Dollar at the Mercy of Risk Trends Early, Fed and 4Q GDP on Deck

Dollar at the Mercy of Risk Trends Early, Fed and 4Q GDP on Deck

Though the dollar managed to regain a little lost ground against the euro Friday, the currency was still under pressure into the close. For the Dow Jones FXCM Dollar Index, this would lead to a fifth consecutive daily (open-to-close) bearish close – the longest series of losses for the benchmark currency since the run through October 10th. The opportunity to press new 12-month highs has considerably diminished, but it is still early to claim the greenback has made a critical bearish change in trend. Moving forward, there are two key fundamental considerations to monitor for guidance on the dollar: the sentiment surrounding the euro and the progress in underlying risk appetite trends. For the greenback’s most liquid counterpart, the relief of an impending crisis has dissipated, and the euro can continue to draw capital away from the world’s most extreme safe haven. Investor sentiment itself is what we should be most concerned with. The S&P 500 has capped a three-week advance to five month highs, yet conviction is still flimsy. It could find a serious booster however if the Fed hints at QE3 or US 4Q GDP impresses this week.

Euro Advance Takes a Step Back as Market Awaits Word on Greece

Having posted its best rally against the benchmark dollar in three months against a foul-weather fundamental backdrop, it makes sense to have seen the euro ease into the close of this past week. Considering the region’s troubles are so well known at this point, the currency is running fully on speculation of the timing for expected troubles. A side effect of knowing that you are fighting the current, however, is a greater sensitive to holding risk through lockups. With the weekend approaching and negotiations over the discount on private holding of Greek debt ongoing, it is natural to ease the risk of a long euro exposure a little.

Heading into the new trading week, there is a list of potential fundamental threats; but the weight of their influence has lessened considerably from just a few weeks ago. Given expected time frames, the terms of the private sector investors’ accommodation for Greece’s debt burden will be the first concern. The current consensus is still for a 50 percent haircut (essentially debt forgiveness), in a roll to new 30-year bonds with a significantly reduced 3.0 to 4.75 percent coupon. Anything along these lines could buy us a little more time of disregard for real fundamental threats. We have come to expect the same quick-fix and we’ll-fix-it-later policy decisions to follow the EU Finance Minister summit on Monday. A little more open to surprise are the growth-based economic indicators and the ECB’s three-month liquidity tender due in the first 48 hours.

British Pound: Will We See Confirmation of Policy Official’s Recession Warnings

If there is a recession or region-wide financial crisis for the Euro Zone, it is highly likely that the United Kingdom is not far behind (if it is not already suffering the same fate). The relationship between euro and sterling price action against third party currencies is exceptional due to its fundamental connections, but there are still external factors that can offer a degree of separation. Those alternative factors led to the significant swing in EURGBP over the past week. The three-day rally through Thursday was the influence of the euro’s relief rally and the sterling lagging response. Friday’s plunge was encouraged by rising gilt yields but follow through requires something more. A bullish surprise in the face of growing recession fears for the UK could offer a relief rally akin to what the euro has enjoyed. With 4Q GDP seen contracting, the line is drawn.

Gold Working on its Best January Performance Since 2008

So far this year, gold is up 6.6 percent. This represents the first time in three years that we could see a positive opening month and it is generally the best performance for the period since 2008. Under normal circumstances, we could say this strength was guided by anti-dollar capital flows; but the rolling, 20-day (trading month) correlation between the fiat and metal has deteriorated significantly recently. Furthermore, we see that the relationship between the traditionally safe commodity and risk-inclined S&P 500 is tightening (currently 0.83 – 1.00 being perfect). From this, we can are seeing the distribution of speculative capital from absolute liquidity havens to relative (but expensive) safe havens.

ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
0:30	AUD	Producer Price Index (QoQ) (4Q)		0.6%	Another item that will influence the RBA in its decision-making at the Feb 7 meeting
0:30	AUD	Producer Price Index (YoY) (4Q)		2.7%
7:45	EUR	French Own-Company Production Outlook (JAN)		-2	French business confidence has been sliding since mid-2011 on worsening Eurozone outlook
7:45	EUR	French Production Outlook Indicator (JAN)		-37
7:45	EUR	French Business Confidence Indicator (JAN)		94
8:00	CHF	Money Supply M3 YoY (DEC)		7.2%	The 12-month average hit a May 2004 high with the last reading.
8:00	CHF	Real Estate Index Family Homes (4Q)		398.6	Looking for exchange rate influence for growth bearing
13:30	CAD	Leading Indicators MoM (DEC)		0.8%	Will act as a placeholder for year-end GDP speculation
15:00	EUR	Euro-Zone Consumer Confidence (JAN A)		-21.1	Has weakened since mid-2011
23:00	AUD	Conference Board Leading Index (NOV)		0.6%	Signs of a slowing economy coupled with weakening inflation would boost rate cut concerns

GMT	Currency	Upcoming Events & Speeches
10:15	EUR	German Bill Auction
11:45	EUR	Germany’s Merkel Meets with Belgian Prime Minister Di Rupo in Berlin
14:00	EUR	French Bill Auction
16:00	EUR	Euro-Area Finance Ministers Meet in Brussels
17:00	EUR	Germany’s Merkel Speaks in Berlin

SUPPORT AND RESISTANCE LEVELS

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	9.2080	7.8165	1.3650		Resist 2	7.5800	5.6625	6.1150
Resist 1	14.3200	1.9000	8.5800	7.8075	1.3250		Resist 1	6.5175	5.3100	5.7075
Spot	13.1813	1.8298	7.9516	7.7618	1.2719		Spot	6.7826	5.7501	5.9324
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 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	1.3096	1.5727	77.65	0.9464	1.0227	1.0620	0.8168	100.92	121.26
Resist. 2	1.3055	1.5689	77.49	0.9434	1.0203	1.0586	0.8142	100.59	120.94
Resist. 1	1.3014	1.5652	77.33	0.9405	1.0179	1.0552	0.8116	100.27	120.61
Spot	1.2931	1.5576	77.01	0.9345	1.0132	1.0484	0.8063	99.62	119.97
Support 1	1.2848	1.5500	76.69	0.9285	1.0085	1.0416	0.8010	98.97	119.32
Support 2	1.2807	1.5463	76.53	0.9256	1.0061	1.0382	0.7984	98.65	119.00
Support 3	1.2766	1.5425	76.37	0.9226	1.0037	1.0348	0.7958	98.32	118.67

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Technical Analysis for Currency Markets by Me and Ze Capital Management

Looking to Buy Euro Dips

The market has finally managed to find some bids and although the broader underlying trend remains intensely bearish, the risks from here are for additional corrective gains back towards the 50 and 100-Day SMAs in the 1.3100-1.3400 area before the next lower top carves out. Some falling trend-line resistance has already been broken on the daily chart and the 10-Day SMA looks to be on the verge of crossing back above the 20-Day SMA to provide added confirmation for short-term bullish structural shift. Setbacks should now be well supported ahead of 1.2800

GBP/USD Classical Technical Report

GBP/USD:The market has mostly been locked in some sideways chop over the past few weeks with any rallies very well capped ahead of 1.5800 and setbacks supported on dips below 1.5300. Until either side is convincingly broken, we would expect to see additional range trade. Therefore the preferred strategy is to look to buy range dips and sell by range highs. Only a weekly close above 1.5800 or below 1.5250 would give reason for outlook shift.

 

USD/JPY Classical Technical Report

 USD/JPY:Despite the latest pullbacks, we continue to hold onto our constructive outlook while the market holds above 76.55 on a daily close basis. We believe that any setbacks from here should be limited in favor of a fresh upside extension back towards 79.55 over the coming weeks. Look for a break above 78.30 to confirm and accelerate, while only a daily close below 76.55 negates and gives reason for pause.

Dollar to Challenge Key Support

S&P 500  Prices put in a Doji candlestick below resistance at the top of a rising channel set from late December, pointing to indecision and hinting and move lower may be ahead after two consecutive days of gains. Initial support lines up at the 1300 figure. Channel resistance is now at 1322.40.

Daily Chart - Created Using FXCM Marketscope 2.0

CRUDE OIL  Prices are once again testing support at 97.70 following a rejection at familiar resistance in the 101.28-103.35 region. The downside is reinforced by resistance-turned-support at the top of a falling channel set from mid-November, now at 96.85. A break below the latter boundary initially exposes 95.78, the November 23 close.

GOLD  Prices are testing support-turned-resistance in the 1666.37-1677.05 region, with a break higher exposing the 1700/oz figure. Near-term support lines up at 1638.84, with a break below that initially targeting 1615.65.

US DOLLAR  Prices broke below the midline and top of a falling channel in place since mid-December, exposing a former Head & Shoulders neckline at 9823 as sellers’ next objective. A breach of this level on a daily closing basis would amount to a meaningful bearish change in tone for the greenback. The channel midline, now effectively at the 9900 figure, has been recast as near-term resistance.

Euro Rally Still Has Room to Run Before Broader Downtrend Resumption

• Euro still well bid on IMF and solid auctions
• Technical studies showing bullish weekly reversal

The Euro is looking to mount its first major short-term correction in several weeks, with the market attempting to establish back above the previous weekly highs by 1.2880. Market participants have found some renewed confidence in the single currency despite all the troubles in the region with the news that the IMF will be looking to offer another $1Trillion in aid and some very well received auctions out of Spain and France seen as the primary drivers for the renewed bid tone. Technical studies have also been warning of the need for some form of a bounce in this market, and although we continue to see the broader risks tilted to the downside, we would still not rule out the potential for this rally to extend over the coming days into the 1.3200-1.3500 area before underlying bear trend resumption.

While at this point it is still way too early to make any serious calls, we have been projecting relative underperformance in the commodity currencies over the coming months as the fallout from the global recession spreads. Our view from the start of the recession has always been a 3 phase recession view which originated in the United States, spread to Europe, and will soon move on to China, the commodity bloc economies and emerging markets. Although these phase three economies have slowed in the face of the US and Eurozone slowdowns, in our opinion, the intensity of the recession has not been fully realized in these regions. As such, we project relative underperformance in these economies even against the Eurozone going forward and look for crosses that have recently posted multi-year and record lows, like EUR/AUD and EUR/NZD to soon aggressively reverse course.

Data out of China has been less and less encouraging of late, while both Australia and New Zealand produced some extremely discouraging economic data this week, with terrible employment and much softer CPI respectively. With markets, it is also always about what has been priced in and what has not been priced in rather than what actually is at present. We believe that as bad as things are in the Eurozone, there is very little room for additional downside as most of the bad has been priced in, while in Australian and New Zealand, there is still a good deal of downside risk that has not been appropriately priced into markets.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The market has finally managed to find some bids and although the broader underlying trend remains intensely bearish, the risks from here are for additional corrective gains back towards the 50 and 100-Day SMAs in the 1.3100-1.3400 area before the next lower top carves out. Some falling trend-line resistance has already been broken on the daily chart and the 10-Day SMA looks to be on the verge of crossing back above the 20-Day SMA to provide added confirmation for short-term bullish structural shift. Setbacks should now be well supported ahead of 1.2750, while only back under 1.2620 negates short-term bull bias.

USD/JPY:Despite the latest pullbacks, we continue to hold onto our constructive outlook while the market holds above 76.55 on a daily close basis. We believe that any setbacks from here should be limited in favor of a fresh upside extension back towards 79.55 over the coming weeks. Look for a break above 78.30 to confirm and accelerate, while only a daily close below 76.55 negates and gives reason for pause.

GBP/USD: The market has mostly been locked in some sideways chop over the past few weeks with any rallies very well capped ahead of 1.5800 and setbacks supported on dips below 1.5300. Until either side is convincingly broken, we would expect to see additional range trade. Therefore the preferred strategy is to look to buy range dips and sell by range highs. Only a weekly close above 1.5800 or below 1.5250 would give reason for outlook shift.

USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday consolidation before the next major upside extension beyond 0.9600 and towards parity. As such, from here, we see risks for additional setbacks towards 100-Day SMA by 0.9100 from where a fresh higher low is sought out. Ultimately, only a sustained break back under 0.9000 would negate constructive outlook and give reason for pause. Dips towards the psychological barrier should therefore be used as formidable buy opportunities. 

Prepared by: Zeshan Muhammad Ali Awan 

GBP/USD Classical Technical Report 20th January

GBP/USD:The market has mostly been locked in some sideways chop over the past few weeks with any rallies very well capped ahead of 1.5800 and setbacks supported on dips below 1.5300. Until either side is convincingly broken, we would expect to see additional range trade. Therefore the preferred strategy is to look to buy range dips and sell by range highs. Only a weekly close above 1.5800 or below 1.5250 would give reason for outlook shift.

EUR/USD Classical Technical Report 20th January

EUR/USD: The market has finally managed to find some bids and although the broader underlying trend remains intensely bearish, the risks from here are for additional corrective gains back towards the 50 and 100-Day S.M.As in the 1.3100-1.3400 area before the next lower top carves out. Some falling trend-line resistance has already been broken on the daily chart and the 10-Day S.M.A looks to be on the verge of crossing back above the 20-Day S.M.A to provide added confirmation for short-term bullish structural shift. Setbacks should now be well supported ahead of 1.2750, while only back under 1.2620 negates short-term bull bias

Dollar Slides a Fourth Day as Risk Appetite Persists, Euro Rallies

Dollar Slides a Fourth Day as Risk Appetite Persists, Euro Rallies

On the week, the dollar finds itself significantly lower against all of its major counterparts with the exception of the Japanese yen. This is a move that fits the picture that the broader capital market is painting for us. Among the signs, we find the S&P 500 advancing to fresh five-month highs, volatility indexes are testing lows not seen since July and the euro is charging higher across the board. When the masses are pining for liquidity and safety of funds at the cost of a negative real rate of return, the greenback will shine. And, conversely, when this sentiment extreme isn’t pressuring the masses; funds will seek greater diversity. That said, a move away from an extremophile currency does not necessarily mean that risk appetite will naturally climb to new heights.

Everything we have seen from the capital and FX markets suggests that what we have seen to this point is a pull back or retracement. As the jitters of panic in the spread of a global crisis pass, there is room to unwind positions that look to speculation on or insure against impending catastrophe. Traders must ask: how much premium is there to unwind, and will fear return before this correction is naturally completed?

Euro Marks a Critical Technical Break Higher as Relief Pours In

After a round of Spanish and French bond auctions through Thursday’s session, we have officially closed out the last of this week’s important bond auctions. What started as a period that was destined for disaster after last Friday’s round of sovereign ratings downgrades (including France, Italy, Spain and Portugal), we are ending with a sigh of relief. Objectively, the rates that the various governments pulled from the market are not sustainable for financing deficits and spending over the medium to long-term, but they do ease the threat of imminent doom (a complete collapse of credit and funding). And, risk of uncontrollable financial crisis was what drove the shared currency so low, so quickly. Therefore, it is only reasonable that the immediate pressure relief should lead to near-term recovery. That said, over-estimating the pace (and possibly depth) of the crisis doesn’t imply a recovery with higher yields and non-existent risk.

With the bullish tide that accompanies this corrective rally, we can see optimism stain bond auctions outcomes and expectations for various open-ended problems. A notable example is the negotiations between banks and Greece for a viable agreement to help Greece to a surplus. FT reported a deal was close while the New York Time says Hedge Funds may sue. I refer to Fitch that says: regardless, it would be a default.

British Pound Slow to Follow Euro Higher, Looking Ahead to GDP

The FTSE 100 closed at a five-month high through Thursday’s close in London, but this is yet another example of asset pricing running astray of genuine fundamental potential. Typically, the stock market will follow growth potential through an ‘investment, wage, spending, production, revenue increase’ cycle. Yet, we know that expansion is exactly the opposite of what’s in store for the United Kingdom through the immediate future. In fact, the Bank of England Governor, Chancellor of the Exchequer, World Bank and industry groups have all warned that the country may dip into period of negative growth – if not technical recession. Suggestion an economic slump and all it would entail has already been priced in is preposterous as it entails an indefinite period of little-to-no dividend income alongside rising capital loss risk. This raises a very real red flag for next week’s 4Q GDP reading. Following the euro higher could set the sterling up for a big fall given the correct fundamental winds.

Gold Running at the Same Steady Pace as the S&P 500, With Better Fundamentals

Gold’s advance since the beginning of this year has run at about the same pace as the S&P 500’s gait: consistent but lacking for momentum. IN fact, looking at an intraday chart of the metal overlaid with the index; you would see a remarkable consistency in the two assets’ performance. In fact, the two-week rolling correlation between the two is currently 0.90 (exceptionally strong). That is very unusual given one is a safe haven and the other a risk barometer. We could attribute the general performance to anti-dollar capital flows, but that ignores the underling drive. Moving away from the greenback is essentially moving away from cash. In other words, capital is being reinvested into safe and risky assets.

ECONOMIC DATA

GMT	Currency	Release	Survey	Previous	Comments
0:30	AUD	Import price index (QoQ) (4Q)	0.6%	0.0%	Terms of trade important for Australia’s export-dependent economy
0:30	AUD	Export price index (QoQ) (4Q)	-2.0%	4.0%
1:35	CNY	MNI January Flash Business Sentiment Survey			Comes after GDP figures showing slowest growth in more than 2 years
2:30	CNY	HSBC Flash China Manufacturing PMI (JAN)		49
4:30	JPY	All Industry Activity Index (MoM) (NOV)	-0.9%	0.8%	Could point to period of slow growth in Japanese economy
7:00	EUR	Producer Prices (MoM) (DEC)	0.1%	0.1%	Price pressures to ease further amid threat of recession
7:00	EUR	Producer Prices (YoY) (DEC)	4.6%	5.2%
9:30	GBP	Retail Sales Ex Auto Fuel (MoM) (DEC)	0.7%	-0.7%	Some improvement expected amid holiday season
9:30	GBP	Retail Sales Ex Auto Fuel (YoY) (DEC)	1.7%	0.5%
9:30	GBP	Retail Sales (MoM) (DEC)	0.6%	-0.4%
9:30	GBP	Retail Sales (YoY) (DEC)	2.4%	0.7%
12:00	CAD	Consumer Price Index (MoM) (DEC)	-0.2%	0.1%	Price pressures remain weak in Canada; to further dampen expectations of BoC rate hikes
12:00	CAD	Consumer Price Index (YoY) (DEC)	2.7%	2.9%
12:00	CAD	Bank Canada CPI Core (MoM) (DEC)	-0.2%	0.1%
12:00	CAD	Bank Canada CPI Core (YoY) (DEC)	2.2%	2.1%
12:00	CAD	Consumer Price Index (DEC)	120.8	120.9
13:30	CAD	Wholesale Sales (MoM) (NOV)	0.5%	0.9%
15:00	USD	Existing Home Sales (DEC)	4.65M	4.42M	Recovery in US real estate market has lagged behind rest of the economy
15:00	USD	Existing Home Sales (MoM) (DEC)	5.2%	4.0%

GMT	Currency	Upcoming Events & Speeches
1/21	EUR	EU’s Barroso Speaks in Guimaraes, Portugal

SUPPORT AND RESISTANCE LEVELS

\Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist. 3	1.3132	1.5640	77.81	0.9442	1.0214	1.0556	0.8136	101.34	120.84
Resist. 2	1.3090	1.5602	77.64	0.9413	1.0191	1.0521	0.8110	101.02	120.51
Resist. 1	1.3048	1.5565	77.48	0.9383	1.0167	1.0487	0.8083	100.69	120.18
Spot	1.2965	1.5489	77.16	0.9323	1.0120	1.0419	0.8031	100.04	119.52
Support 1	1.2882	1.5413	76.84	0.9263	1.0073	1.0351	0.7979	99.39	118.85
Support 2	1.2840	1.5376	76.68	0.9233	1.0049	1.0317	0.7952	99.06	118.52
Support 3	1.2798	1.5338	76.51	0.9204	1.0026	1.0282	0.7926	98.74	118.19