By John Kicklighter, Currency Strategist
- Dollar Traders Won’t Wait Until Friday NFPs to Find Volatility, Trend
- Euro: Is there Room for a Correction Amid Europe’s Financial Troubles, ECB Decision?
- British Pound May have a Already Priced in a BoE Stimulus Move
- Australian Dollar Has a Virtual Guarantee of Volatility Between the RBA and Risk
- Swiss Franc: What Does the ECB Decision Mean for the Euro’s Primary Safe Haven
- Canadian Dollar Collapses to End the Week, Major Event Risk Ahead
- Gold Dangerously Quiet Ahead of Key a Fundamentally Dense Week
Dollar Traders Won’t Wait Until Friday NFPs to Find Volatility, Trend
Though it was an extremely choppy performance, the dollar did well this past week. The greenback advanced against all its major counterparts with the exception of the British pound despite the lack of a tangible drive in underlying investor sentiment and the necessary liquidity demand that defines the fundamental appeal of an otherwise wayward currency. Moving forward, there will be no lack of catalysts to stoke volatility behind this benchmark and every other risk-sensitive asset in the financial markets. In fact, the docket may be so dense that it is hard to establish a primary trend. The novice think the fundamental landscape is flat until we get to Friday’s Non-Farm Payrolls (NFPs); but the experienced trader knows that the bigger swings in volatility will come before the labor report. And, in all likelihood, the fundamental future of the dollar will be decided by the event risk that precedes this news trader-favored indicator.
Upon entering the new trading week, we need to be instantly on our toes. A sharp drop in risk trends and the euro to end this past week leverages the risk that the markets are reviving the bear run that had stalled in recent weeks. However, we should look for confirmation of conviction rather than trying to jump excitedly ahead of a move. This Friday represents the end of the week, month and quarter – an unusual mix. As such, we may be seeing the effects of position squaring that would not carry over into the new trading period. That said, the proximity of major support for the S&P 500 and EURUSD alongside the unstable fundamental backdrop leverages the threat that this is the real deal.
There are a number of concerns that we will need to keep in mind beyond the Monday make-or-break. First up is the persistence in the spread of the global financial crisis. This past week, we saw Morgan Stanley grace the headlines for the meteoric rise in its credit default premiums due to balance sheet exposures to European debt; but it is important to actively scan the entire US financial sector for trouble. If we were to rank the systemic threat level and imminence of crisis; the Bank of America is probably the most worrisome player. Whether conditions simply deteriorate in Europe or the contagion spreads to the US; the outcome will be the same for the US dollar – demand for liquidity and shelter from an infectious financial disaster will leverage the greenback’s liquidity / safe haven value.
As for the August payrolls, the forecast is for a 50,000 net addition to the labor market following a remarkable announcement of no change. Does this change the bearing on the US economy? No. Does it change the outlook for rates? No. Therefore, don’t expect much follow through.
Euro: Is there Room for a Correction Amid Europe’s Financial Troubles, ECB Decision?
After moving beyond Monday’s critical decision about whether EURUSD and EURGBP will collapse below 1.3400 and 0.8575 respectively; there will be plenty of fundamental landmines to keep things interesting. As with the NFPs, the ECB decision is easy to benchmark; but this particular event carries a lot more potential than the US data. The market is fully pricing in a 25bp rate cut; but recent commentary suggests officials are more interested in taking the unorthodox route by reactivating covered bond purchases. Regardless of the outcome, expectations are high; and the market has already priced in considerable change from the euro. There will be a reaction to President Trichet’s final policy meeting. There seems a latent belief that EFSF expansion approval can offer at least short term relief. Perhaps it can accomplish the same for the euro…
British Pound May have a Already Priced in a BoE Stimulus Move
The ECB isn’t the only bank that will be active next week. Its English counterpart is perhaps more noteworthy; because an expected announcement of additional bond purchases would represent the first action (not to mention official remarks) from the MPC in many months. Without room to cut the benchmark lending rate, market participants believe the Bank of England will take member Adam Posen’s long-standing advice and increase its bond purchases by 50 to 100 billion pounds. This is in all likelihood a first step and admission that conditions are weak.
Australian Dollar Has a Virtual Guarantee of Volatility Between the RBA and Risk
The most divisive of the central bank meetings next week is surprisingly the RBA’s gathering. The market is fairly certain on both the ECB and BoE’s approaches; but there is considerable uncertainty surrounding the Australian authority. Policy officials have offered little beyond a neutral lean in their policy stance in the last two statements; but the market is pricing in a cumulative 150 bps worth of cuts over the coming 12 months.
Swiss Franc: What Does the ECB Decision Mean for the Euro’s Primary Safe Haven
If we are concerned that the euro could potential dive into a steep selloff, we need to also consider what will happen with the Swiss franc. As the primary safe haven for Europeans, the franc will find a significant boost in demand should panic hit. Of course, the momentum here depends on a catalyst. If the euro is dropping due to rate expectations, EURCHF would likely hold. If it’s a revived crisis though, all bets are off on 1.20.
Canadian Dollar Collapses to End the Week, Major Event Risk Ahead
Though the focus was on the euro and S&P 500 through the close of this past week; the Canadian dollar would also mark a sharp plunge to close the week. In fact, USDCAD rallied to a more than one-year high while CADJPY dove to a 31-month low. Risk aversion certainly had more to do with this than the better-than-expected July GDP reading; so that is where our focus should be next week. That and the jobs figures.
Gold Dangerously Quiet Ahead of Key a Fundamentally Dense Week
Something is suspicious. Not the fact that gold is retracing as risk seems to rise (that makes sense when we come at it as a question of liquidity). The previous metal has seen its volatility contract, futures volume hit a month low and net speculative interest in COT figures hit levels not seen since mid-2009. Conditions are warping. This could be a sign that a serious crisis is building – one beyond gold’s safe haven palate.
ECONOMIC DATA
Next 24 Hours
GMT
|
Currency
|
Release
|
Survey
|
Previous
|
Comments
|
1:00
(Sat)
|
CNY
|
PMI Manufacturing (SEP)
|
50.9
|
50.9
|
Chinese manufacturing nearing stalling
|
23:01
(Sun)
|
GBP
|
Lloyds Business Barometer (SEP)
|
-3
|
Has been dropping, though not as low as recession records
| |
23:01
(Sun)
|
GBP
|
Hometrack Housing Survey (MoM) (SEP)
|
-0.1%
|
A further drop in housing prices provides more support for BoE doves
| |
23:01
(Sun)
|
GBP
|
Hometrack Housing Survey (YoY) (SEP)
|
-3.7%
| ||
23:30
(Sun)
|
AUD
|
AiG Performance of Manufacturing Index (SEP)
|
43.3
|
Manufacturing capacity may shrink once again
| |
23:50
(Sun)
|
JPY
|
Loans and Discounts Corporate YoY (AUG)
|
-1.6%
|
Slowing loans may prompt government action, if not Bank of Japan
| |
23:50
(Sun)
|
JPY
|
Tankan Large Manufacturing (Q3)
|
2
|
-9
|
Tankan surveys show improvement in Q3, pulling upwards from Q2 weakness
|
23:50
(Sun)
|
JPY
|
Tankan Non Manufacturing (Q3)
|
2
|
-5
| |
23:50
(Sun)
|
JPY
|
Tankan Large Manufacturing Outlook (Q3)
|
3
|
2
| |
23:50
(Sun)
|
JPY
|
Tankan Non Manufacturing Outlook (Q3)
|
2
|
-2
| |
23:50
(Sun)
|
JPY
|
Tankan Large All Industrial CapEx (Q3)
|
4.3%
|
4.2%
| |
0:00
|
NZD
|
ANZ Commodity Price (SEP)
|
-1.2%
|
Commodity index may fall on lower prices
| |
1:00
|
CNY
|
China Non-manufacturing PMI (SEP)
|
57.6
|
Services industry seen not as weak as manufacturing and industries
| |
5:00
|
JPY
|
Vehicle Sales (YoY) (SEP)
|
-25.5%
|
Sales suffer on lower demand
| |
7:15
|
CHF
|
Retail Sales (Real) (YoY) (AUG)
|
1.9%
|
Swiss retail may see improvement
| |
7:30
|
CHF
|
PMI Manufacturing (SEP)
|
51.7
|
Swiss manufacturing could be buoyed by peg, Eurozone demand
| |
7:45
|
EUR
|
Italian PMI Manufacturing (SEP)
|
47
|
Eurozone industries may further weaken as companies reduce investment spending
| |
7:50
|
EUR
|
French PMI Manufacturing (SEP F)
|
47.3
| ||
7:55
|
EUR
|
German PMI Manufacturing (SEP F)
|
50
| ||
8:00
|
EUR
|
EU PMI Manufacturing (SEP F)
|
48.4
| ||
8:30
|
GBP
|
PMI Manufacturing (SEP)
|
49
|
British data seen weak on continued government austerity
| |
14:00
|
USD
|
Construction Spending MoM (AUG)
|
-0.1%
|
-1.3%
|
Demand in southeast may help index
|
14:00
|
USD
|
ISM Manufacturing (SEP)
|
50.1
|
50.6
|
US manufacturing price could fall again, suggesting bank will keep rates lower
|
14:00
|
USD
|
ISM Prices Paid (SEP)
|
55.5
| ||
16:00
|
EUR
|
New Car Registrations (YoY) (SEP)
|
1.5%
|
New cards indicates consumer spending
| |
17:00
|
EUR
|
Italian Budget Balance (SEP)
|
-6.9B
|
Italian government budgets slowly improving on austerity efforts
| |
17:00
|
EUR
|
Italian Budget Balance (Year to date) (SEP)
|
-46.8B
| ||
21:00
|
USD
|
Total Vehicle Sales (SEP)
|
12.40M
|
12.10M
|
US vehicle sales expected stable
|
21:00
|
USD
|
Domestic Vehicle Sales (SEP)
|
9.80M
|
9.52M
| |
23:50
|
JPY
|
Monetary Base (YoY) (SEP)
|
15.9%
|
Index growth may slow on tight liquidity
|
SUPPORT AND RESISTANCE LEVELS
CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT
Currency
|
EUR/USD
|
GBP/USD
|
USD/JPY
|
USD/CHF
|
USD/CAD
|
AUD/USD
|
NZD/USD
|
EUR/JPY
|
GBP/JPY
|
Resist 2
|
1.4050
|
1.5900
|
86.00
|
0.9400
|
1.0675
|
1.0750
|
0.9020
|
112.00
|
126.50
|
Resist 1
|
1.3900
|
1.5775
|
81.50
|
0.9250
|
1.0550
|
1.0375
|
0.8750
|
106.50
|
123.00
|
Spot
|
1.3408
|
1.5617
|
77.07
|
0.9059
|
1.0448
|
0.9691
|
0.7632
|
103.34
|
120.37
|
Support 1
|
1.3385
|
1.5300
|
76.35
|
0.8500
|
1.0150
|
0.9600
|
0.7500
|
102.00
|
116.00
|
Support 2
|
1.3025
|
1.5180
|
75.50
|
0.7800
|
0.9950
|
0.9545
|
0.6850
|
100.00
|
114.00
|
CLASSIC SUPPORT AND RESISTANCE
EMERGING MARKETS & 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
|
16.5000
|
2.0000
|
8.5800
|
7.8165
|
1.3650
|
Resist 2
|
7.5800
|
5.6625
|
6.1150
| |
Resist 1
|
14.3200
|
1.9000
|
8.1025
|
7.8075
|
1.3250
|
Resist 1
|
6.5175
|
5.3100
|
5.7075
| |
Spot
|
13.8435
|
1.8577
|
8.0706
|
7.7845
|
1.3058
|
Spot
|
6.8429
|
5.5501
|
5.8480
| |
Support 1
|
12.6000
|
1.6500
|
6.5575
|
7.7490
|
1.2000
|
Support 1
|
6.0800
|
5.1050
|
5.3040
| |
Support 2
|
11.5200
|
1.5725
|
6.4295
|
7.7450
|
1.1800
|
Support 2
|
5.8085
|
4.9115
|
4.9410
|
INTRA-DAY PIVOT POINTS 18:00 GMT
Currency
|
EUR/USD
|
GBP/USD
|
USD/JPY
|
USD/CHF
|
USD/CAD
|
AUD/USD
|
NZD/USD
|
EUR/JPY
|
GBP/JPY
|
Resist 2
|
1.3667
|
1.5738
|
77.62
|
0.9157
|
1.0537
|
0.9856
|
0.7753
|
105.07
|
121.77
|
Resist 1
|
1.3538
|
1.5678
|
77.35
|
0.9108
|
1.0493
|
0.9774
|
0.7693
|
104.20
|
121.07
|
Pivot
|
1.3471
|
1.5605
|
76.92
|
0.9037
|
1.0422
|
0.9727
|
0.7650
|
103.62
|
120.10
|
Support 1
|
1.3342
|
1.5545
|
76.65
|
0.8988
|
1.0378
|
0.9645
|
0.7590
|
102.75
|
119.40
|
Support 2
|
1.3275
|
1.5472
|
76.22
|
0.8917
|
1.0307
|
0.9598
|
0.7547
|
102.17
|
118.43
|
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
|
1.3634
|
1.5805
|
77.97
|
0.9220
|
1.0601
|
0.9886
|
0.7791
|
105.30
|
122.32
|
Resist. 2
|
1.3578
|
1.5758
|
77.74
|
0.9179
|
1.0563
|
0.9837
|
0.7751
|
104.81
|
121.83
|
Resist. 1
|
1.3521
|
1.5711
|
77.52
|
0.9139
|
1.0525
|
0.9788
|
0.7712
|
104.32
|
121.34
|
Spot
|
1.3408
|
1.5617
|
77.07
|
0.9059
|
1.0448
|
0.9691
|
0.7632
|
103.34
|
120.37
|
Support 1
|
1.3295
|
1.5523
|
76.62
|
0.8979
|
1.0371
|
0.9594
|
0.7552
|
102.36
|
119.40
|
Support 2
|
1.3238
|
1.5476
|
76.40
|
0.8939
|
1.0333
|
0.9545
|
0.7513
|
101.87
|
118.91
|
Support 3
|
1.3182
|
1.5429
|
76.17
|
0.8898
|
1.0295
|
0.9496
|
0.7473
|
101.38
|
118.42
|
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