Forex Analysis: Dollar Slowly, Consistently Edges Lower as Equities Swing

  • Dollar Slowly, Consistently Edges Lower as Equities Swing
  • Euro May Climb on US Crisis Distraction - Juncker
  • Australian Dollar Presses Through Risk Trends on Improved Rate Outlook
  • Japanese Yen: Officials Want Risk Trends, Stimulus to Weigh Currency
  • New Zealand Dollar Advances after RBNZ Financial Report, Ahead of Jobs Data
  • Swiss Franc: FX Reserves Expected to Build, Though Euro Share Under Scrutiny
  • Gold Surges During US Election, Trend is a Dollar Matter

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Dollar Slowly, Consistently Edges Lower as Equities Swing

The US Presidential elections have a long standing influence over investor confidence. The outcome of political power in the world’s largest economy can significantly influence growth, trade and financial regulation. However, as with any economic event, this particular driver is set within a hierarchy of fundamental impact. Regardless of who wins the election, it would still be a struggle to answer the United States’ Fiscal Cliff. Furthermore, we have other big-ticket items such as the Euro-area crisis, Chinese regime change and Japanese fiscal countdown that all denote a distinctive impact on global markets. With that in mind, we recognize the market’s unusual activity over the past 24 hours. It is very similar to how we approach the average NFPs release: even though the event’s outcome is not likely to have a lasting influence over a fundamentally-crowded market, the uncertainty its presence carries pumps volatility and sidelines trend generation.

Now, as we move forward, we may very well see risk trends regain traction and revive cross-market correlations. Through the past trading session, we witnessed a significant deviation between the standard ‘risk’ measures. While the S&P 500 rallied sharply into resistance (13,300), the Forex’s safe haven US dollar was holding relatively steady. Soon after the NY market close, equities took to a quick reversal while the dollar accelerated into its decline with EURUSD moving back above 1.2825 – yet another contradictory sentiment move. As the election results started to take shape in the overnight, however, risk’s influence started to firm up. With the dollar holding onto its losses, the equity futures found a moderate bounce. Revived correlations are a strong step towards developing a lasting trend. Yet, does a resolution of the US vote equate to a better investment environment. The bigger, international concerns aside; the unconfirmed vote tally leaves the United States with a divided Congress that may struggle to force necessary budgetary changes to avoid the looming fiscal cliff.

Euro May Climb on US Crisis Distraction - Juncker

Most policy makers (fiscal and monetary) follow academic lines of thought in their expectations of how their efforts will impact their economies and currencies. However, every now-and-then there is an official that acknowledges the speculative influence in the market. Euro Group head Jean-Claude Juncker revealed a streak of ‘trader’ in his outlook when he remarked early Wednesday morning that the US Fiscal Cliff could direct negative attention away from the Euro-area (offsetting the more ‘cheerleading’ effort in suggesting Europe’s fundamentals were better than those of the US and Japan). From a real world market perspective, the countdown to the United States’ self-imposed deficit adjustment can paint a far less stable situation than the more measured austerity balance in the Eurozone.

That said, there are two variables in this austerity comparison. The euro’s own fundamental issues are more immediate than the end-of-the-year countdown for the US. This past session, Greece’s general strike set the backdrop to the Parliamentary vote on the new austerity bill (reportedly aiming to cut pensions by 15 percent and raise the retirement age). Spain’s Rajoy suggested he would not ask for a rescue unless forced to - saying he needed to be certain it would lower yields. Today is a Euro-risk lull. Thursday brings forecasts, meetings and the ECB decision.

Australian Dollar Presses Through Risk Trends on Improved Rate Outlook

Risk trends have shifted back and forth over the past 24 hours, yet the Aussie dollar maintained its bullish ambitions. While US equity futures took a dive through the early Wednesday trading session, AUDUSD held steady above 1.0400. This is partially due to the greenback’s own lack of commitment; but other, less investment-sensitive Aussie pairs (AUDNZD, AUDCAD, GBPAUD) have shown a consistent support for the commodity currency. This additional strength can be easily traced back to the RBA. The central bank held its benchmark lending rate yesterday morning to catch a significant portion of the market off guard. With the market pricing in a 47 percent probability of a cut and 20 of 27 economists in a Bloomberg poll expecting the same, there was a surprise quotient. The 12-month rate outlook now calls for only 50 bps worth of cuts.

Japanese Yen: Officials Want Risk Trends, Stimulus to Weigh Currency

With the volatility on risk trends elevated, the Japanese yen is under scrutiny. However, policy officials are no doubt hoping that the US election results can sustain a buoyant outlook. Yesterday, BoJ Executive Director Hayakawa (in charge of monitoring the financial system) stated his belief that the bank’s new lending program (unlimited at a marginal 0.1 percent) could weaken the currency. His supposition was that this effort would translate into a pickup in carry interest. However, carry is a global factor and rates are low worldwide. What they need is true risk appetite.

New Zealand Dollar Advances after RBNZ Financial Report, Ahead of Jobs Data

Green RBNZ Governor Graeme Wheeler is keeping up the effort of stirring speculative interest in the kiwi. The central banker released the Financial Stability Report this morning. In the statement, Wheeler said stated that he believed it was unlikely that the kiwi exchange rate would fall significantly going forward – adding weight to his dismissal of QE. Up next, we have jobs figures for hard data.

Swiss Franc: FX Reserves Expected to Build, Though Euro Share Under Scrutiny

The Swiss National Bank already holds 432 billion francs in foreign currency reserves – a record for the group and one of the highest amongst its counterparts. The update for October is due in the upcoming European session and a fresh high is expected. However, those monitoring the EURCHF will be more concerned about the possible composition of holdings. The central bank has slowly diversified away from euros recently.

Gold Surges During US Election, Trend is a Dollar Matter

There was some speculation amongst the gold bugs that if the US election went a certain way, Fed Chairman Bernanke would be ousted and the policy of stimulus expansion would be reversed with his exit. It is a stretch to say the metal rallied because this scenario was disproved; but it would be outright dangerous to trade on this belief carrying a lasting influence. The next move for gold will be based on the dollar.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:01

GBP

BRC Shop Price Index (YoY) (OCT)

-

1.0%

Retail sales may indicate direction of inflation in coming reports

5:30

AUD

Foreign Reserves (AUD) (OCT)

-

A$44.9B

Interest in high yielding assets still strong despite slowing economy

Moderate expansion expected as EURCHF higher; SNB exploring more assets to invest in

8:00

CHF

Foreign Currency Reserves (OCT)

432.0B

429.5B

8:15

CHF

CPI (MoM) (OCT)

0.1%

0.3%

Swiss economy continues to experience deflationary forces; SNB may not move until large EU reforms or events

8:15

CHF

CPI (YoY) (OCT)

-0.2%

-0.4%

8:15

CHF

CPI - EU Harmonised (MoM) (OCT)

-

0.7%

8:15

CHF

CPI - EU Harmonised (YoY) (OCT)

-

-0.3%

10:00

EUR

Euro-Zone Retail Sales (MoM) (SEP)

-

0.1%

Retail sales continue to drop on consumer uncertainty

10:00

EUR

Euro-Zone Retail Sales (YoY) (SEP)

-

-1.3%

11:00

EUR

German Industrial Production s.a. (MoM) (SEP)

-

-0.5%

Industrial production may follow factory orders lower

11:00

EUR

German Industrial Production n.s.a. (YoY) (SEP)

-

-1.4%

12:00

USD

MBA Mortgage Applications (NOV 2)

-

-4.8%

Applications continue to decline despite additional QE purchases

15:30

DOE

U.S. Crude Oil Inventories (NOV 2)

-

-2045K

Gasoline and crude levels may see increase as demand drops from NE hurricane, supplying issues

15:30

DOE

Cushing OK Crude Inventory (NOV 2)

-

-671K

15:30

DOE

U.S. Distillate Inventory (NOV 2)

-

-93K

15:30

DOE

U.S. Gasoline Inventories (NOV 2)

-

935K

20:00

USD

Consumer Credit (SEP)

$10.125B

$18.123B

Consumer credit may decline, though easier credit should help

21:45

NZD

Unemployment Rate (SEP)

6.7%

6.8%

Quarterly employment data expected to show moderate growth in labor market

21:45

NZD

Employment Change (QoQ) (SEP)

0.3%

-0.1%

21:45

NZD

Employment Change (YoY) (SEP)

0.8%

0.6%

21:45

NZD

Participation Rate (QoQ) (SEP)

68.4%

68.4%

23:00

NZD

QV House Prices (YoY) (SEP)

-

5.3%

Housing continues to grow

23:50

JPY

Machine Orders (MoM) (SEP)

-2.1%

-3.3%

Machine orders may start to pivot as weaker yen expected to benefit sector

23:50

JPY

Machine Orders (YoY) (SEP)

-4.9%

-6.1%

23:50

JPY

Current Account Total (SEP)

¥761.3B

¥454.7B

Trade continues to weaken, though decline in BoP may be due to Japanese companies purchasing abroad while yen is still strong

23:50

JPY

Adjusted Current Account Total (SEP)

¥206.2B

¥722.3B

23:50

JPY

Trade Balance - BOP Basis (SEP)

-¥416.9B

-¥644.5B

23:50

JPY

Current Account Balance YOY%(SEP)

-52.7%

4.2%

23:50

JPY

Bank Lending Banks ex-Trust (OCT)

1.1%

1.2%

Lending continues at a steady pace

23:50

JPY

Bank Lending incl Trusts (YoY) (OCT)

-

1.0%

GMT

Currency

Upcoming Events & Speeches

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

5.8175

5.7800

Spot

12.9678

1.7737

8.6187

7.7503

1.2213

Spot

6.6827

5.8138

5.7099

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

1.2941

1.6108

80.53

0.9496

0.9978

1.0525

0.8333

103.63

129.10

Resist. 2

1.2914

1.6082

80.37

0.9477

0.9961

1.0503

0.8314

103.35

128.79

Resist. 1

1.2887

1.6056

80.21

0.9458

0.9944

1.0481

0.8295

103.07

128.48

Spot

1.2832

1.6004

79.89

0.9419

0.9911

1.0437

0.8257

102.51

127.86

Support 1

1.2777

1.5952

79.57

0.9380

0.9878

1.0393

0.8219

101.95

127.24

Support 2

1.2750

1.5926

79.41

0.9361

0.9861

1.0371

0.8200

101.67

126.94

Support 3

1.2723

1.5900

79.25

0.9342

0.9844

1.0349

0.8181

101.39

126.63

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 Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.2522-0.0007-0.05%
    USDSGD=X
    1.7295-0.0011-0.06%
    EURSGD=X
    2.1019-0.0021-0.10%
    GBPSGD=X
    81.8251+0.0923+0.11%
    SGDJPY=X
    6.1927+0.0033+0.05%
    SGDHKD=X
    2.5859+0.0013+0.05%
    SGDMYR=X
    9,120.0244-31.1943-0.34%
    SGDIDR=X
    4.9706+0.0064+0.13%
    SGDCNY=X
    1.16850.000.00%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,294.60-8.90-0.68%
    GCM14.CMX
    19.65+0.02+0.08%
    SIK14.CMX
    90.18-0.65-0.72%
    ^XAU
    3.04+0.02+0.51%
    HGK14.CMX
    104.59+0.83+0.80%
    CLK14.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.73+0.08
    ^FVX
    2.72+0.08
    ^TNX
    3.52+0.06
    ^TYX

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.115-0.002-1.71%
    B22.SI
    0.48+0.020+4.35%
    5GJ.SI
    2.27+0.090+4.13%
    5ME.SI
    2.190.0000.00%
    JS8.SI
    0.61+0.005+0.83%
    E5H.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.162+0.034+26.56%
    5GF.SI
    0.20+0.034+20.48%
    5WD.SI
    0.59+0.050+9.26%
    L5I.SI
    0.28+0.020+7.69%
    C33.SI
    0.215+0.015+7.50%
    5UE.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.103-0.010-8.85%
    5OS.SI
    0.112-0.008-6.67%
    5RC.SI
    0.355-0.025-6.58%
    KJ9.SI
    0.215-0.015-6.52%
    F9M.SI
    0.29-0.020-6.45%
    5PC.SI