Forex: Dollar Tumbles and EUR/USD Closes 9 Month High

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SymbolPriceChange
EURUSD=X1.3813-0.0001
USDJPY=X102.4250-0.005

  • Dollar Tumbles and EUR/USD Closes 9 Month High
  • Euro Surges Higher after ECB Hold, Spain Bond Auction
  • Japanese Yen Crosses Revive Strongest Run Since 1989
  • Australian Dollar Closes 10-Month High, 1.0600 Up to Risk Trends
  • British Pound Ignores BoE Rate Decision, Runs on ECB Aftershocks
  • Canadian Dollar Stumbles Against Most Counterparts
  • Gold Advances on Dollar Weakness but 1680 Could Curb Bulls

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Dollar Tumbles and EUR/USD Closes 9 Month High

Against the backdrop of a five-year high for the S&P 500 and a remarkable climb for EURUSD, it wasn’t difficult to interpret the pain the US dollar was in Thursday. For the Dow Jones FXCM Dollar Index (ticker = USDollar), the 57-point or 0.57 percent tumble was the steepest the benchmark has suffered since September 11 – notably the end of a three-month bear wave. While the Index was suffering a significant hit, it was the individual pairs that truly stood out. EURUSD’s 208-pip (1.6 percent) rally was the biggest since June 29, GBPUSD rallied 145 pips (a five-month record) and AUDUSD rose to close at its highest level since March. There are all impressive moves, but we have to ask whether this was the beginning of a lasting trend or a one-off swell spurred on by the right mix of event risk.

The difference between a lasting trend and a quick reversal for the majors (plunge or recovery for the dollar) is the source of Thursday’s move. There is tempting evidence in the performance across the market this past session that what was driving the swell in volatility was genuine risk appetite. If indeed the impetus for the move was a strong shift in the appetite riskier / higher-yielding assets and currencies, this may be just the first step in a lasting trend. Given the advance for US equity indexes, EURUSD and the yen crosses; it would seem that there was a common denominator to the drive that can unify these very different markets. However, there are a few serious concern that temper my optimism.

Correlations across these different markets are one of the best measures for underlying investor sentiment we have, but we can have a ‘false positive’ with the correct mix of individual events. For EURUSD, the strong rally was clearly sourced through a mixture of a better outcome for the ECB decision and strong showing for Spain (details on both below). Looking to the yen crosses, discussion of BoJ stimulus was made tangible by the announcement that a large stimulus program was approved (more on that below). And, from the S&P 500, though it managed a technical close at five-year highs, there was little momentum and the daily performance was tepid.

Noting these concerns is not to mean that there can’t be an element of risk trends develop or that the markets won’t continue without the affirmation. With another round of the proper event risk, we can see the dollar suffer – though that is difficult to manage. Heading into the final trading day of the week, top event risk is the pre-New York open Wells Fargo 4Q earnings report. The US corporate sector’s financial health is a big ticket item that can truly alter risk trends’ bearing. Otherwise, we wait until next week and updates like China’s 4Q GDP release.

Euro Surges Higher after ECB Hold, Spain Bond Auction

The EURUSD pairing wasn’t the only place that the euro was showing remarkable strength. In fact, the currency managed rallies against safe havens and high yield (Aussie and Kiwi dollars) alike. This wasn’t a structural fundamental support like risk trends, rather it was an inherent catalyst that generated one of the most overwhelming advances for the single currency in months. It is easy to assign the responsibility for this move to a single factor – the ECB rate decision – but that wouldn’t be grasping the full picture. For the central bank released its decision and Draghi spoke, we learned that Spain was considering dropping a seniority clause for its rescue program and a bond sale for the country (2, 5 and 13-year debt) had met strong demand. That eases pressure on one of the region’s greatest threats for revive crisis. Therefore, when the market was met with the otherwise mundane, ‘unanimous’ vote for no cuts and a loose outlook for recovered growth – bulls took over.

Japanese Yen Crosses Revive Strongest Run Since 1989We have seen the USDJPY and yen crosses swing from modest retracement to aggressive trend revival. There was a clear build in pressure to drive the yen lower and the crosses higher Thursday that was sourced in news yesterday morning that officials were looking to set an extra budget to pay for fresh stimulus. That stimulusa 10.3 trillion yen boost – was announced this morning. Prime Minister Abe has all but written off fiscal reform. Meanwhile, the USDJPY is on pace to close its ninth consecutive bullish week – a record not seen since February 1989.

Australian Dollar Closes 10-Month High, 1.0600 Up to Risk Trends

Like the S&P 500, we have to look at AUDUSD with a level of doubt. Despite the drive behind EURUSD, this more risk-sensitive pair managed only a modest advance – even if it did close just off of 1.0600 and thereby technically end at a March high. A technical break alone means little if there is no follow through to the move. Chinese trade strength was a first step, but solid carry interest doesn’t seem to be a primary presence in the pair’s current position. This will be a good pair to gauge risk trends.

British Pound Ignores BoE Rate Decision, Runs on ECB Aftershocks

As expected, the market would completely overlook the Bank of England’s (BoE) rate decision Thursday. With no change to the benchmark or asset purchases, the central bank would remain silent on their expectations and evaluations. Instead, pound traders were looking to the euro, which surged forward. If that is a reflection of financial or economic health, the UK stands to benefit.

Canadian Dollar Stumbles Against Most Counterparts

Another unusual standout – the lesser yield of the Canadian dollar would subordinate it to the Aussie and Kiwi currencies and ensure the native strength of the European currencies would overwhelm it. There was housing data released this past session, but it barely changed and would not distract from bigger moves. The trade figure for November coming up could have more influence if we aren’t risk focused again.

Gold Advances on Dollar Weakness but 1680 Could Curb Bulls

We’ve seen gold rally over 1 percent in a single day only five times over the past three months. The metal performance this past session though thanks to the exceptional weakness of the dollar. In the meantime, the ECB’s decision to hold rates is something of a weight to the metal and the confirmation of the Japanese stimulus program did nothing to further gold beyond a serious trendline resistance.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

1:30

CNY

Consumer Price Index (YoY) (DEC)

2.30%

2.00%

Positive trade data, PMI’s could bolster prices throughout economy.

1:30

CNY

Producer Price Index (YoY) (DEC)

-1.80%

-2.20%

5:00

JPY

Eco Watchers Survey: Current (DEC)

-

40

Recession should weigh heavily on sentiment.

5:00

JPY

Eco Watchers Survey: Outlook (DEC)

-

41.9

8:15

CHF

Consumer Price Index (MoM) (DEC)

-0.10%

-0.30%

Rallied from 6/2012 low at -1.1% on a yearly measure.

8:15

CHF

Consumer Price Index (YoY) (DEC)

-0.30%

-0.40%

8:15

CHF

CPI - EU Harmonised (MoM) (DEC)

-

-0.50%

Rallied from 6/2012 low at -1.2% on a yearly measure.

8:15

CHF

CPI - EU Harmonised (YoY) (DEC)

-

-0.10%

9:30

GBP

Manufacturing Production (MoM) (NOV)

0.50%

-1.30%

In downtrend since 8/2010 high at +6.2% on yearly basis, but stabilized in 2012.

9:30

GBP

Manufacturing Production (YoY) (NOV)

-1.30%

-2.10%

9:30

GBP

Industrial Production (MoM) (NOV)

0.80%

-0.80%

In downtrend since 8/2010 high at +4.3 on yearly basis, but stabilized in 2012.

9:30

GBP

Industrial Production (YoY)(NOV)

-1.90%

-3.00%

13:30

USD

Import Price Index (MoM) (DEC)

0.10%

-0.90%

Appears to have resumed downtrend since 7/2011 high at +13.7% (Yearly measure).

13:30

USD

Import Price Index (YoY) (DEC)

-1.50%

-1.60%

13:30

USD

Trade Balance (NOV)

-$41.3B

-$42.2B

Deficit began to narrow from 1/2012 low at -52.2%.

13:30

CAD

International Merchandise Trade (C$) (NOV)

-0.60B

-0.17B

Improved by 93.75% since 7/2012 low at -2.7B.

15:00

GBP

NIESR Gross Domestic Product Estimate (DEC)

-

0.10%

Averaged 0.0% throughout 2012.

19:00

USD

Monthly Budget Statement (DEC)

-$1.0B

-$86.0B

This data has big swings, but overall running deep deficits since 9/2008.

GMT

Currency

Upcoming Events & Speeches

1:00

USD

Fed's Kocherlakota Speaks in Town Hall Meeting in Minneapolis

7:00

EUR

EU's Rehn Speaks at Brussels Think Tank

11:00

USD

US Earnings – Wells Fargo

14:30

USD

Fed’s Plosser Speaks on Economic Outlook

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

12.5984

1.7682

8.6870

7.7527

1.2231

Spot

6.4871

5.6252

5.5230

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

1.3365

1.6253

90.08

0.9221

0.9891

1.0662

0.8503

119.71

145.66

Resist. 2

1.3340

1.6228

89.83

0.9204

0.9877

1.0642

0.8483

119.33

145.22

Resist. 1

1.3314

1.6203

89.59

0.9187

0.9863

1.0621

0.8463

118.95

144.78

Spot

1.3264

1.6152

89.10

0.9153

0.9835

1.0581

0.8423

118.18

143.90

Support 1

1.3214

1.6101

88.61

0.9119

0.9807

1.0541

0.8383

117.41

143.02

Support 2

1.3188

1.6076

88.37

0.9102

0.9793

1.0520

0.8363

117.03

142.58

Support 3

1.3163

1.6051

88.12

0.9085

0.9779

1.0500

0.8343

116.65

142.14

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

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The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.2526-0.0001-0.01%
    USDSGD=X
    1.7302-0.0002-0.01%
    EURSGD=X
    2.1033-0.0002-0.01%
    GBPSGD=X
    81.7693+0.00190.00%
    SGDJPY=X
    6.1905+0.0004+0.01%
    SGDHKD=X
    2.5850+0.0002+0.01%
    SGDMYR=X
    9,116.9668-3.3359-0.04%
    SGDIDR=X
    4.9692-0.004-0.08%
    SGDCNY=X
    1.1684-0.0007-0.06%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,295.80-7.90-0.61%
    GCQ14.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