPI - EU Harmonised (YoY) (OCT F)

2.1%

2.1%

9:30

GBP

Visible Trade Balance (SEP)

-£8900

-£9844

British trade deficit may shrink as spending on imports start to drop

9:30

GBP

Trade Balance Non EU (SEP)

-£4600

-£4972

9:30

GBP

Total Trade Balance (SEP)

-£3200

-£4169

13:30

USD

Import Price Index (MoM) (OCT)

0.0%

1.1%

Import price may be due to dollar recovery after QE effects

13:30

USD

Import Price Index (YoY) (OCT)

-0.5%

-0.6%

14:55

USD

U. of Michigan Confidence (NOV P)

82.9

82.6

Consumer confidence expected to improve again, suggesting US economy is leading world in recovery

15:00

USD

Wholesale Inventories (SEP)

0.4%

0.5%

Company spending continues to grow, though possibly at a slower pace

GMT

Currency

Upcoming Events & Speeches

00:30

AUD

RBA Issues Statement on Monetary Policy

01:00

USD

Fed's Bullard Speaks on Economy in St. Louis

09:00

EUR

EU Representatives Hold Budget Meeting

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visitTechnical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit ourPivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USDMXN

USDTRY

USDZAR

USDHKD

USDSGD

Currency

USDSEK

USDDKK

USDNOK

Resist 2

15.5900

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

6.1875

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.7600

5.8575

5.7800

Spot

13.1656

1.7859

8.7089

7.7514

1.2253

Spot

6.6782

5.8526

5.7210

Support 1

12.5000

1.6500

8.5650

7.7490

1.2000

Support 1

6.0800

5.5840

5.6000

Support 2

11.5200

1.5725

6.5575

7.7450

1.1800

Support 2

5.8085

5.3350

5.3040

INTRA-DAY PROBABILITY BANDS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist. 3

1.2853

1.6083

80.09

0.9536

1.0071

1.0489

0.8222

102.41

128.22

Resist. 2

1.2827

1.6057

79.94

0.9517

1.0054

1.0467

0.8203

102.14

127.92

Resist. 1

1.2800

1.6032

79.79

0.9497

1.0038

1.0445

0.8185

101.87

127.63

Spot

1.2746

1.5981

79.49

0.9459

1.0004

1.0402

0.8148

101.32

127.04

Support 1

1.2692

1.5930

79.19

0.9421

0.9970

1.0359

0.8111

100.77

126.44

Support 2

1.2665

1.5905

79.04

0.9401

0.9954

1.0337

0.8093

100.50

126.15

Support 3

1.2639

1.5879

78.89

0.9382

0.9937

1.0315

0.8074

100.23

125.85

v

--- Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at https://www.twitter.com/JohnKicklighter

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Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9273-0.0092-0.98%
    AUDUSD=X
    0.5524-0.0042-0.75%
    AUDGBP=X
    0.6704-0.008-1.19%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg