Dollar Hobbled, Equities Bolstered by Bullard’s QE Comments

DailyFX.com -

Talking Points:

• Dollar Hobbled, Equities Bolstered by Bullard’s QE Comments
• Euro Fundamental Backdrop Deteriorating Faster than Currency Suggests
• British Pound Jumps Higher after Rate Forecasts Rebound Sharply

Dollar Hobbled, Equities Bolstered by Bullard’s QE Comments

Though the capital markets aren’t collapsing, sentiment is still doused in volatility and structural concerns continue to march forward. The mixed sense of sentiment the past few trading days in other words do not imply conditions have settled nor that risk appetite has regained control. Yet, as long as the masses are not motivated by the chaos of unwinding, distractions can curb the risk aversion trend that would otherwise spark a bid for the US Dollar. This past session, just such a diversion was found in the financial headlines. The docket issued a round of encouraging economic data. Jobless claims further trended to multi-year lows, industrial production soared, TIC figures for August showed strong capital inflow and the Bloomberg Economic Expectations survey for October hit a near two-year high. All of this cumulatively speaks to a strong US outlook which could be construed as a stabilizing factor for uncertainty and reason for the Fed to keep pace in its easy policy exit.

Yet, a robust economic outlook for the United States doesn’t offer a cure to the ills the system currently faces – a global cooling, excessive leverage and imbalance of future return to its risk. Alone, this data would have like found the markets returning to a concerted equity selloff. However, St. Louis Fed President James Bullard offered traders something more aligned to their tastes. The otherwise hawkish central banker (he previously supported a first quarter 2015 rate hike) remarked that the central bank should consider delaying the end of its QE program. Any indication of ‘more stimulus’ taps the market’s stimulus-to-complacency pleasure centers. However, even if this call found a consensus, it is very unlikely that it could turn sentiment around. A small remnant of a once-massive program held out for a month or two doesn’t offset the types of issues arising in Europe, China and global geopolitics. Moving forward, the focus should remain on volatility as a constant.

Euro Fundamental Backdrop Deteriorating Faster than Currency Suggests

EURUSD slipped 0.2 percent his past session and the Euro was generally mixed through the session. Given the tumult the Euro-area’s capital markets have suffered, that is a ‘win’ for the currency. It seems the ECB was prophetic in its shift five months ago to adopt a more accommodative monetary policy. While it was initially stated as a concern for deflation – and some believe it was in least part a means for capping the exchange rate – it seems that an economic fallout was another element that needed this support. That said, it looks likeit is too little, too late. Since ECB President Draghi failed to meet the market’s demands for clarity on the asset purchase program, the financial markets started to waver. Yet, now with economic lethargy rearing and ammunition for further support nearly spent; we find the region’s equity indexes sharply lower over the weeks, Lipper fund analysis reported a record US withdrawal of $1.3 billion from European funds, and periphery yields are climbing once again. Greece’s 10-year government bond yield has surged 36 percent just this week to a 8.96 percent, 12-month high.

British Pound Jumps Higher after Rate Forecasts Rebound Sharply

For much of this week, the Sterling has come under tremendous pressure from its rapidly deteriorating rate forecast. Yet, this past session, the yield and currency were given quick reprieve. The two-year Gilt yield posted a massive 25.8 percent rally (to 0.65 percent) and the 1-year-2-year swap posted its own 16 percent climb. The Pound shared the sentiment with a universal rally against the majors – 0.4 percent USD up to 1.2 percent against the Aussie. What was the spark in this hawkish view? Neither data nor BoE commentary was especially favorable. Without something material and building, it will be difficult to feed expectations of a 1Q 2015 hike as global conditions slow. Therefore, remain cautious of this hawkish/bullish bearing. Meanwhile, next week, we have 3Q UK GDP due. The biggest impact would be a disappointment.

Yen Crosses Have Yet to Trigger Carry Deleverage

With equity markets mixed, the stubborn Yen crosses were certainly avoid a broad unwind. Yet, as the market looks for guidance, it is important to remember the underlying market conditions as well as the outlook going forward. Volatility is persistent, even if risk aversion is hesitant. That means the ‘risk’ leg of this carry participant is high while the ‘return’ finds yields are still historically low. Should next week’s growth figures confirm a weakening economic picture, it will add considerable pressure to keep these ‘expensive’ carry trades buoyant.

Australian Dollar, Chinese Renminbi Look to High Event Risk Next Week

Aussie Dollar traders will be watching the country’s 3Q CPI figures to see if there is leeway for the RBA to shift back to a more accommodative monetary policy stance as the global horizon darkens. However, if we are looking for what will truly drive the Australian – and Chinese – currency in the week ahead, it will be China’s 3Q GDP report. Will Australia’s largest trade partner continue its effort to moderate growth?

Emerging Markets Late-Session Rebound Doesn’t Curb Decline, Volume

Like equities in the Developed World, Emerging Markets measures found some modest recovery this past session. However, the trend is still persistently in the bears’ court. The MSCI Emerging Market ETF dropped another 0.9 percent on heavy volume (101 million shares) to a six month low. For FX rankings, the most liquid players suffered the worse with the Russian Ruble hitting a new record low.

Gold Traders Seem Little Heartened by Bullard’s Suggestion on QE

Maintaining stimulus in the US for a longer-than-expected period, a growing balance sheet in other countries and the possibility of a financial seizure that will send investors seeking safety. That sounds like a strong combination for gold. However, the metal posted little change on the day as speculative interest continues to drop. It seems liquidity and a hold out for yield make situation just different enough.

**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT	Currency	Release	Survey	Previous	Comments
23:50	JPY	Japan Buying Foreign Stocks (Yen) (OCT 10)		¥439.0B	Last week, Japan’s investors bought the greatest amountof foreign stocks since 2009. Foreign investors have been buying Japanese bonds at an increasing rate; the most bonds since June 2011.
23:50	JPY	Japan Buying Foreign Bonds (Yen) (OCT 10)		-¥179.0B
23:50	JPY	Foreign Buying Japan Bonds (Yen) (OCT 10)		¥1224.0B
23:50	JPY	Foreign Buying Japan Stocks (Yen) (OCT 10)		¥186.5B
1:45	CNY	MNI October Business Indicator			China’s GDP forecasts have been downgraded by the IMF. China has reported weaker than expected trade numbers.
6:00	EUR	EU 25 New Car Registrations (SEP)		2.10%	Has been increasing at a slowing rate this year. Not likely to impact FX markets though.
9:00	EUR	Euro-Zone Construction Output s.a. (MoM) (AUG)		0.00%	Increasing at a slower rate (YoY). However, these measures aren’t likely to be major market movers as they are from the month of August
9:00	EUR	Euro-Zone Construction Output w.d.a. (YoY) (AUG)		0.40%
12:30	CAD	BoC Consumer Price Index Core (YoY) (SEP)	2.10%	2.10%	Inflation can greatly affect the BoC decision on interest rate increases. If Inflation is strongly above the BoC target of 2%, it would put pressure on the BOC to increase rates. Inflation has been rising on a YoY basis and it is currently meeting the BoC’s inflation target. Not likely to change policy if inflation is stronger than expected.
12:30	CAD	Consumer Price Index (YoY) (SEP)	2.00%	2.10%
12:30	USD	Housing Starts (SEP)	1005K	956K	With the housing market recovering from the 2007-2007 slump. Housing permits and building permits have been stable this year growing around 1000k per month. Lower interest rates as evidenced by lower treasury yields might give the housing market a boost.
12:30	USD	Building Permits (SEP)	1030K	1003K
12:30	USD	Building Permits (MoM) (SEP)	2.70%	-5.10%
12:30	USD	Housing Starts (MoM) (SEP)	5.10%	-14.40%
13:55	USD	U. of Michigan Confidence (OCT P)	84.1	84.6	It has been rising at an increasing rate; might signal a stronger US economy. It should be watched to see if confidence this month is going to be affected by fears of a global slowdown, market volatility, etc.

GMT	Currency	Upcoming Events & Speeches
6:45	GBP	GBP BOE Chief Economist Andy Haldane Speaks in Kenilworth, England
7:45	EUR	ECB's Constancio Speaks in Frankfurt
8:00	EUR	ECB's Ewald Nowotny Speaks at Vienna Gewinn Messe Retail Fair
10:00	EUR	EURO stat Release First GDP Estimates After ESA 2010 Adoption
10:00	EUR	ECB Announces 3 year LTRO Repayment
12:30	USD	Fed's Yellen Speaks at Boston Fed Conference on Inequality

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT							SCANDIES CURRENCIES 18:00 GMT
Currency	USD/MXN	USD/TRY	USD/ZAR	USD/HKD	USD/SGD		Currency	USD/SEK	USD/DKK	USD/NOK
Resist 2	14.0100	2.3800	12.7000	7.8165	1.3650		Resist 2	7.5800	5.8950	6.7400
Resist 1	13.5800	2.3000	11.8750	7.8075	1.3250		Resist 1	7.3285	5.8475	6.5135
Spot	13.3930	2.2618	11.2060	7.7538	1.2697		Spot	7.2098	5.8372	6.3980
Support 1	13.0300	2.0700	10.2500	7.7490	1.2000		Support 1	6.7750	5.3350	6.3145
Support 2	12.8350	1.7500	9.3700	7.7450	1.1800		Support 2	6.0800	5.2715	6.1300

INTRA-DAY PROBABILITY BANDS 18:00 GMT

CCY	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	Gold
Res 3	1.2850	1.6421	109.56	0.9547	1.1181	0.8873	0.8008	139.63	1245.51
Res 2	1.2825	1.6394	109.33	0.9526	1.1159	0.8851	0.7987	139.35	1239.83
Res 1	1.2801	1.6367	109.10	0.9506	1.1137	0.8830	0.7966	139.08	1234.16
Spot	1.2752	1.6314	108.64	0.9466	1.1093	0.8786	0.7925	138.53	1222.81
Supp 1	1.2703	1.6261	108.18	0.9426	1.1049	0.8742	0.7884	137.98	1211.46
Supp 2	1.2679	1.6234	107.95	0.9406	1.1027	0.8721	0.7863	137.71	1205.79
Supp 3	1.2654	1.6207	107.72	0.9385	1.1005	0.8699	0.7842	137.43	1200.11

v

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email [e-mail]. Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.

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.

original source