Talking Points:
- Dollar Drops after FOMC Weighs in on Currency, But is this a Trend?
- British Pound: Rate Forecasts Drop Before BoE Decision
- Euro Traders Ready for ECB President Draghi Commentary
Dollar Drops after FOMC Weighs in on Currency, But is this a Trend?
Given the S&P 500’s impressive rally and the Dollar’s tumble this past session, it would seem that we have experienced a strong sentiment push. Yet, that doesn’t exactly match the quality of the fundamentals on the day. Top event risk this past session for both US and international markets were the FOMC minutes. Heading into the release, the speculative ranks were adrift having overlooked a disturbing assessment of financial stability released by the IMF – building on the concern in their economic forecasts from the previous day. After the 18:00 GMT FOMC minutes release, the situation changed dramatically. The benchmark S&P 500 equity index rallied 1.8 percent – the biggest rally since the opening day of 2013 – and the VIX volatility index dropped 12 percent to 15.1. On the FX side, the Dow Jones FXCM Dollar Index (ticker = USDollar) slipped a modest 0.3 percent but notched a third consecutive drop – the longest series since the bull wave began in July.
In the Fed’s transcript of its September 16-17 meeting, the central bank offered up a far more conservative view of the economic and financial outlook. The market made special note of the assessment that a global slowing in economic activity was a distinct risk to the United States’ health, and record of another discussion on financial stability reveals a deepening concern amongst global officials. With US equities are on the precipice of tumbling out of its 20-month bull trend, this could have been the push needed to tip sentiment into a correction. Instead, the S&P 500 rallied sharply and the safe haven dollar tumbled. Instead of interpreting the risks ahead, traders recognized a softened will for monetary policy normalization. Traders who have grown accustomed – perhaps dependent – on the extraordinary support from central banks were comforted by concerns over a possible harsh interpretation of a change in forward guidance and the negative inflation pressures the strong dollar would impart. Throwing cold water over a timely rate forecast is certainly a concern for the Dollar. However, is another few months of zero interest rate policy (ZIRP) reason to dive into new risky positions? Keep an eye on risk trends as a range of Fed officials speak today.
British Pound: Rate Forecasts Drop Before BoE Decision
The British Pound was a mixed back Wednesday. Splitting its performance on the day amongst its peers, the currency didn’t leverage much of a move one way or the other. Exchange rate price action aside, though, rate speculation seemed to take a significant stumble. Swap spreads for the time frame that the Bank of England (BoE) is expected to begin its tightening phase dropped this past session to their lowest levels in six months. Specifically the 12-month rate forecast has steadily slid to a five-month low of 36 basis points – indicating debate of more than one hike by October of next year. Data has certainly cooled hawkishness / optimism. The RICS House Price Balance specifically this past session furthered a cycle turn and added to cooling in other sectors. Ahead, we have the BoE decision. However, the central bank does not offer its assessment or sentiments when no change is made. So this will likely be more frustrating than illuminating.
Euro Traders Ready for ECB President Draghi Commentary
ECB President Draghi fell far short of speculators and investors expectations when he announced the asset purchase program ‘details’ last week. Those that short the Euro in anticipation of a program that would rival the Fed or BoJ at their peaks – and investors that expected a firm safety net – were instead met with ambiguity. Is Europe’s financial system safe from a reversal in foreign capital inflows and economic crunch? Has the Euro dropped too far in anticipation of stimulus’s influence over yields? The market is pondering this now. Perhaps Draghi will clarify his commitment today when he discusses Europe and central banking with the Fed’s Fischer in Washington at 15:00 GMT.
Australian Dollar Advances after Weak Employment Data, Negative Revisions?
Australia September employment figures were very unflattering. Furthermore, the revisions to August’s ‘too good to be true’ further undermined already shaky confidence in the economy and return to glory for a carry currency. According to the Bureau of Statistics, employers laid off a net 29,700 Australians while the unemployment rate held at its 11-year high 6.1 percent. The previous month’s 121,000-person increase was revised back to 32,100. So, why then did the Aussie recover from early losses? Traders were already prepared and preoccupied with China.
Yen Crosses Gain on Risk Appetite, But Doubt Trails Behind
Like equities, the Yen crosses were buoyed this past session by a hope for a longer draw on the rewards of cheap US funding after the FOMC minutes. Then again, the same doubt that clouds the idea of adding to near a record high and multi-decade low participation move in equities would linger with carry traders. Aggregate 10-year yields on the majors is currently at a 19 month low – a weak appeal on low volatility.
Emerging Market Currencies Mixed, Ruble Intervention Isn’t Working
Though volume was tepid in the deeper waters of the capital markets, turnover picked up heartily for the MSCI Emerging Market ETF to support its 1.5 percent rally. Another ‘risk’ sensitive asset class, it isn’t difficult to divine its motivation. Yet, it is reasonable to question its conviction when we see the mixed FX picture. Half dropped (some heavily) on the day. A standout is the Ruble, which Russia has been buying to curb.
Gold Retreats from Critical Break on Dollar’s Trouble
A sigh of relief from gold bugs. Like US equity indexes, the precious metal was on the verge of breaking through a key level ($1,180) and crashing to multi-year lows. Yet, the dollar’s misfortune seems to have stayed execution. A longer period of low rates in the US paired with growing stimulus in other major regions means an alternative to currencies has some value.**Bring the economic calendar to your charts with the DailyFX News App.
ECONOMIC DATA
GMT | Currency | Release | Survey | Previous | Comments |
0:00 | AUD | Consumer Inflation Expectation (OCT) | 3.5% | ||
0:30 | AUD | Employment Change (SEP) | -30.0K | 121.0K | |
0:30 | AUD | Unemployment Rate (SEP) | 6.2% | 6.1% | |
0:30 | AUD | Full Time Employment Change (SEP) | 14.3K | ||
0:30 | AUD | Part Time Employment Change (SEP) | 106.7K | ||
0:30 | AUD | Participation Rate (SEP) | 65.0% | 65.2% | |
2:00 | JPY | Tokyo Average Office Vacancies (SEP) | 6.02 | ||
6:00 | JPY | Machine Tool Orders (YoY) (SEP P) | 35.5% | ||
6:00 | EUR | German Trade Balance (euros) (AUG) | 17.7B | 23.4B | |
6:00 | EUR | German Current Account (euros) (AUG) | 13.8B | 21.7B | |
6:00 | EUR | German Exports s.a. (MoM) (AUG) | -4.0% | 4.7% | |
6:00 | EUR | German Imports s.a. (MoM) (AUG) | 0.9% | -1.8% | |
6:45 | EUR | French Trade Balance (euros) (AUG) | -5500M | -5539M | |
11:00 | GBP | Bank of England Interest Rate Decision | 0.50% | 0.50% | |
11:00 | GBP | Bank of England Asset Purchase Target | 375B | 375B | |
12:30 | CAD | New Housing Price Index (MoM) (AUG) | 0.0% | ||
12:30 | CAD | New Housing Price Index (YoY) (AUG) | 1.40% | ||
12:30 | USD | Initial Jobless Claims (OCT 4) | 287K | ||
12:30 | USD | Continuing Claims (SEP 27) | 2398K | ||
14:00 | USD | Wholesale Inventories (AUG) | 0.3% | 0.1% | |
14:00 | USD | Wholesale Trade Sales (MoM) (AUG) | 0.7% | ||
23:50 | JPY | Tertiary Industry Index (MoM) (AUG) | 0.1% | 0.0% | |
23:50 | JPY | Bank Lending Banks inc Trusts (YoY) (SEP) | 2.2% | ||
23:50 | JPY | Bank Lending Banks ex Trusts (SEP) | 2.3% |
GMT | Currency | Upcoming Events & Speeches |
-:- | ALL | G20 Finance Ministers and Central Bank Govs Meeting |
8:00 | EUR | European Central Bank Monthly Report |
13:45 | USD | Fed's James Bullard Speaks on Monetary Policy |
15:00 | EUR | ECB President Mario Draghi Speaks on Monetary Policy |
15:00 | USD | Fed's Richard Fisher Speaks on Monetary Policy |
17:00 | USD | US to Sell $13 Bln in 30-Year Bonds |
17:10 | USD | Fed's Daniel Tarullo Speaks on Banking Regulation |
17:15 | USD | Fed's Jeffrey Lacker Speaks on U.S. Economy |
17:30 | USD | Fed's Richard Fisher Speaks on Monetary Policy |
19:40 | USD | Fed's John Williams Speaks on U.S. Economy |
23:50 | JPY | Bank of Japan Meeting Minutes |
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 jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter
Sign up for John’s email distribution list, here.
original source
