• Dollar Steady as the Trading Community Pulls Out for the Holiday, Ignores Data
  • Euro: Quickly Deteriorating Fundamentals a Sign of Significant Losses Ahead?
  • British Pound Boosted by Bank of England Official’s Suggestion of ‘Normal’ Rates Ahead
  • New Zealand Dollar: Why Would a Contraction in Growth Lead to a Rally for the Kiwi?
  • Canadian Dollar Strong Despite Underwhelming GDP Reading, More Stimulus
  • Swiss Franc Plunges Thursday – A Sign of SNB Intervention?

Dollar Steady as the Trading Community Pulls Out for the Holiday, Ignores Data

If we were to take a one-dimensional snapshot of the US dollar’s performance through Thursday’s close; it could be said that the currency was stronger through the close. Looking simply at direction between the open and close on EURUSD doesn’t give us much information though. And yet, that is often the assessment we are given via brief news headlines. A more detailed analysis of our own, tells us that the Dollar Index was actually weaker on the day; and perhaps it was a little more aggressive in its decline than broader market conditions should warrant. Everything in trading is relative; so it is worth establishing how the world’s most liquid currency performed when set against the backdrop of a historically quiet period for the capital markets. We often use the S&P 500 and Dow Jones Industrial Average to gauge the direction of underlying risk appetite trends; but it is just as useful (if not more so) to establish the momentum behind this conviction. For that, we see that the activity level (measured using the Average True Range) on the benchmark S&P 500 equities index is actually at its lowest level since January. Therefore, we have a discrepancy in the greenback’s activity level. Is this a sign of a unique vein of volatility for the dollar and an opportunity for trades?

The dollar is only as strong or weak as its collective performance against the rest of the currency market allows. That said, it should be noted that the most liquid currency pair in the entire FX market (EURUSD) was little changed through the day. This is a very unusual turn of events considering the range of fundamental developments for the euro through the day. A downgrade for Portugal, further steps towards a stimulus state for Ireland and deeper financial troubles for Greece ultimately left a currency pair that is particularly sensitive to fundamental health little moved. On the other hand, the greenback put up a particularly strong advance against the Swiss franc and meaningful losses against the Japanese yen, British pound and New Zealand dollar. This mixed bag speaks to the diminished correlations that result from thinned speculative liquidity and unique fundamental developments for each of these majors. From this, we can gather that the dollar itself is not responding to any major underlying fundamental trends nor is it generating any large waves on its own. This is exactly what should be expected given broader market conditions. And, in this, an FX trader should restrain their expectations for what they can squeeze out of each trade. Medium-term trends are highly unlikely as there are no underlying fundamental trends that can align the masses and encourage the necessary momentum. Then again, high level volatility and low probably of trend does set the necessary groundwork for intraday swings.

Though the focus is on market conditions, we should not completely ignore the fundamental data crossing the wires. The docket was particularly active Thursday with a final gasp of macroeconomic data for the week. For highlights, we see durable goods orders excluding transport equipment rose 2.4 percent, personal spending grew 0.4 percent and new home sales picked up 5.5 percent through November. From one perspective, the headline figures all fell short of their forecasts. From another, these are tentative statistics for a slow, but steady, recovery. It is this longer-term viewpoint that we should carry through as a backdrop for risk appetite and the dollar itself.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Cutting an in-the-money EURUSD short and Stepping into NZDUSD

Euro: Quickly Deteriorating Fundamentals a Sign of Significant Losses Ahead?

If this were October; the euro would be plummeting. The financial health of the Euro-region is deteriorating. This in itself is not novel; but considering this corrosion is so consistent in its direction and pace, the outlook for the shared currency is not bright. Over the past 24 hours we were presented with a few very discouraging developments. Perhaps the most substantial event was Fitch’s downgrade of Portugal’s sovereign credit rating. This shouldn’t catch anyone off guard; but each step nonetheless weighs investors’ confidence and further undermines the stability of the euro. In other news, Ireland’s parliament approved the government’s infusion of 3.7 billion euros in aid to Allied Irish and in turn take control of the bank. This may be an effort to promote stability; but it also leaves Ireland with fewer options should conditions worsen further. With so many other threats and downgrades, the euro will not be able to hold itself up fundamentally when liquidity returns.

British Pound Boosted by Bank of England Official’s Suggestion of ‘Normal’ Rates Ahead

The British pound put in for a meaningful advance Thursday; but it certainly wasn’t the 17-month low in BBA home loans through November (29,991) that helped the currency along. Instead, sterling traders were more interested in BoE market director Fisher’s comment that he foresaw a return to ‘normalized’ interest rates. And, though it was discounted for time and contingencies, a 5.00 percent yield is still enticing.

New Zealand Dollar: Why Would a Contraction in Growth Lead to a Rally for the Kiwi?

Looking at the New Zealand dollar’s performance against the US dollar, euro and even Australian dollar; you wouldn’t think that its 3Q GDP reading reported a contraction of 0.2 percent – a first step towards recession. In fact, the kiwi did slide sharply after the announcement; but a reversal was quick to follow as the market warmed up to the idea that this was a temporary contraction following the September 4th earthquake.

Canadian Dollar Strong Despite Underwhelming GDP Reading, More Stimulus

The Canadian dollar was another currency whose performance didn’t seem to match fundamentals. The loonie displayed notable strength through Thursday’s session despite a weaker-than-expected 0.2 percent increase in October GDP. That said, it is a monthly number. Far more interesting was the Finance Minister’s suggestion that the 2011 budget accounted for additional stimulus spending.

Swiss Franc Plunges Thursday – A Sign of SNB Intervention?

Looking across the board, the franc fell sharply yesterday. Given the otherwise quiet backdrop and stable euro; this may seem the work of the SNB. However, upon closer examination; we see that the drive didn’t occur all at once but rather over time. It could be that the central bank is leveraging the thinned-liquidity conditions; but more likely, this is a reflection of position covering heading into the end of the year.

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ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

NZD

2:00

Money Supply M3 (YoY) (NOV)

-1.1%

Fell YoY in last 12 months.

EUR

14:00

French Total Jobseekers Change (NOV)

-20.3%

Number of jobseekers fell the most in 2 years in Oct.

EUR

14:00

French Total Jobseekers (NOV)

2676.8

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

1.5910

86.00

1.0000

1.0750

1.0200

0.8000

120.00

140.00

Spot

1.3115

1.5428

82.90

0.9594

1.0101

1.0046

0.7477

108.71

127.89

Support 1

1.3000

1.5312

80.00

0.9500

0.9950

0.9600

0.6850

103.80

125.00

Support 2

1.2925

1.5186

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

1.5931

8.3675

7.8075

1.4655

Resist 1

7.5800

5.6625

6.1150

Spot

12.3504

1.5459

6.7530

7.7762

1.3053

Spot

6.8527

5.6831

5.9748

Support 1

12.0500

1.4724

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

1.3204

1.5476

83.83

0.9753

1.0207

1.0114

0.7564

110.09

129.34

Resist 1

1.3160

1.5452

83.37

0.9673

1.0154

1.0080

0.7520

109.40

128.61

Pivot

1.3107

1.5413

83.11

0.9586

1.0113

1.0033

0.7459

108.93

128.04

Support 1

1.3063

1.5389

82.65

0.9506

1.0060

0.9999

0.7415

108.24

127.31

Support 2

1.3010

1.5350

82.39

0.9419

1.0019

0.9952

0.7354

107.77

126.74

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

1.3309

1.5598

83.86

0.9716

1.0210

1.0187

0.7585

110.32

129.67

Resist. 2

1.3260

1.5556

83.62

0.9685

1.0183

1.0152

0.7558

109.91

129.23

Resist. 1

1.3212

1.5513

83.38

0.9655

1.0156

1.0117

0.7531

109.51

128.78

Spot

1.3115

1.5428

82.90

0.9594

1.0101

1.0046

0.7477

108.71

127.89

Support 1

1.3018

1.5343

82.42

0.9533

1.0046

0.9975

0.7423

107.91

127.00

Support 2

1.2970

1.5300

82.18

0.9503

1.0019

0.9940

0.7396

107.51

126.55

Support 3

1.2921

1.5258

81.94

0.9472

0.9992

0.9905

0.7369

107.10

126.11

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

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