Forex: Dollar Advances a Second Day but Risk Not Yet Supportive

  • Dollar Advances a Second Day but Risk Not Yet Supportive
  • Euro Suffers Biggest Drop in a Month on ECB Concerns
  • British Pound Drops Despite Mum BoE, 1.6000 Break Ahead?
  • Japanese Yen: Policy Officials Once Again Try to Wrest Attention from Risk
  • Canadian Dollar: Watch Local Employment Data for Volatility, Parity Chance
  • Swiss Franc: Watch FX Reserves Data to See How SNB is Positioning
  • Gold and Dollar Advance, Correlation Most Extreme in Six Months

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Dollar Advances a Second Day but Risk Not Yet Supportive

On a net basis, the dollar squeezed out a second daily advance through Thursday. However, this strength must be attributed to an exceptional performance for EURUSD whose influence as a greenback counterpart was leveraged thanks to tame risk trend conditions elsewhere. That is decidedly unconvincing of innate strength from the market’s most liquid currency. Yet, considering the dollar’s role in the market is a as benchmark safe haven currency and sentiment-bred trends have been curbed by both fear of unwieldy event risk and a severe lack of speculative participation, its drift against most other majors seems more appropriate. Such conditions may actually play to a considerable swell for the currency across the board in the upcoming session though. With the market’s and media’s favorite nonfarm payrolls (NFP) release on deck, we have the proper tools to spur volatility in risk trends – and thereby the necessary ingredients for a quick dollar move.

Heading into the labor statistics dump (scheduled for 13:30 GMT), the consensus forecast for the headline net change figure is calling for a rather safe 85,000-position net increase through November. This is the figure people will look to first, but it is the jobless rate that carried more weight – even overwhelming the payrolls change a few times – nowadays. Recent, secondary employment data has leaned towards a weaker reading for the labor market than what the consensus may be allowing for. Considering we haven’t seen a net decline in payrolls since August 2010, there is a considerable risk of complacency and dramatic reaction to a negative number. An uptick in the unemployment rate would draw the same concern. Just as important as the ‘surprise quotient’, we must also set expectations for the extent of impact. A positive reading would carry the least influence. Preoccupation with big ticket items like next week’s Fed decision and the fiscal cliff will dampen such a move. Alternatively, a risk selloff on a weak reading can encourage a correction on potentially extended sentiment-linked markets. The follow through on such a move would likely be tempered by bigger issues through the immediate future, but it could once again sync disparate markets.

Euro Suffers Biggest Drop in a Month on ECB Concerns

Without doubt, the biggest move on an otherwise tame day was tumble the euro suffered Thursday. The uniform decline against safe haven and high-yield counterpart alike (though the former made more progress) tells us this was a performance unique to the shared currency itself. There were a few fundamental highlights – such as news that there is currently 50-55 percent participation in the Greek buyback and France managed to sell debt at record low rates – but the true headline for the day was the ECB decision. We have come to expect the central bank to hold its policy stoically as the financial leaders of the Euro-area try to rein in debts while not strangling growth. That was what opened the market to such surprise for what did occur. While there wasn’t a rate cut (something we discussed yesterday), the policy group did lower its outlook for both growth and inflation. A projection for 2013 CPI to hit 1.6 percent and 1.4 percent the following year, the key reading is well below target. Add to that the financial stability implications of lowering the 2013 GDP forecast from 0.5 percent growth to 0.3 percent contraction, and we have more than just a concern about a future rate cut (lowering its competitive yield advantage). We have a deeper financial / economic crisis.

British Pound Drops Despite Mum BoE, 1.6000 Break Ahead?As has become the monthly standard, the Bank of England announced it would leave monetary policy untouched and offered little more in the way of commentary – leaving the market to await the meeting minutes for detail. Normally, we would consider this a non-event, but we did see considerable sterling selling on the day Thursday. There was some unwinding following the hold – likely concern that monetary policy isn’t offsetting austerity to help along the recovery – but most of the decline came prior to that, after the trade deficit jumped to 9.54 billion pounds.

Japanese Yen: Policy Officials Once Again Try to Wrest Attention from Risk

Japanese Economy Minister Maehara tried his hand at revitalizing the yen selloff Friday morning when he said the government would ask the Bank of Japan for ‘powerful monetary easing’ to help drive the yen lower. The comments were noted and promptly ignored by the FX crowd. We have heard from both the DPJ and LDP their intentions to offer economic through a lower yen, but little action has actually been taken so far. The markets have been duped by lackluster efforts in the past, so evidence and action are particularly important to currency traders.

Canadian Dollar: Watch Local Employment Data for Volatility, Parity Chance

We have the best chance to see the USDCAD hit parity today than anything that we have experienced over the past weeks and months. Consistent with a market that is not prone to serious trends, we should instead look to the combined volatility of the US and Canadian employment figures to spur action from this pair. To carry such a significant rally, we need to see a considerable disappointment on both fronts. A weak Canadian data will spur loonie selling, while a weak US reading would spur the safe have dollar.

Swiss Franc: Watch FX Reserves Data to See How SNB is Positioning

The Swiss franc generally moves in the same direction and with the same momentum as the euro. That is a side effect of a EURCHF exchange rate that is held in place by capital flow from mainland Europe to Switzerland and a 1.2000 floor imposed by SNB force. Of course, with the recent bounce, from this exchange rate, the policy authority has seen significant relief from the constant waves. It will be interesting to see in the November FX reserves data whether the bank used this opportunity to lighten its euro holdings on the market to make room for future assaults.

Gold and Dollar Advance, Correlation Most Extreme in Six Months

One of gold’s primary roles in the market is as an alternative store of wealth to safe havens that are backed by governments (who can alter its value and increase the supply). So, it is an unusual situation when the metal and greenback both rise – as they did the past session. In fact, looking at the correlation between the two (rolling, 20-day), we find that the normally high negative relationship is the weakest we have seen since June. Historically, such a divergence doesn’t last for long. So, who will move to meet the other?

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

Trade Balance (OCT)

-2200M

-1456M

Drop in exports may be main cause

5:00

JPY

Leading Index (OCT P)

91.6

Japanese economy seeing recovery in October, likely due to weaker yen

5:00

JPY

Coincident Index (OCT P)

91.5

5:30

AUD

Foreign Reserves (NOV)

A$49.4B

Could follow drop in exports lower

7:00

EUR

German Labor Costs Workday Adj (YoY) (3Q)

2.5%

Labor costs restrained, expected to put pressure on consumer prices as well

7:00

EUR

German Labor Costs Seas. Adj. (QoQ) (3Q)

1.5%

7:45

EUR

French Central Government Balance (OCT)

-85.0B

French data stable

8:00

CHF

Foreign Currency Reserves (OCT)

422.0B

426.8B

Moderate decrease in reserves may be due to purchases of EU debt

9:30

GBP

Industrial Production (MoM) (OCT)

0.8%

-1.7%

Manufacturing sector expected to be stable in short run, but still weakening

9:30

GBP

Industrial Production (YoY) (OCT)

-0.5%

-2.6%

9:30

GBP

Manufacturing Production (MoM) (OCT)

-0.2%

0.1%

9:30

GBP

Manufacturing Production (YoY) (OCT)

-0.2%

-1.0%

9:30

GBP

BoE/GfK Inflation Next 12 Mths (NOV)

3.2%

Inflation higher than 2.0% target

13:30

CAD

Unemployment Rate (NOV)

7.4%

7.4%

Canadian labor markets expected to continue growth, putting additional pressure on BoC to start increasing rates

13:30

CAD

Net Change in Employment (NOV)

10.0K

1.8K

13:30

CAD

Full Time Employment Change (NOV)

7.3K

13:30

CAD

Participation Rate (NOV)

66.8%

66.8%

13:30

USD

Change in Non-farm Payrolls (NOV)

90K

171K

US labor market may recover again, though at slower pace. Market and dollar reaction questionable, as lower NFPs than expected to stoke expectations for additional Fed easing

13:30

USD

Change in Private Payrolls (NOV)

90K

184K

13:30

USD

Unemployment Rate (NOV)

7.9%

7.9%

13:30

USD

Avg Hourly Earnings (YoY) All Emp (NOV)

1.7%

1.6%

13:30

USD

Change in Household Employment (NOV)

410

13:30

USD

Underemployment Rate (U6) (NOV)

14.6%

14:55

USD

U. of Michigan Confidence (DEC P)

82.0

82.7

May show first effects of ongoing fiscal cliff

15:00

GBP

NIESR GDP Estimate (NOV)

0.5%

UK may climb out of recession

20:00

USD

Consumer Credit (OCT)

$10.000B

$11.365B

October decrease in line with markets

GMT

Currency

Upcoming Events & Speeches

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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

6.8155

5.9190

5.8200

Spot

12.9667

1.7872

8.9088

7.7503

1.2202

Spot

6.6608

5.7442

5.6733

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

1.3090

1.6105

83.23

0.9353

1.0003

1.0508

0.8275

108.29

133.37

Resist. 2

1.3064

1.6082

83.04

0.9335

0.9988

1.0488

0.8257

108.00

133.04

Resist. 1

1.3038

1.6059

82.86

0.9317

0.9974

1.0468

0.8239

107.70

132.72

Spot

1.2986

1.6013

82.48

0.9281

0.9944

1.0428

0.8204

107.11

132.06

Support 1

1.2934

1.5967

82.10

0.9245

0.9914

1.0388

0.8169

106.52

131.41

Support 2

1.2908

1.5944

81.92

0.9227

0.9900

1.0368

0.8151

106.22

131.08

Support 3

1.2882

1.5921

81.73

0.9209

0.9885

1.0348

0.8133

105.93

130.76

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
    1.2527-0.0001-0.01%
    USDSGD=X
    1.73060.000.00%
    EURSGD=X
    2.1024-0.0016-0.08%
    GBPSGD=X
    81.7586+0.0259+0.03%
    SGDJPY=X
    6.1904+0.0009+0.02%
    SGDHKD=X
    2.5848+0.0003+0.01%
    SGDMYR=X
    9,116.3105-34.9082-0.38%
    SGDIDR=X
    4.9689+0.0047+0.09%
    SGDCNY=X
    1.1689+0.0004+0.03%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,294.60-8.90-0.68%
    GCM14.CMX
    19.67+0.01+0.05%
    SIN14.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