Forex: Dollar Primed for Breakout after EUR/USD Retreats from 1.3400

RELATED QUOTES

SymbolPriceChange
EURUSD=X1.3818+0.0002
GBPUSD=X1.6791-0.0007
EURJPY=X141.4885+0.2318
AUDUSD=X0.9323-0.0046

  • Dollar Primed for Breakout after EUR/USD Retreats from 1.3400
  • Australian Dollar Tumbles from 1.0600 Ahead of Chinese GDP
  • Euro Finds No Strength in Bailout Countries’ Optimism
  • Japanese Yen Rally Hindered by BoJ Meeting Next Week
  • New Zealand Dollar Traders Await 4Q CPI Data
  • British Pound: Watch GBP/USD, EUR/GBP as UK Talks EU Exit
  • Gold: Breakouts Don’t Automatically Translate to Trends

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Dollar Primed for Breakout after EUR/USD Retreats from 1.3400

The dollar has put in for a few particularly interesting moves over the past 24 hours. Yesterday, the greenback extended its advance against the euro to more permanently shift EURUSD off multi-month highs at 1.3400, while GBPUSD closed below 1.6000 for the first time in eight weeks. This morning, a few of the more risk-sensitive currencies followed through on a firming dollar trend. Most notable is AUDUSD which is currently experiencing its steepest slide since December 21. The cumulative effect of these favorable moves amongst its major pairings, however, does not provide much encouragement to seriously drive the dollar to a bullish trend. In fact, if we look at the equally-weighted Dow Jones FXCM Dollar Index (ticker = USDollar), we find the currency has barely moved over the past four trading days. In fact, the USDollar has carved out one of the smallest average trading ranges over the past week that we have seen going back to when ‘high’ and ‘low’ data have been collected.

Taking the temperature of the broader market, we find that the dollar’s lack of progress aligns it to the general pace of the speculative markets. Despite the fact that it is trading at a five-year high, the S&P 500 (a benchmark for risk appetite) has seem follow through completely collapse with a five-day average range (ATR) at its lowest point since August 20 (and before that it was December 31, 2010). At the same time, the capital market’s favorite measure of ‘fear’ – the VIX Index – continues to tread five year lows. Risk exposure has scaled considerable heights, but the rush of sidelined capital that so many expected to follow the Fiscal Cliff resolution doesn’t seem to have caught.

This incredible level of inactivity, though, cannot last. Turnover – whether for speculative means or necessary repositioning of capital – must return. We know that the safe have dollar will move in the opposite direction of risk trends, so the real questions are what can spark the sentiment shift and when will it occur. In the upcoming session we have another round of earnings reports (Bank of America and Citigroup), but we seem to have our measure of skeptical disregard in place. A far more promising (threatening?) market mover is the Chinese 4Q GDP reading (more on that below). And, of course, we can keep a watchful eye on the combination of debt ceiling and stimulus regime end speculation. Yet, unless there is something tangible on these fronts, it may be difficult for the mainstream investment community to commit to any forecasts.

Australian Dollar Tumbles from 1.0600 Ahead of Chinese GDP

The Australian dollar was playing aloof through Wednesday’s trading session. For AUDUSD, the aimless Aussie dollar managed to nudge close to the closely-monitored 1.0600-level, but there was obviously little conviction behind the 7-pip advance. In a market that a struggling for a speculative ‘risk off’ or ‘risk on’ bias, you can still see the Aussie dollar climb through the buildup of higher yielding currencies. The fact that this natural pressure was absent is a sign that risk trends are engaged – they are just flat-lined. We started to see some sign of life, however, this morning when AUDUSD dropped just over 75 pips. We can attribute the pick up to the disappointing Australian employment data, but much of the follow through came well enough after the news was absorbed. Far more promising for finding volatility that translates into a potential trend is the upcoming Chinese 4Q GDP release (industrial production, investment, retail sales and property prices are also due for release, but not as influential). China carries the badge of the largest global player still providing serious growth and yield, so it is certainly a catalyst for risk trends. Though for the Aussie dollar specifically, we should also remember that this powerhouse also buys most of Australia’s natural exports.

Euro Finds No Strength in Bailout Countries’ Optimism

After stumbling on comments made by Eurogroup Chairman Juncker that the euro exchange rate was ‘dangerously high’ (an event that seems to have revived the Currency Wars conversation), the euro has found little reprieve from a series of self-supportive evaluations of market and economic health. On the newswires: the IMF evaluation was good enough to release Greece’s next €3.24 billion in aid; Spain’s Treasury chief said the country didn’t need a bailout as confidence had recovered; the ECB’s Nowotny said there was no immediate problem with the euro level; and Portugal drew strong demand and low yields for a short-term bond sale. The markets are shrugging off the banal, looking for the meat.

Japanese Yen Rally Hindered by BoJ Meeting Next Week

Another day of decline for the benchmark USDJPY (and other yen crosses), and another day where the pair has bounced significantly off its low into the close. There is a siren call of a natural correction (to book profit and speculate on a disappointing turn for stimulus reaction), but the countdown to the BoJ’s rate decision next week keeps the market frozen. If risk aversion kicks in, we will move lower. Otherwise, chop remains.

New Zealand Dollar Traders Await 4Q CPI Data

The New Zealand dollar (kiwi) seemed to follow the lead of the Aussie dollar this morning – offering further evidence that it wasn’t the Aussie’s own fundamentals that were encouraging it forward, rather something broader like risk trends. The kiwi will general follow the guidance of risk trends moving forward. However, we may seem some sort of diversion from the upcoming 4Q CPI data – especially with AUDNZD, NZDCAD.

British Pound: Watch GBP/USD, EUR/GBP as UK Talks EU Exit

Concern is starting to build about a possible, systemic change in the British pound’s position and appeal in the broader market. UK Prime Minister Cameron’s dispute with European Union authorities over budget initiatives and capital flows has many fearing that a referendum of negotiation-or-EU-exit is in the works. The Business Secretary is set to speak this morning, but Cameron’s speech on Friday is the big ticket.

Gold: Breakouts Don’t Automatically Translate to Trends

Gold certainly broke out of its terminal congestion pattern Tuesday; but as we saw in yesterday’s price action, a breakout does not mean a trend is guaranteed. The precious metal was little changed this past session and its daily trek covered little ground. A story about Germany looking to repatriate gold from New York and Paris caught the eye of gold bugs; but this neither carry transaction influence nor is it a political move. The Currency Wars concerns starting to catch traction on the other hand may turn into a serious gold buying initiative. Keep an eye on the headlines.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:00

AUD

Consumer Inflation Expectation (JAN)

-

1.8%

1.8% marks lowest reading since 1997.

0:00

NZD

ANZ Consumer Confidence Index (JAN)

-

114.7

2 Year average at 110.7. 6 year average at 112.7.

0:00

NZD

ANZ Consumer Confidence (MoM) (JAN)

-

0.5%

0:30

AUD

Unemployment Rate (DEC)

5.4%

5.2%

Increasing since 1/2011 when at 4.9%.

0:30

AUD

Employment Change (DEC)

4.5K

13.9K

Wavers around zero.

0:30

AUD

Full Time Employment Change (DEC)

-

-4.2K

0:30

AUD

Part Time Employment Change (DEC)

-

18.1K

8:15

CHF

Producer & Import Prices (MoM) (DEC)

0.1%

0.0%

Returned to “inflationary” since 9/2012, Y/Y.

8:15

CHF

Producer & Import Prices (YoY) (DEC)

0.9%

1.2%

10:00

EUR

Euro-Zone Construction Output s.a. (MoM) (NOV)

-

-1.6%

12 month average -5.1%, 5 year average at -5.3%, Y/Y.

10:00

EUR

Euro-Zone Construction Output w.d.a. (YoY)(NOV)

-

-4.1%

13:30

CAD

Int'l Securities Transactions (C$) (NOV)

10.00B

13.26B

6 year average at 5.58B. 13.26B greatest since 3/2000.

13:30

USD

Building Permits (DEC)

905K

900K

Steadily growing since 3/2009 low at 513K, which accounts for a 75% increase.

13:30

USD

Building Permits (MoM)(DEC)

0.5%

3.7%

13:30

USD

Housing Starts (DEC)

890K

861K

Steadily growing since 4/2009 low at 478K, which accounts for a 80% increase.

13:30

USD

Housing Starts (MoM) (DEC)

3.3%

-3.0%

13:30

USD

Initial Jobless Claims (JAN 12)

365K

371K

5 year average at 447K. 2 year average at 390.5K.

13:30

USD

Continuing Claims (JAN 6)

3150K

3109K

5 year average at 4159K. 2 year average at 3520K.

15:00

USD

Philadelphia Fed. (JAN)

6

4.6

30 year average at 8.70.

21:45

NZD

Consumer Prices Index (QoQ) (4Q)

0.1%

0.3%

Currently below the RBNZ medium target range of 1%-3%.

21:45

NZD

Consumer Prices Index (YoY) (4Q)

1.2%

0.8%

23:50

JPY

Japan Buying Foreign Bonds (Yen) (JAN 11)

-¥398.2B

BoJ planning to purchase ESM bonds. Date unknown.

23:50

JPY

Japan Buying Foreign Stocks (Yen) (JAN 11)

¥6.8B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (JAN 11)

-¥1.8B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (JAN 11)

¥178.9B

02:00

CNY

Chinese GDP (4Q) (YoY)

7.8%

7.4%

GMT

Currency

Upcoming Events & Speeches

USD

Fed's Fisher Speaks on Banks in Washington

1:00

USD

Fed's Kocherlakota Speaks on Policy in Minneapolis

6:30

CHF

Swiss National Bank Preliminary Data for 2012 Annual Report

9:00

EUR

ECB releases its monthly bulletin

9:00

GBP

BOE Deputy Governor Tucker Speaks at a Conference in London

USD

|| Earnings – Bank of America, Citigroup

17:05

USD

Fed's Lockhart Speaks at Bloomberg Global Markets Summit

19:00

EUR

German Bundesbank's Dombret speaks in Dresden

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

12.6376

1.7659

8.8190

7.7528

1.2247

Spot

6.5055

5.6185

5.5715

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

1.3394

1.6099

89.21

0.9401

0.9929

1.0589

0.8469

118.85

142.92

Resist. 2

1.3366

1.6072

88.97

0.9381

0.9915

1.0568

0.8448

118.45

142.47

Resist. 1

1.3338

1.6045

88.74

0.9360

0.9901

1.0548

0.8428

118.05

142.03

Spot

1.3282

1.5990

88.27

0.9320

0.9872

1.0507

0.8388

117.24

141.14

Support 1

1.3226

1.5935

87.80

0.9280

0.9843

1.0466

0.8348

116.43

140.26

Support 2

1.3198

1.5908

87.57

0.9259

0.9829

1.0446

0.8328

116.03

139.81

Support 3

1.3170

1.5881

87.33

0.9239

0.9815

1.0425

0.8307

115.63

139.37

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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  • Currencies
    Currencies
    NamePriceChange% Chg
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    USDSGD=X
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    EURSGD=X
    2.1018+0.0005+0.03%
    GBPSGD=X
    81.8110+0.0746+0.09%
    SGDJPY=X
    6.1951-0.0037-0.06%
    SGDHKD=X
    2.5867-0.005-0.19%
    SGDMYR=X
    9,123.0830-19.9346-0.22%
    SGDIDR=X
    4.9682-0.0047-0.10%
    SGDCNY=X
    1.1670-0.0049-0.42%
    AUDSGD=X
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    Commodities
    NamePriceChange% Chg
    1,294.60-8.90-0.68%
    GCM14.CMX
    19.58-0.05-0.28%
    SIK14.CMX
    90.35-0.48-0.53%
    ^XAU
    3.05+0.03+0.86%
    HGK14.CMX
    104.16+0.40+0.39%
    CLK14.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.73+0.08
    ^FVX
    2.72+0.08
    ^TNX
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    ^TYX

MARKET MOVERS

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    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