Dollar Traders Watch EUR/USD, AUD/USD After Overnight Risk Plunge

  • Dollar Traders Watch EUR/USD, AUD/USD After Overnight Risk Plunge
  • Euro Takes a Hit Through Risk Channels Overnight
  • Australian and New Zealand Dollars Dive on US Fiscal Cliff Fears
  • Japanese Yen Nudged Higher but Full Reversal Not Yet Confirmed
  • British Pound: Short-Term GBPUSD Fear Reading at Record Low
  • Canadian Dollar Faces Risk Winds Heading into Heavy Data
  • Gold Breaks Mid-Point of Year’s Range, Ignores Stalled Plan B News

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Dollar Traders Watch EUR/USD, AUD/USD After Overnight Risk Plunge

We were reminded this morning that these are not the kind of market and fundamental trading conditions that you can simply leave a risk-sensitive position unattended in. Through much of the active trading hours Thursday, speculative trends were tame and the safe haven dollar was left to drift in its ever-tightening range. With speculative participation already near 15-year lows (measured through S&P 500 futures open interest) and the FX Volatility Index dragging along at 5-year lows, there is the natural inclination to simply return to the sidelines while some even let their riskier positions collect yield. However, a lack of liquidity, markets dangling at extremes after an aggressive rally the past four weeks, and a serious unresolved risk in the US Fiscal Cliff does not make for a safe / passive trading environment.

After the rather slow trading through Thursday’s session, volatility ripped through the markets during the morning hours of the Asian trading session – normally the quietest period for systemic activity. The catalyst was the market’s last, major threat through the end of the year: the countdown to the automatic US budget adjustments. Yesterday, after the White House and Republican Congressional leaders broke without any reported progress on the ongoing negotiations; Speaker Boehner said that a Plan B bill would be put through the House of Representatives. Both the Senate Majority Leader and President both said the proposed back up plan would never receive approval through their respective phases, so market-based Fiscal Cliff watchers should have already discounted the effort’s market influence. And yet, when news that there wasn’t enough support in the House to pass the bill hit the wires before 8 PM EST, the markets started to convulse. The most dramatic effect came through the S&P 500 futures which collapsed nearly 50 points in minutes. The failure of an effort that wouldn’t be taken seriously wasn’t likely what the markets were responding to, rather it was the suggestion that the House was in recess until after Christmas.

If this critical branch of government is offline until next Wednesday, there is only four full days (fewer for reasonable negotiations) to push through a deal that averts automatic tax hikes and spending cuts that the Congressional Budget Office forecasts will pitch the US economy into recession in 2013. A deal can still be done, but the probabilities that it won’t are clearly starting to rise. The return of tail risk certainly exposes positions that are deemed ‘risky’. And yet, when we look at the risk sensitive majors (EURUSD, AUDUSD, GBPUSD) and incredibly overbought yen crosses (EURJPY, AUDJPY, NZDJPY), the reaction was tepid. A difference in market depth and speculative concentration no doubt has a lot to do with this. Now we watch to see whether a ‘flash’ reaction will have deeper implications for risk that leverage an 11th hour dollar rally. It is important to remember: next week will be largely drained of participation, but we also have the Quadruple Witching Friday expiration Friday.

Euro Takes a Hit Through Risk Channels Overnight

Over the past few weeks, there has been something of a collective sigh of relief amongst Euro traders as sovereign yield spreads, banking crises and sovereign aid payments have all found progress. This has certainly generated a serious push of support for the shared currency as it has risen against everyone of its counterparts over the past month. Yet, a relief rally is a passive move. An active catalyst can easily take the reins. The jump in the Spanish and Greek deficit along with the three-and-a-half year low in EZ consumer confidence stir a little concern, but outright risk aversion the tide that sinks all ships. In early Friday trade, the Euro is down against all but the New Zealand dollar.

Australian and New Zealand Dollars Dive on US Fiscal Cliff Fears

There are those that believe currency’s that bear a higher yield are in fact ‘safer’ than their counterparts because they produce return that offsets possible capital losses (a decline in the currency). However, when risk aversion kicks in, the need is to ‘free up’ capital to either cover losing trades or hold cash. We felt a little bit of that headwind this morning when the Fiscal Cliff headlines drove equity futures lower. The threat of a broader unwind of speculative positions before the general liquidity drain of next week can exacerbate already richly priced currencies.

Japanese Yen Nudged Higher but Full Reversal Not Yet Confirmed

After a consistent drive higher, the yen crosses have essentially leveled off the past two trading days. And, finally this morning, it seems like there may be the start of an effort to unwind late-in-the game speculative positions (not to mention a sudden demand for safety. The yen is up across the board this morning (from 0.6 to 1.0 percent) on the US fiscal fears, but we are not yet seeing a full blown freefall.

British Pound: Short-Term GBPUSD Fear Reading at Record Low

Generally, activity levels across the capital markets have receded over the past weeks, months and even years. That is why we find the FX Volatility Index at its five year low and the trend in S&P 500 volume dropping to multi-year lows itself. However, there are some that are even more inert than others. And, for the short-term risk measure of GBPUSD (one-week implied volatility); we find an incredible extreme – a record low below 4 percent. The pair is certainly more fundamentally stable than most, but such a lack of concern is worrisome.

Canadian Dollar Faces Risk Winds Heading into Heavy Data

Is the Canadian dollar the perfect blend of safe haven and investment appeal? With the IMF’s reserve status contemplation still lingering in the air, we found a surprise jump in domestic economic strength from Canada in the form of the biggest jump in retail sales since October 2011. A tame performance in the risk-off overnight will lead us into possible beta volatility and GDP, CPI data tomorrow.

Gold Breaks Mid-Point of Year’s Range, Ignores Stalled Plan B News

With the Fiscal Cliff activity through the overnight, gold’s tumble might make sense. Yet, the dollar hasn’t really taken off, a Fiscal Cliff would theoretically boost the metals value (through possibility of US downgrade) and the commodity actually made its drop before the drop. Yet, break the mid-point of the year’s range and 200-day moving average it did. The five-day slide is the biggest since July 10, 2011.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:01

GBP

GfK Consumer Confidence Survey

-25

-22

Although weak for some time, starting to improve.

1:35

CNY

MNI Flash Business Sentiment Indicator

China slowdown stabilizing, look for positive reading.

2:00

NZD

Credit Card Spending s.a. (MoM)

0.3%

Good gauge of consumer spending, but rising debt is bad.

2:00

NZD

Credit Card Spending (YoY)

-0.9%

7:00

EUR

German GfK Consumer Confidence Survey

5.9

5.9

Recession in Euroarea could weigh on sentiment.

8:00

CHF

Money Supply M3 (YoY)

8.6%

Swiss banking is flush with cash and charging fees on deposits.

9:30

GBP

Public Finances (PSNCR) (Pounds)

-1.0B

-14.7B

A stressed economy will require more borrowing.

9:30

GBP

Public Sector Net Borrowing (Pounds)

14.0B

6.5B

9:30

GBP

PSNB ex Interventions

15.9B

8.6B

9:30

GBP

Current Account (Pounds)

-14.0B

-20.8B

Running big deficits and trending lower.

9:30

GBP

Gross Domestic Product (YoY) (3Q F)

-0.1%

-0.1%

Recent growth may continue.

9:30

GBP

Gross Domestic Product (QoQ) (3Q F)

1.0%

1.0%

9:30

GBP

Total Business Investment (QoQ) (3Q F)

3.7%

3.7%

Business investment is stable and shows sign of strength.

9:30

GBP

Total Business Investment (YoY) (3Q F)

4.5%

4.5%

9:30

GBP

Index of Services (MoM) (3Q F)

-0.2%

-0.5%

Volatile data release, recently weak. Look for rebound.

9:30

GBP

Index of Services (3Mo3M) (3Q F)

1.1%

1.3%

13:30

CAD

Gross Domestic Product (MoM)

0.1%

0.0%

Average growth since 2008 has been +0.1% on monthly basis.

13:30

CAD

Gross Domestic Product (YoY)

1.2%

1.0%

13:30

CAD

Consumer Price Index (MoM)

-0.1%

0.2%

Average since 2008 at +0.2% on a monthly basis. Core CPI has declined from 2.3% annual since 2/29/2012.

13:30

CAD

Consumer Price Index (YoY)

1.0%

1.2%

13:30

CAD

Bank Canada Consumer Price Index Core (YoY)

1.0%

1.2%

13:30

USD

Personal Income

0.3%

0.0%

Personal income growth has averaged +0.3% over 2012. Spending may flag on recent poor confidence reading.

13:30

USD

Personal Spending

0.4%

-0.2%

13:30

USD

PCE Deflator (MoM)

-0.1%

0.1%

13:30

USD

Personal Consumption Expenditure Deflator (YoY)

1.6%

1.7%

13:30

USD

Personal Consumption Expenditure Core (MoM)

0.1%

0.1%

13:30

USD

Personal Consumption Expenditure Core (YoY)

1.6%

1.6%

13:30

USD

Chicago Fed Nat Activity Index

-0.56

Declining since beginning of year.

14:55

USD

U. of Michigan Confidence (DEC F)

75

74.5

Declined 9% since November reading

GMT

Currency

Upcoming Events & Speeches

-:-

USD

Quadruple Witching Friday – 4 Derivative Classes Expire

05:00

JPY

Bank of Japan and Cabinet Office Monthly Economic Report

07:00

EUR

German FinMin publishes December report

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

1.3186

1.6226

84.41

0.9335

0.9901

Resist 2

7.5800

6.1875

6.1150

Resist 1

1.3160

1.6203

84.20

0.9317

0.9887

Resist 1

6.8155

5.9190

5.8200

Spot

1.3134

1.6181

84.00

0.9299

0.9872

Spot

6.6833

5.7027

5.6227

Support 1

1.3082

1.6135

83.59

0.9264

0.9844

Support 1

6.0800

5.5840

5.6000

Support 2

1.3030

1.6089

83.18

0.9229

0.9816

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

1.3186

1.6226

84.41

0.9335

0.9901

1.0629

0.8516

110.62

136.25

Resist. 2

1.3160

1.6203

84.20

0.9317

0.9887

1.0609

0.8498

110.30

135.90

Resist. 1

1.3134

1.6181

84.00

0.9299

0.9872

1.0589

0.8480

109.98

135.56

Spot

1.3082

1.6135

83.59

0.9264

0.9844

1.0550

0.8444

109.35

134.87

Support 1

1.3030

1.6089

83.18

0.9229

0.9816

1.0511

0.8408

108.72

134.18

Support 2

1.3004

1.6067

82.98

0.9211

0.9801

1.0491

0.8390

108.40

133.83

Support 3

1.2978

1.6044

82.77

0.9193

0.9787

1.0471

0.8372

108.08

133.49

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

Sign up for John’s email distribution list, here.

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MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.1290.0000.00%
    N21.SI
    0.250.00-1.96%
    5ME.SI
    0.60+0.04+6.57%
    5TP.SI
    0.99-0.02-1.98%
    Y92.SI
    0.156+0.007+4.70%
    AFC.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.30+0.06+22.45%
    T18.SI
    0.15+0.02+15.38%
    5TI.SI
    0.225+0.025+12.50%
    Y35.SI
    0.51+0.05+12.09%
    BHU.SI
    0.162+0.017+11.72%
    QS9.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.011-0.115-91.27%
    QF6.SI
    0.23-0.17-42.50%
    AWI.SI
    0.205-0.055-21.15%
    I06.SI
    0.45-0.10-18.18%
    BFK.SI
    0.385-0.085-18.09%
    E8Z.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3536+0.0023+0.17%
    USDSGD=X
    1.5245-0.0025-0.16%
    EURSGD=X
    1.7909+0.0082+0.46%
    GBPSGD=X
    74.1340+0.025+0.03%
    SGDJPY=X
    5.7239-0.0116-0.20%
    SGDHKD=X
    2.9771+0.0013+0.04%
    SGDMYR=X
    9,783.8555-32.8486-0.33%
    SGDIDR=X
    4.9136+0.00020.00%
    SGDCNY=X
    1.0309+0.002+0.19%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,327.30-18.80-1.40%
    GCZ16.CMX
    18.50-0.42-2.20%
    SIU16.CMX
    95.34-8.55-8.23%
    ^XAU
    2.08-0.03-1.63%
    HGU16.CMX
    46.80-1.30-2.70%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.140.00
    ^FVX
    1.56+0.01
    ^TNX
    2.24+0.01
    ^TYX