Forex: Dollar Retreats to Channel Support on Fiscal Cliff Musings

  • Dollar Retreats to Channel Support on Fiscal Cliff Musings
  • Euro Recovers from 1.2900 Tip but Little Individual Strength
  • Swiss Franc: SNB’s Jordan Suggests There is No Limit to Stimulus
  • Australian Dollar: Rate Outlook Fading, Risk Trends Firming
  • British Pound Drops Even Against the Dollar and Yen Wednesday
  • Japanese Yen Falters as Risk Trends Tentatively Offset Fresh Stimulus Worries
  • Gold Suffers Second Biggest Daily Drop in Five Months Despite Dollar Slip

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Dollar Retreats to Channel Support on Fiscal Cliff Musings

The Forex market’s preferred safe haven and reserve currency – the US dollar – took a tumble during the US session Wednesday, and the currency has yet to recover. To confirm there was a risk-based influence behind this drive, we can look at the other common measures for sentiment change. The yen had also shown a sharp decline and the S&P 500 leveraged its biggest intra-day rally since November 1. Rounding the assessment out with a drop from the traditional volatility measures alongside an increase in the Risk-Reward Index and in we are offered perhaps one of the strongest measures of conviction in some time. The only problem is that there was limited fundamental support for the move.

Market sentiment can ebb and flow without the encouragement of a particular economic indicator or event, but such a move in these kinds of market conditions (consistently bleeding speculative participation) is likely to lose momentum quickly without tangible support. Looking to the headlines at the same time the market started to rumble, there was a questionable mix of news. The new homes sales figures for October were certainly not contributing with a 0.3 percent contraction and sharp downgrade to the previous month (from a 5.7 to 0.8 percent pickup). The more prominent news were the sound bites from US politician speaking about the Fiscal Cliff. The only definitively positive take away from the remarks were confidence from President Obama and Speaker Boehner that a resolution could be reached before the countdown expired. Yet, this optimism wasn’t backed by detail nor give on either side towards a compromise. The only glimmer of flexibility came from the suggestion by President Obama that he wouldn’t insist that tax rates on top earnings would have to return to the levels during the Clinton administration.

Yet, is this give on tax hikes and promise from Republicans to close loopholes enough? If indeed, the climb in sentiment was based on Fiscal Cliff hopes, then the advance in equities and bearish pressure on the dollar will quickly fall apart without something more progressive to build on. President Obama is scheduled to have lunch with his former campaign opponent Mitt Romney Thursday. Though Romney is not a key player in the stimulus debate, he has convened with those that have been involved; and the meeting is considered a general ‘good will’ meeting between two dangerously opposed political groups. Outside of further, encouraging commentary on this front, there are few other scheduled events that can be expected to carry a heavy influence over risk trends. The Eurozone crisis is on ice and US data is distinctly second tier.

Euro Recovers from 1.2900 Tip but Little Individual Strength

Through the European trading hours Wednesday, EURUSD was making serious progress to a deeper reversal from the 1.3000 failure following the reaction to the Troika’s agreement to move forward with Greece rescue steps. However, shortly after the pair dropped below 1.2900, the market made an abrupt turn to eventually shift bearish trend development into a positive close. The question fundamental traders must ask is whether this was a move derived from euro strength or a consequence of the risk appetite swell that hammered the dollar? A quick glance at the euro’s performance against its higher-yield counterparts, tells us it was ‘risk’. Looking at the developments on the day for Europe, there were a few highlights. Authorities approved a €37 billion fund release to Spanish banks in return for three lender to reduce their balance sheets by more than 60 percent, job cuts, write downs, and a fourth to be sold off. In contrast, Germany’s Finance Minister said Greece may require more funding and a bond buyback program was critical. In addition, there was talk of Italy needing a bailout and France being downgraded in 2013.

Swiss Franc: SNB’s Jordan Suggests There is No Limit to StimulusWe haven’t heard big talk from Swiss National Bank (SNB) officials in some time, but group President Jordan’s made up for the radio silence. The central bank reiterated the commitment to preventing the franc’s rise with a distinct declaration that there should be no limits on his balance sheet if they were to ensure successful policy. In essence, that is tantamount to vowing unlimited stimulus. A few more highlights to his remarks were notes that 12 percent of the SNB’s reserves were foreign equities and they were diversifying into currencies like the Canadian and Australian dollars. Despite all this, EURCHF did not rally. For volatility, traders should watch the upcoming 3Q Swiss GDP release.

Australian Dollar: Rate Outlook Fading, Risk Trends Firming

A rising tide lifts all boats. That is certainly the case for the Australian dollar. The currency has found a lift from a rise in equity markets and general investor sentiment. Luckily, for Aussie bulls, this buoyancy was enough offset a deterioration in the interest rate outlook. The probability of a rate cut at the next meeting (measured in swaps) hit 71 percent – the most in over a month. The 12-month outlook similarly worsened.

British Pound Drops Even Against the Dollar and Yen Wednesday

Despite the tumble from safe haven currencies this past session, the pound would still post a loss against all of its major counterparts on the day. An interesting offset to this positive risk drive was the biggest drop in the benchmark, 10-year UK government bond yield since September 26. Furthermore, BoE member Bean remarked that the group should still consider further stimulus even if its effectiveness was waning.

Japanese Yen Falters as Risk Trends Tentatively Offset Fresh Stimulus Worries

Have Japanese policy officials eased up on the rhetoric of driving their currency lower? Exactly the opposite – the have continued to escalate their threats. Yet, their efforts weren’t giving the currency its selling push this past these past few weeks. This past session, the positive risk sentiment roused the broader market to feed carry rather than forcibly drive capital away from the yen.

Gold Suffers Second Biggest Daily Drop in Five Months Despite Dollar Slip

There was ambiguity this past session as to whether individual currencies / assets were strong or sentiment trends were taking serious root. There was little doubt that gold was uniquely selling off Wednesday though. The metal posted its second biggest daily decline in five months - 22.4 points or 1.3 percent. The slow steps on the Fiscal Cliff may have provided; but just like risk, gold selling needs more to continue.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:00

NZD

ANZ Activity Outlook (Nov)

25.5

New Zealand activity may continue decline after string of worse than expected data last month

0:00

NZD

ANZ Business Confidence (Nov)

17.2

0:00

AUD

HIA New Home Sales (MoM) (Oct)

-3.7%

Matches fall in construction

0:30

AUD

Private Capital Expenditure (3Q)

3.4%

Investment spending weaker

6:45

CHF

GDP (QoQ) (3Q)

-0.1%

Swiss output may increase in greater exports

6:45

CHF

GDP (YoY) (3Q)

0.5%

8:55

EUR

German Unemployment Change (Nov)

20K

German unemployment could rise another month, will be point of focus for government leaders

8:55

EUR

German Unemployment Rate (s.a) (Nov)

6.9%

9:00

EUR

Italian Business Confidence (Nov)

87.6

Italian confidence seeing inflection point as Monti reforms come into force

9:00

EUR

Italian Economic Sentiment (Nov)

76.6

9:30

GBP

Net Consumer Credit (Oct)

1.2B

Credit may decline in October as BoE halts and reconsiders asset purchases

9:30

GBP

Net Lending Sec. on Dwellings (Oct)

0.5B

9:30

GBP

M4 Money Supply (MoM) (Oct)

0.2%

British money supply decrease may result in lower inflation, could mean additional easing

9:30

GBP

M4 Money Supply (YoY) (Oct)

-3.5%

10:00

EUR

Euro-zone Services Confidence (Nov)

-12.1

Eurozone confidence indices continue to lag on as debt crisis remains unresolved

10:00

EUR

Business Climate Indicator (Nov)

-1.62

10:00

EUR

Euro-Zone Indust. Confidence (Nov)

-18

10:00

EUR

Euro-Zone Economic Confidence (Nov)

84.5

10:00

EUR

Euro-Zone Consumer Confidence (Nov F)

-25.7

11:00

GBP

CBI Reported Sales (Nov)

30

Retail may taper after Olympic boost

13:30

CAD

Current Account (BOP) (3Q)

-$16.0B

Canadian imports seen increasing

13:30

USD

GDP QoQ (Annualized) (3Q S)

3.0%

2.0%

Secondary report may show higher number, increasing confidence that the US economy is improving

13:30

USD

Personal Consumption (3Q S)

2.0%

13:30

USD

GDP Price Index (3Q S)

2.8%

2.8%

13:30

USD

Core PCE QoQ (3Q S)

1.3%

13:30

USD

Initial Jobless Claims (Nov 24)

Weekly data may continue to decline as economy strengthens

13:30

USD

Continuing Claims (Nov 17)

15:00

USD

Pending Home Sales MoM (Oct)

0.3%

Sales expected to continue higher, dragging mortgage applications and construction

15:00

USD

Pending Home Sales YoY (Oct)

8.5%

16:00

USD

Kansas City Fed Manf. Activity (Nov)

-4

Midwestern industries weaker

21:45

NZD

Building Permits MoM (Oct)

7.8%

Growth in permits seems to be only bright part in weaker NZ economy

GMT

Currency

Upcoming Events & Speeches

1:30

JPY

BOJ Board Member Shirai Speaks to Business Leaders

11:00

USD

Fed's Fisher Speaks in Frankfurt

13:00

EUR

Portugal Releases Financial Stability Report

-:-

USD

President Obama meets Mitt Romney for Lunch

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

12.9764

1.7911

8.8251

7.7502

1.2223

Spot

6.6510

5.7623

5.6702

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

1.3048

1.6105

82.78

0.9367

0.9978

1.0541

0.8313

107.41

132.70

Resist. 2

1.3022

1.6082

82.60

0.9350

0.9964

1.0521

0.8296

107.12

132.37

Resist. 1

1.2997

1.6059

82.42

0.9332

0.9949

1.0502

0.8278

106.82

132.05

Spot

1.2946

1.6013

82.06

0.9297

0.9920

1.0463

0.8244

106.24

131.40

Support 1

1.2895

1.5967

81.70

0.9262

0.9891

1.0424

0.8210

105.66

130.75

Support 2

1.2870

1.5944

81.52

0.9244

0.9876

1.0405

0.8192

105.36

130.43

Support 3

1.2844

1.5921

81.34

0.9227

0.9862

1.0385

0.8175

105.07

130.11

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
    1.2524-0.0004-0.03%
    USDSGD=X
    1.7303-0.0003-0.02%
    EURSGD=X
    2.1031-0.001-0.05%
    GBPSGD=X
    81.7645+0.0318+0.04%
    SGDJPY=X
    6.1917+0.0023+0.04%
    SGDHKD=X
    2.5855+0.001+0.04%
    SGDMYR=X
    9,120.3457-30.873-0.34%
    SGDIDR=X
    4.9739+0.0097+0.20%
    SGDCNY=X
    1.1691+0.0006+0.05%
    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