Much of the dollar’s strength is still attributable to the intrinsic weakness of its primary counterpart – the euro. Yet, in this indirect appreciation; we have seen the benchmark currency establish a strength that seems wholly independent of its derivative appreciation. So, from assessing the greenback’s fundamental bearings, we should not have been exactly surprised to see EURUSD close below 1.30 for the first time since September 14th. Neither should GBPUSD’s test of 1.55 leave us stunned on the back of a three-week tumble. On the other hand, the performance that the dollar has leveraged against those currencies outside of the euro’s circle of influence holds significant weight as a meaningful fundamental development. First up, we have the dollar’s dramatic, intraday recover against the Swiss franc – another safe haven currency. Then there is the rally against the currency that represents the United States’ largest trading partner – the Canadian dollar. Perhaps most remarkable though is the progress made against the ‘high yield’ currencies. Though risk appetite has yet to see a critical bearish break, AUDUSD fell for a fourth consecutive session to close below 0.96 and NZDUSD dropped a third day to intensify the focus on 0.74.
Yet, in this general advance; it is important to recognize that the dollar has stopped marking critical steps for progress against its still-elevated counterparts and event its aggressive run against the European currencies seems to be growing winded. When assessing the real fundamental strength of the US currency, it is easy to run through a process of elimination to recognize that the advance to this point is lacking for staying power. For economic potential, growth forecasts are marred by a jobless rate that is expected to hold about 9 percent and spotty GDP numbers to match. Estimating return potential, the US benchmark lending rate will struggle to see a move back to the official 0.25 percent marker by the end of 2012. Even its safe haven status is undermined by the Fed’s expansive monetary policy stance. However, the dollar can nevertheless fall right back into its safety role going forward should investors’ sentiment collapse on the struts of government purchases and stimulus. Maintaining a top economic spot is not as important when it comes to defining a shelter for panicked FX traders as liquidity, market stability and government support. In these aspects, the dollar is dominant. And, that is why those trading the greenback should keep a close eye on the S&P 500. As a simplistic measure of investor sentiment, the index’s frequent and consistent hold at 1,175 is holding back a major potential driver for the dollar. This is perhaps why AUDUSD has lagged EURUSD’s tumble, NZDUSD is held up at 0.74 and USDCAD has been unable to 1.03. If a tumble in risk trends fails to materialize, the dollar’s climb will likely soon end. That said, should the S&P 500 finally mark the turn in confidence, the currency will find a second wind.
With a focus on broad risk trends, it is important to interpret all possible catalysts for their potential influence. The most elemental drivers are European financial troubles, Chinese efforts to curb growth, geopolitical uncertainties in Southern Asia and even the herd mentality of the speculative crowd itself. In contrast, macroeconomic event risk has far less influence as it does not directly feed into the bigger themes. That said, these trends are essential to monitor for long-term direction. That said, the five-month high in the consumer confidence index draws skepticism. It does not fit the broader picture. Perhaps tomorrow’s ISM manufacturing report will be closer match.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD and GBPUSD Nearing Targets, AUDUSD Still has Room
Euro Plunges across the Board as Bond Crisis Fears Spread beyond Portugal to Spain and Italy
The euro has seen a direct link to the dollar with capital flowing from one to the other these past few weeks. However, Tuesday’s performance showed the selling pressure behind the shared currency hit another gear. The euro plunged against the Japanese yen, British pound and Swiss franc through the session to cover the fundamental and risk spectrum. This weakness is deeply rooted in the rapidly deteriorating financial conditions in Europe. Notably, the S&P ratings agency downgraded Portugal’s credit outlook; but the more threatening developments are the record high yield spreads on Spanish 10-year bonds and the pain seen in credit default swaps for Italy. These are much larger economies.
British Pound Performance Mixed as an Influx of European Capital Curbed by Sentiment Stumble
It was hard to assess the individual performance of the British pound. The currency’s performance was distorted by the remarkable volatility of the euro. That said, GBPUSD was relatively stable through the day despite the movement for EURUSD. That is further interesting considering the sterling faced a drop in consumer confidence and factory activity data tomorrow. Keep an eye on the growth/deficit outlook.
Australian Dollar Surprisingly Steady after a Marked Cooling in 3Q GDP Figures
How much influence does speculative interest have over the Australian dollar. That is difficult to establish; but considering the currency has held relatively stable in the face of the weakest growth in nearly two years with this morning’s 3Q GDP data, a further drop in manufacturing activity and a ballooning of the current account deficit suggests risk appetite has significant clout. But, that works both ways.
Canadian Dollar Plunges after Disappointing 3Q GDP Reading, Now on to the Jobs Data
Though the risk appetite trends were generally weaker in the traditional lines of yield-based currency pairs, the Canadian dollar had a little help in its bearish push Tuesday. With expectations for growth and interest rates deflate for Canada, we saw the 3Q GDP figure cross the wires at a weaker-than-expected 1.0 percent pace of growth. Housing, government spending and exports helped offset business investment.
Japanese Yen Advance Unfettered by Disappointing Manufacturing, Employment Data
Extending the discussion of risk appetite trends, we should note that the Japanese yen was able to post a significant rally against the US dollar Tuesday – though this pair is not exactly a clear risk call. This strength was further more impressive given the jump in Japanese joblessness and the drop in factory activity. This is a battle of stimulus with the Fed buying a $6.8 billion round of Treasuries. How will the BoJ answer?
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ECONOMIC DATA
Next 24 Hours
| Currency | GMT | Release | Survey | Previous | Comments |
| AUD | 22:30 | AiG Performance of Manufacturing Index (NOV) | | 49.4 | Contracted for second month in Oct. |
| AUD | 0:30 | Gross Domestic Product (QoQ) (3Q) | 0.4% | 1.2% | Growth probably slowed in 3Q as a stronger currency hurt exports. |
| AUD | 0:30 | Gross Domestic Product (YoY) (3Q) | 3.4% | 3.3% | |
| CNY | 1:00 | China PMI Manufacturing (NOV) | 54.8 | 54.7 | Rose at fastest pace in 6 months. |
| NZD | 2:00 | ANZ Commodity Price (NOV) | | 2.9% | October rise ended 3-month decline. |
| CNY | 2:30 | HSBC PMI Manufacturing (NOV) | 55.4 | 54.8 | Increased in the last 3 months. |
| JPY | 5:00 | Vehicle Sales (YoY) (NOV) | | -26.7% | Oct. drop was largest since 2009. |
| AUD | 5:30 | RBA Commodity Index SDR (YoY) (NOV) | | 46.0% | Commodity index increased annually in the last eight months. |
| AUD | 6:30 | RBA Commodity Price Index (NOV) | | 92.2 | |
| GBP | 7:00 | Nationwide House Prices s.a. (MoM) (NOV) | -0.4% | -0.7% | U.K. home prices fell in October to the lowest level in eight months. |
| GBP | 7:00 | Nationwide House Prices n.s.a. (YoY) (NOV) | 0.5% | 1.4% | |
| CHF | 8:30 | SVME-Purchasing Managers Index (NOV) | 59.5 | 59.2 | Declined in the last three months. |
| EUR | 8:45 | Italian PMI Manufacturing (NOV) | 53.0 | 53.0 | Europe's manufacturing industry expanded at a faster pace than expected in October, led by surging output in Germany. |
| EUR | 8:50 | French PMI Manufacturing (NOV F) | 57.5 | 57.5 | |
| EUR | 8:55 | German PMI Manufacturing (NOV F) | 58.9 | 58.9 | |
| EUR | 9:00 | Euro-Zone PMI Manufacturing (NOV F) | 55.5 | 55.5 | |
| GBP | 9:30 | Purchasing Manager Index Manufacturing (NOV) | 54.7 | 54.9 | Oct. reading highest in 3 months. |
| USD | 12:00 | MBA Mortgage Applications (NOV 26) | | 2.1% | Increased in 3 of last five months. |
| USD | 12:30 | Challenger Job Cuts (YoY) (NOV) | | -31.8% | October showed the largest employment gain since May. |
| USD | 13:15 | ADP Employment Change (NOV) | 70K | 43K | |
| USD | 13:30 | Non-Farm Productivity (3Q F) | 2.3% | 1.9% | Increased in six of past 7 months. |
| USD | 13:30 | Unit Labor Costs (3Q F) | -0.2% | -0.1% | Declined in four of past five months. |
| USD | 15:00 | ISM Manufacturing (NOV) | 56.5 | 56.9 | Manufacturing likely dipped in Nov. after rising the month prior. |
| USD | 15:00 | ISM Prices Paid (NOV) | 71.0 | 71.0 | |
| USD | 15:00 | Construction Spending (MoM) (OCT) | -0.3% | 0.5% | Declined in 2 of the past 3 months. |
| USD | 15:30 | DOE U.S. Crude Oil Inventories (NOV 26) | -1300K | 1029K | Crude imports averaged 9.0M barrels/day last week, up by 1.2M barrels/day from week prior. |
| USD | 15:30 | DOE U.S. Gasoline Inventories (NOV 26) | 400K | 1913K | |
| USD | 15:30 | DOE U.S. Distillate Inventory (NOV 26) | -1100K | -541K | |
| EUR | 17:00 | Italian New Car Registrations (YoY) (NOV) | | -28.8% | Declined YoY in the last 7 months. |
| EUR | 18:00 | Italian Budget Balance (euros) (YTD) (NOV) | | -72.0B | Italy posted a budget deficit in seven of ten months this year. |
| EUR | 18:00 | Italian Budget Balance (euros) (NOV) | | -7.5B | |
| USD | 22:00 | Domestic Vehicle Sales (NOV) | 9.00M | 9.27M | Auto sales probably fell in November from a 14-month high in October. |
| USD | 22:00 | Total Vehicle Sales (NOV) | 12.10M | 12.25M |
| Currency | GMT | Upcoming Events & Speeches |
| JPY | 1:30 | BoJ's Miyako Suda Will Speak on Japanese Economy |
| USD | 14:10 | Fed's Janet Yellen Speaks on Fiscal Responsibility |
| USD | 14:30 | Fed's Daniel Tarullo to Testify on Mortgage Servicing |
| USD | 18:00 | Fed's Richard Fisher Speaks on U.S. Economy |
| EUR | 19:00 | Fed's Beige Book |
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 | 1.3840 | 1.6420 | 89.00 | 1.0460 | 1.0922 | 1.0600 | 0.8230 | 127.60 | 146.05 |
| Resist 1 | 1.3700 | 1.5650 | 86.00 | 1.0000 | 1.0750 | 1.0200 | 0.8000 | 120.00 | 140.00 |
| Spot | 1.3006 | 1.5567 | 83.64 | 1.0029 | 1.0260 | 0.9606 | 0.7444 | 108.78 | 130.20 |
| Support 1 | 1.3000 | 1.5500 | 80.00 | 0.9500 | 0.9950 | 0.9600 | 0.6850 | 103.80 | 125.00 |
| Support 2 | 1.2925 | 1.5300 | 75.00 | 0.9000 | 0.9700 | 0.9375 | 0.6585 | 100.00 | 119.00 |
CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
| Currency | USD/MXN | USD/TRY | USD/ZAR | USD/HKD | USD/SGD | | Currency | USD/SEK | USD/DKK | USD/NOK |
| Resist 2 | 14.4500 | 1.6755 | 8.7915 | 7.8165 | 1.4945 | | Resist 2 | 7.7500 | 5.7800 | 6.2750 |
| Resist 1 | 13.8500 | 1.4865 | 8.3675 | 7.8075 | 1.4655 | | Resist 1 | 7.5800 | 5.5400 | 6.1150 |
| Spot | 12.4631 | 1.5040 | 7.0951 | 7.7652 | 1.3189 | | Spot | 7.0183 | 5.7304 | 6.2001 |
| Support 1 | 12.0500 | 1.3665 | 6.6950 | 7.7490 | 1.2750 | | Support 1 | 6.4500 | 5.2625 | 5.7030 |
| Support 2 | 11.7200 | 1.3475 | 6.4300 | 7.7450 | 1.2500 | | Support 2 | 6.1250 | 5.1000 | 5.5200 |
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 | 1.3223 | 1.5660 | 84.69 | 1.0104 | 1.0355 | 0.9721 | 0.7511 | 111.61 | 132.20 |
| Resist 1 | 1.3114 | 1.5614 | 84.16 | 1.0067 | 1.0308 | 0.9663 | 0.7477 | 110.20 | 131.20 |
| Pivot | 1.3042 | 1.5549 | 83.80 | 0.9996 | 1.0239 | 0.9604 | 0.7438 | 109.27 | 130.28 |
| Support 1 | 1.2933 | 1.5503 | 83.27 | 0.9959 | 1.0192 | 0.9546 | 0.7404 | 107.86 | 129.28 |
| Support 2 | 1.2861 | 1.5438 | 82.91 | 0.9888 | 1.0123 | 0.9487 | 0.7365 | 106.93 | 128.36 |
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 | 1.3214 | 1.5762 | 84.62 | 1.0164 | 1.0383 | 0.9759 | 0.7564 | 110.60 | 132.33 |
| Resist. 2 | 1.3162 | 1.5713 | 84.38 | 1.0130 | 1.0352 | 0.9721 | 0.7534 | 110.14 | 131.80 |
| Resist. 1 | 1.3110 | 1.5664 | 84.13 | 1.0097 | 1.0321 | 0.9683 | 0.7504 | 109.69 | 131.27 |
| Spot | 1.3006 | 1.5567 | 83.64 | 1.0029 | 1.0260 | 0.9606 | 0.7444 | 108.78 | 130.20 |
| Support 1 | 1.2902 | 1.5470 | 83.15 | 0.9961 | 1.0199 | 0.9529 | 0.7384 | 107.87 | 129.13 |
| Support 2 | 1.2850 | 1.5421 | 82.90 | 0.9928 | 1.0168 | 0.9491 | 0.7354 | 107.42 | 128.60 |
| Support 3 | 1.2798 | 1.5372 | 82.66 | 0.9894 | 1.0137 | 0.9453 | 0.7324 | 106.96 | 128.07 |
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Written by: John Kicklighter, Currency Strategist for DailyFX.com
To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com
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