Forex: Dollar Retreats as Risk Rallies, EUR/USD and AUD/USD on Edge

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  • Dollar Retreats as Risk Rallies, EUR/USD and AUD/USD on Edge
  • Euro Ready to Rally if Greece Given Green Light for Funds, Otherwise…
  • Japanese Yen Little Moved by BoJ Decision to Hold Stimulus
  • British Pound: BoE’s Miles – We Can Offer More Stimulus
  • Australian and Canadian Dollar – Ultimate Safe Havens?
  • Swiss Franc: SNB Official Wants More Company Amongst Safe Havens

Gold Advances Despite Tame Greece, Fiscal Cliff Fears

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Dollar Retreats as Risk Rallies, EUR/USD and AUD/USD on Edge

As expected, the promise of an extended holiday weekend in one of the world’s financial centers (the United States) is having a moderating effect on risk trends – and therefore a negative influence over the US dollar. Without a competitive yield and no hope of its benchmark rates rising in the foreseeable future, the greenback must find a steady deleveraging effort to sustain its advance. That is unfavorable fundamental position when the market is preparing for an activity lull. To begin with, a withdrawal of participation stops trend development in its tracks – it is less likely that the shallow market depth will find enough interest as markets extremes that innately carry a lower probability of return. Furthermore, volume has a distinct connection to risk trends. Beyond a natural correction as traders unwind strong trends (in this case, a ‘risk off’ move) as the liquid void approach, we find that volume peaks when volatility spikes. Given volatility measures are considered ‘fear’ or ‘risk’ gauges, a respite in participation is oftentimes the opportunity for a bounce in speculative positioning.

The important thing to remember, however, after the S&P 500’s biggest rally (2.0 percent) since September 6 and the Dow Jones FXCM Dollar’s (ticker = USDollar) biggest drop in nearly three weeks is that momentum behind a risk appetite move will run into the same wall as the initial trend. In fact, the advance in high yield and more speculative assets is a correction to a prevailing move that is even more likely to stall in these market conditions. The question is whether the sentiment wave dries up before serious technical damage is done. US equity indexes still have some room before they retake the critical support levels that finally gave way two weeks ago. The USDollar, on the other hand, is facing its critical 10,000-figure and 200-day moving average with just Monday’s corrections. Between now and Thursday’s drain, we have a few highlights that can stir risk trends. At the top of the list is the EU’s decision on Greece’s next round of aid (more on that below) and the US Fiscal Cliff.

As traders, it is important for us to focus on the immediate fundamental risks and market conditions to determine our positioning. On the other hand, we shouldn’t ignore the conditions that will affect direction and activity levels after the immediate swell passes. One update that dollar traders shouldn’t overlook this pass session: the IMF’s consideration of inducting the Australian and Canadian dollars as reserve currencies.

Euro Ready to Rally if Greece Given Green Light for Funds, Otherwise…

There was considerable event risk for the euro over the opening 24 hours of trading this week, but the real breakout opportunity comes in the upcoming session. The top headline for the shared currency this past session was news that ratings agency Moody’s had downgraded France from its top Aaa level to Aa1. This carries significant fundamental weight for the Euro-area and its currency. As the second largest Eurozone member, France is a so called ‘core’ economy and market that gives credibility to the region’s rescue efforts of its smaller and more troubled contingents. This news was met with a quick euro drop, but the drive wouldn’t last. First, downgrades in the region are considered more likely and don’t carry as much weight. Second, this is once again a catalyst that falls within a market that is less flammable. But, most importantly, this news comes before a far greater fundamental event: the expected approval of Greece’s next round of rescue funds.

Eurozone Finance Ministers are scheduled to meet at 16:00 GMT to discuss the region’s most problematic country. It is widely expected that the group will finally approve the distribution of long withheld aid to Greece (there is debate between €31.5 and 44 billion) and delivery the funds by December 6. There is still serious contentions here (Greece said it would entertain no more demands), so expect there to be a market reaction.

Japanese Yen Little Moved by BoJ Decision to Hold Stimulus

There has been a lot of talk from both the standing Japanese government and the opposition LDP about increasing stimulus efforts in order to support growth and lower the Japanese yen. Where the latter group (on track to take back the government) is threatening to force the BoJ’s to leverage its stimulus efforts, the policy authority announced this morning no change to their programs. Alternatively, the Chief Cabinet Secretary said the government is considering a second stimulus program of 1 trillion yen (~$12.3 Bln). For contrast, the Fed does $85 per month…

British Pound: BoE’s Miles – We Can Offer More Stimulus

The pound rose for a third day against its US counterpart Monday. That progress has more than a little to do with the weakness of the dollar. When we look at other sterling crosses, the individual currency’s performance is considerably diminished. The pound is ‘drifting’ – playing the counterpart of more influential currencies. Of note this past session, BoE member Miles said more stimulus was possible – an flimsy threat.

Australian and Canadian Dollar – Ultimate Safe Havens?

There is an indelible connection between a currency’s liquidity and its position as a reserve. With the title comes the assumption that funds are particularly safe within that country’s financial assets and therefore currency. Currently there are five major, recognized reserves: dollar, euro, yen, pound and franc. However, that list may expand after the IMF said it was considering adding the Australian and Canadian dollars…

Swiss Franc: SNB Official Wants More Company Amongst Safe Havens

SNB vice-chairman Danthine made a remark Monday that he hoped other currencies could join the Swiss franc as a safe haven. Why? Because, the options available to traders (the dollar is dealing with the fiscal cliff and yen is close behind) for diversification are shrinking as existential crisis fears for the Eurozone are building. If European’s seeking safety see no alternative other than Switzerland, it spells constant pressure.

Gold Advances Despite Tame Greece, Fiscal Cliff Fears

Two of the top financial risks for the global market were put on ice recently. The Fiscal Cliff has surprisingly fallen from the headlines shortly after House Speak Boehner mentioned productive conversation on Friday and Greece is expecting to finally receive its funds on Tuesday. Under normal circumstances, we would expect gold to drop on this shift. However, with the dollar dropping, the metal follows different lines

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

3:14

JPY

Bank of Japan Rate Decision (NOV 20)

0.1%

Policy expected stable, but political developments watched as elections called for Dec 16

4:30

JPY

All Industry Activity Index (MoM) (SEP)

-0.5%

0.1%

Decline continues on weak demand

7:00

JPY

Convenience Store Sales (YoY) (OCT)

-1.6%

Consumer spending still weak

7:00

CHF

Trade Balance (Swiss francs) (OCT)

2.01B

Swiss trade pick-up seen to be result of more confidence European economy

7:00

CHF

Exports (MoM) (OCT)

2.6%

7:00

CHF

Imports (MoM) (OCT)

3.0%

7:00

EUR

German Producer Prices (MoM) (OCT)

0.1%

0.3%

Slower growing prices could give ECB more room to ease fiscally

7:00

EUR

German Producer Prices (YoY) (OCT)

1.6%

1.7%

13:30

CAD

Wholesale Sales (MoM) (SEP)

0.3%

0.5%

Weak retail demand having effect

13:30

USD

Housing Starts (OCT)

840K

872K

Construction sector expected to decline, Hurricane Sandy might be blamed

13:30

USD

Housing Starts (MoM) (OCT)

-3.7%

15.0%

13:30

USD

Building Permits (OCT)

865K

894K

13:30

USD

Building Permits (MoM) (OCT)

-2.8%

11.6%

23:30

AUD

Westpac Leading Index (MoM) (SEP)

0.5%

Australian economy may continue slowing into end of year

23:50

JPY

Merchandise Trade Imports (YoY) (OCT)

-3.2

4.1

Japanese exports expected to decline, though not as fast as a pace on signs of recovery in external markets

23:50

JPY

Merchandise Trade Balance Total (OCT)

-360.0B

-558.6B

23:50

JPY

Adjusted Merchandise Trade Balance (OCT)

-492.1B

-980.3B

23:50

JPY

Merchandise Trade Exports (YoY) (OCT)

-4.9

-10.3

GMT

Currency

Upcoming Events & Speeches

0:30

AUD

Reserve Bank Board Minutes

9:30

EUR

Spain to Sell 12 and 18-Month Bills

11:00

EUR

EFSF to Sell 6 and 24-Month Bills

16:00

EUR

Euro-area Finance Ministers Meet on Greece

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

13.0667

1.7993

8.8437

7.7515

1.2234

Spot

6.7350

5.8249

5.7376

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

1.2902

1.6013

81.93

0.9474

1.0023

1.0498

0.8257

105.14

130.52

Resist. 2

1.2878

1.5989

81.76

0.9457

1.0007

1.0477

0.8238

104.87

130.22

Resist. 1

1.2854

1.5965

81.59

0.9439

0.9992

1.0455

0.8220

104.59

129.92

Spot

1.2805

1.5917

81.25

0.9405

0.9962

1.0413

0.8184

104.05

129.33

Support 1

1.2756

1.5869

80.91

0.9371

0.9932

1.0371

0.8148

103.51

128.73

Support 2

1.2732

1.5845

80.74

0.9353

0.9917

1.0349

0.8130

103.23

128.44

Support 3

1.2708

1.5821

80.57

0.9336

0.9901

1.0328

0.8111

102.96

128.14

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 MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.139+0.001+0.72%
    N21.SI
    0.107+0.004+3.88%
    43E.SI
    3.98+0.02+0.51%
    Z74.SI
    0.75+0.01+1.35%
    BS6.SI
    0.154+0.002+1.32%
    AFC.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    1.48+0.16+12.12%
    S91.SI
    0.245+0.025+11.36%
    K14.SI
    0.60+0.05+9.09%
    AZA.SI
    1.365+0.085+6.64%
    BVP.SI
    0.53+0.03+6.00%
    BFK.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.56-0.18-24.32%
    5VJ.SI
    0.151-0.039-20.53%
    BGO.SI
    0.41-0.06-11.83%
    K1Q.SI
    0.15-0.02-11.76%
    5PL.SI
    0.10-0.01-9.09%
    5DL.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3592-0.001-0.07%
    USDSGD=X
    1.5281-0.0022-0.14%
    EURSGD=X
    1.7632+0.0004+0.02%
    GBPSGD=X
    74.1120+0.388+0.53%
    SGDJPY=X
    5.7038+0.0045+0.08%
    SGDHKD=X
    3.0260-0.0082-0.27%
    SGDMYR=X
    9,505.5703-73.252-0.76%
    SGDIDR=X
    4.9054+0.0036+0.07%
    SGDCNY=X
    1.0412+0.0026+0.25%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,339.00-5.10-0.38%
    GCZ16.CMX
    19.54-0.06-0.29%
    SIZ16.CMX
    94.45-1.31-1.37%
    ^XAU
    2.18-0.01-0.61%
    HGZ16.CMX
    43.85+0.41+0.94%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.13-0.03
    ^FVX
    1.59-0.03
    ^TNX
    2.33-0.01
    ^TYX