Talking Points:
- Dollar Rallies to More than Five Year High as Payrolls Approach
- Euro Drops after Draghi Reiterates Stimulus Commitment
- British Pound Most Fundamentally At-Risk Currency Next Week
Dollar Rallies to More than Five Year High as Payrolls Approach
While many of the top financial headlines are cheering the fresh record highs for US equities, a comparatively impressive move has developed for the FX market’s leader: the US Dollar. The Greenback climbed against all of its major counterparts this past session despite an unflattering economic docket and a move seeking higher return (historically the bane of this traditional safe haven). If this is the currency’s performance through a tepid docket and weakened fundamental backdrop, what happens if a high-profile release like today’s NFPs offers a clear signal and motivation?
The scope of the Dollar’s performance can be sussed from the two-year low in EURUSD, the drive above 115 to six-year highs for USDJPY, and GBPUSD’s slip to 14-month lows amongst others. However, the Dow Jones FXCM Dollar Index (ticker = USDollar) may offer the more complete picture as it charged above 11,300 this morning to clear the highest level it has seen since May 2009. The 8.9 percent climb the currency has piloted the past four months endured without the support of its normal fundamental pillars. In fact, it has progressed through direct opposition to the standard guidelines…or at least it seems that way. On the ‘risk’ front, the S&P 500’s return to record highs and VIX volatility index retreat seems to secure a positive lean for market sentiment. However, we find a different evaluation in other market benchmarks. The FX-based volatility reading (the one-month equivalent to its stock counterpart) for example currently stands at a 13-month highs.
Meanwhile, interest rate expectations did indeed collapse through October alongside capital markets – forecasts dropped to levels last seen in May 2013 according to Fed Fund and Eurodollar futures – but they have marked a significant recover the past few weeks with a particular acceleration noted after the FOMC rate decision. There is a disparity between ‘top line’ readings of these high-level fundamental themes and what the more qualitative measures insinuate. Will the NFPs help reconcile the discrepancy? Can it? See today’s Strategy Video for more.
Euro Drops after Draghi Reiterates Stimulus Commitment
Following the fireworks in last week’s FOMC and Bank of Japan rate decisions, the European Central Bank’s policy decision was marked for top event risk this past session. Pressure for the policy group to do more to bolster the region’s economic and financial health has built from outside of the Euro-area. In fact, the OECD Thursday repeat its 1.1 percent 2015 GDP forecast for the aggregate economy (downgraded in September from a previous 1.7 percent outlook) and warned that this key player posed a threat to the global recovery effort. The remedy as many see it is more stimulus, but the ECB has already unleashed a round of rate cuts, new LTROs and covered bond purchases amongst other efforts this year. The next move would be an escalation to a full-scale bond purchasing program; but recent internal dissension and a lack of clarity on how such a program could work stayed President Draghi’s hand. Nevertheless, he reiterated his commitment to turn the tides.
British Pound Most Fundamentally At-Risk Currency Next Week
Despite the Bank of England’s decision to hold policy unchanged – thereby precluding any useful updates on policy views and forecasts from the MPC – the Pound would still suffer a tumble this past session. Cable (GBPUSD) in particular dropped 145 or 0.9 percent. Rate expectations as of late have cooled materially with the rate forecast now pricing in full confidence of the first hike around the mid-point of next year. Are the markets too hawkish still or are they now too dovish? Next week’s BoE Quarterly Inflation report will give us a clear update.
Yen Crosses Climb Doesn’t Carry the Same Impetus as Initial QE Run
The USDJPY has surged back 115, and the comparisons to late-2012, early-2013 are inevitable. In the liftoff from sub-80 to eventually overtake 100, the market was building its drive through anticipation of a massive and open-ended BoJ stimulus program. ‘Anticipation’ was the operable word here. Two-thirds of the rally surrounding the central bank’s first foray into mass-scale easing came before it was implemented. This time around, there is no anticipation. USDJPY has rallied over 600 pips on sheer surprise. And markets aren’t surprised for long.
Canadian Dollar: Beware Employment Data Volatility
As usual, most of the headlines for ‘jobs data’ covers the US NFPs. However, Canada is due to release its own October labor report Friday morning at 13:30 GMT. And, this series has a recent history of considerable volatility. Heading into the release, a consensus forecast for a 5,000-net loss in jobs opens the door widely to the impact of a surprise. The previous release was 74,100 versus 20,000 expected.
Emerging Markets Following a Different Path than S&P 500, Ruble Can’t Catch a Break
Emerging markets are not following the US equity indexes step-for-step. In fact, the MSCI EM ETF has stalled in its October recovery and has slipped back below 41. Dour global growth forecasts and a wavering confidence in the central bank safety net adds to local concerns like capital outflow from Russia. The Russian Ruble hit another record low this morning with USDRUB gapping to 47.46as they try to approach free float.
Gold’s Critical Technical Break in Good Fundamental Company
Last week, gold slipped below a four-year low $1,185 after the Fed kept its hawkish push to close out QE3 and move closer to the eventual and inevitable first rate hike in its next policy regime. Since then, the metal has lost further ground. With five-year lows in ETF holdings, a strengthening dollar and doubt that a systemic crisis will revive its unique haven appeal; gold will struggle to recover.
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ECONOMIC DATA
GMT | Currency | Release | Survey | Previous | Comments |
22:30 | AUD | AiG Performance of Construction Index (OCT) | 59.1 | Has been rising this year; thus showing strength in the construction and manufacturing sector | |
23:50 | JPY | Japan Buying Foreign Bonds (Yen) (OCT 31) | ¥40.6B | Foreign buying bonds and stocks were greater than the previous weeks. Japan buying of foreign stocks and bonds were greater than the previous week as well. | |
23:50 | JPY | Foreign Buying Japan Bonds (Yen) (OCT 31) | ¥49.0B | ||
23:50 | JPY | Japan Buying Foreign Stocks (Yen) (OCT 31) | ¥197.1B | ||
23:50 | JPY | Foreign Buying Japan Stocks (Yen) (OCT 31) | ¥178.0B | ||
5:30 | AUD | Foreign Reserves (Australian dollar) (OCT) | A$60.9B | Last month’s reading was higher than the reading from the beginning of year | |
6:45 | CHF | Unemployment Rate s.a. (OCT) | 3.20% | 3.20% | Has been declining this year despite anemic growth in the Eurozone, Switzerland’s largest export market |
6:45 | CHF | Unemployment Rate (OCT) | 3.10% | 3.00% | |
7:00 | EUR | German Industrial Production n.s.a. and w.d.a. (YoY) (SEP) | -0.60% | -2.80% | Has been showing contraction in industrial production since September |
7:00 | EUR | German Industrial Production s.a. (MoM) (SEP) | 2.00% | -4.00% | |
7:00 | EUR | German Trade Balance (Euro) (SEP) | 19.0B | 14.0B | Important figure as Germany which is the Eurozone’s largest economy is an export dependent economy. The trade balance has been declining since September and current account has been declining this year |
7:00 | EUR | German Current Account (Euro) (SEP) | 18.0B | 10.3B | |
7:00 | EUR | German Exports s.a. (MoM) (SEP) | 2.30% | -5.80% | |
7:00 | EUR | German Imports s.a. (MoM) (SEP) | 1.10% | -1.30% | |
8:00 | CHF | Foreign Currency Reserves (OCT) | 462.2B | Has been rising this year | |
9:30 | GBP | Total Trade Balance (Pounds) (SEP) | -£2300 | -£1917 | Exports are important to the UK GDP. If exports are shown to be weakening at a rapid pace, it might make the BOE hold off rate increases |
9:30 | GBP | Visible Trade Balance (Pounds) (SEP) | -£9500 | -£9099 | |
9:30 | GBP | Trade Balance Non EU (Pounds) (SEP) | -£3700 | -£3587 | |
13:30 | USD | Unemployment Rate (OCT) | 5.90% | 5.90% | US’s unemployment rate has been declining this year. Raising interest rates are greatly dependent on how well the labor market is performing. Despite the decline in the unemployment rate, the labor force participation rate is at a decade low |
13:30 | USD | Change in Non-farm Payrolls (OCT) | 235K | 248K | |
13:30 | USD | Labor Force Participation Rate (OCT) | 62.70% | ||
13:30 | USD | Change in Private Payrolls (OCT) | 223K | 236K | |
13:30 | USD | Change in Household Employment (OCT) | 232K | ||
13:30 | CAD | Unemployment Rate (OCT) | 6.90% | 6.80% | The unemployment rate in Canada has been declining this year. The BOC will look at how well its labor market performs when deciding on monetary policy . |
13:30 | CAD | Full Time Employment Change (OCT) | 69.3 | ||
13:30 | CAD | Net Change in Employment (OCT) | -5.0K | 74.1K | |
13:30 | CAD | Part Time Employment Change (OCT) | 4.8 | ||
13:30 | CAD | Participation Rate (OCT) | 66 | 66 | |
20:00 | USD | Consumer Credit (SEP) | $16.00B | $13.525B | Has been declining this year |
GMT | Currency | Upcoming Events & Speeches |
0:30 | AUD | RBA Statement on Monetary Policy |
10:15 | GBP | BOE Governor Mark Carney Speaks in Paris |
11:00 | EUR | ECB Announces 3-Year LTRO Repayment |
14:15 | USD | Fed's Evans Speaks at 10th Annual Community Bankers USD Symposium |
15:15 | USD | Fed's Yellen Speaks on Policy Since the Crisis in Paris |
19:30 | USD | Fed's Tarullo Speaks on Community Banking Via Video |
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 | 6.1750 | 7.2900 | |
Resist 1 | 13.6800 | 2.3000 | 11.8750 | 7.8075 | 1.3250 | Resist 1 | 7.5000 | 6.0900 | 7.0000 | |
Spot | 13.6388 | 2.2647 | 11.2617 | 7.7529 | 1.2960 | Spot | 7.4348 | 6.0094 | 6.8655 | |
Support 1 | 13.0300 | 2.0700 | 10.2500 | 7.7490 | 1.2000 | Support 1 | 6.7750 | 5.8000 | 6.3145 | |
Support 2 | 12.8350 | 1.7500 | 9.3700 | 7.7450 | 1.1800 | Support 2 | 6.0800 | 5.7300 | 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 | 1.2483 | 1.5947 | 116.41 | 0.9829 | 1.1519 | 0.8652 | 0.7777 | 143.90 | 1170.60 |
Res 2 | 1.2456 | 1.5919 | 116.09 | 0.9805 | 1.1496 | 0.8630 | 0.7755 | 143.55 | 1163.67 |
Res 1 | 1.2429 | 1.5891 | 115.78 | 0.9781 | 1.1474 | 0.8608 | 0.7734 | 143.21 | 1156.74 |
Spot | 1.2376 | 1.5835 | 115.15 | 0.9733 | 1.1429 | 0.8564 | 0.7690 | 142.51 | 1142.87 |
Supp 1 | 1.2323 | 1.5779 | 114.52 | 0.9685 | 1.1384 | 0.8520 | 0.7646 | 141.81 | 1129.00 |
Supp 2 | 1.2296 | 1.5751 | 114.21 | 0.9661 | 1.1362 | 0.8498 | 0.7625 | 141.47 | 1122.07 |
Supp 3 | 1.2269 | 1.5723 | 113.89 | 0.9637 | 1.1339 | 0.8476 | 0.7603 | 141.12 | 1115.14 |
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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com
To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter
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