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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 |
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--- Written by: John Kicklighter, Senior Currency 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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