Talking Points: Dollar Outlook Improves after Hawkish FOMC Minutes Euro: What's the Probability of an ECB-Led Collapse? British Pound Traders Won't Hold Their Breath for the BoE Dollar Outlook Improves after Hawkish FOMC Minutes A clear, hawkish tone from the FOMC minutes this past session fortified the central bank's Taper bearing and in turn supported the dollar to further gains. Looking at the currency's performance on the day, the unit advanced against all but the sterling - although the gains were relatively modest (between 0.2 and 0.5 percent). The restraint speaks volumes to technical trader who see meaningful dollar resistance for pairs like EURUSD and USDJPY in the immediate foreground. The same boundary is reflected on the Dow Jones FXCM Dollar Index (ticker = USDollar) which has held below 10,720 for the past three weeks. Yet, as this ceiling has held in place, progress in general has floundered - so much so that the Average True Range (ATR, a good volatility gauge) has dropped to its lowest level in 12 months. What does this mean? The market is exceptionally quiet for the dollar and a breakout is a high probability. Just in time for a Friday NFPs on the heels of the Taper... Meanwhile, many traders are still surprised by the dollar's and S&P 500 's lack of response to the Fed's change in monetary religion. The chart comparing the performance of risk-laden capital markets and the central bank's balance sheet (one that I have and will continue to refer to often) has increased the anxiety and appetite for an abrupt change in investor habits. Yet, the implications of an untethered risk backdrop have yet to upset the balance of complacency. It is making progress though... In the minutes for the Fed's December 17-18 meeting, the central bank noted "many" supported tapering the QE program in "measured steps" as labor markets show ongoing improvement and inflation moves slowly back towards the 2 percent target. That sets objective and justification. More interesting was the suggestion that there was a sense of waning benefit in the monthly purchases and rumination that stimulus could generate financial stability risks due to its support of excessive risk taking. Some may take the S&P 500's 0.6 percent advance (notably the largest since the Taper) evidence that the market in apathetic to the policy implications, but Treasuries paint a different picture. Two-year yields advanced to their highest level since September 13 . Pressure is building. Perhaps the eruptions comes with a catalyst like Friday NFPs. Euro: What's the Probability of an ECB-Led Collapse? Most major central banks have a dual mandate: to promote steady inflation and full 'natural' employment. This past Tuesday, core inflation for the Eurozone dropped to a record low (0.7 percent) and this past session the region's unemployment rate held at a record high (12.1 percent). That is a nerve-racking position to be in just before the ECB's monetary policy decision. The central bank's 25 bp rate cut in November is still fresh in traders' minds, but we know the rope has run out along this standard line of monetary policy. A further cut to zero would yield little benefit. Speculation of further accommodation has focused on negative deposit rates or introducing a new, targeted stimulus program. Yet, these are moves not easily decided. Either would be euro negative as it would reduce market rates and draw a stark contrast to the dollar. However, neither is likely as there is little of the financial pressure of years' past and they would likely sound the alarm well in advance. British Pound Traders Won't Hold Their Breath for the BoE The Bank of England policy rate decision Thursday is 'the other' monetary policy event for the day. In contrast to the ECB where there is a material possibility of policy changes and President Draghi offers impressions for the market to assess future bearings, the UK's central bank is typically mum when there are no meaningful changes to the schema. No update helps the sterling's position. The fundamental trend for the currency is a six-month rally forged out of a dramatic shift forward in rate expectations (seeing a hike now as early as late 2014). Anything that definitively undermined that view could seriously deflate the rally. To that point, the trade report may carry more impact than the BoE. Yen Crosses Struggling to Return to Prevailing Trend The yen crosses' recovery effort following the correction between January 1st and 6th is uneven and unconvincing. While a strong risk appetite element is certainly absent, a low volatility (as a measure of 'risk') environment should theoretically still promote dominant trends and a reversion back to a relative monetary policy view where the BoJ is considered the world's most liberal stimulus purveyor. One or both of these themes is shaken. Short-term FX-based risk measures are elevated. As for stimulus, we are still months out and we've had few reassurances recently. Canadian Dollar Extends Decline after Poloz Says Not Under Pressure to Hike There was little doubt that the Canadian dollar was the worst performer amongst the majors for the day. The currency dropped against all of its counterparts, with a notable performance from USDCAD as it broke to fresh three-year highs above 1.0800. This loonie tumble is a fundamental snowball building girth on Flaherty talking down the currency Monday, weak data Tuesday and Poloz writing off rate pressure Wednesday. Australian Dollar Close to Fresh Five-Year Lows Versus Kiwi The two favored carry currencies amongst the majors are close to hitting a fresh extreme in a technical sense. Yet, the fundamental gap continues to close. AUDNZD is just above the December 18 low - a five year low - and the Aussie dollar is under pressure in other corners of the market. Yet, the 10-year yield differential is only 40 bps wide and the yield forecast gap is 7 bps narrower this past week. US Oil Revives the Bear, Drops Below $93 So much for the effort to turn the bear tide on oil. After Tuesday's indecisive performance, the commodity dropped another 1.4 percent this past session. Form the December 27 peak, the commodity is down 8.4 percent. If the market slips below $92 , we will return to lows not seen in eight months. For supply and demand, DoE implied demand hit a January 3, 2013 low. But the issue is likely structural as the Brent spread shows. Gold Likely to Overlook ECB and BoE in Favor of Friday NFPs ECONOMIC DATA GMT Currency Release Survey Previous Comments 0:30 AUD Retail Sales MoM (Nov) 0.4% 0.5% September's print was the best since early 2013. 0:30 AUD Building Approvals MoM (Nov) -1.0% -1.8% MoM was est. -3.0% last week. YoY was est. 20.1% last week. 0:30 AUD Building Approvals YoY (Nov) 21.1% 23.1% 01:30 CNY CPI YoY (Dec) 2.70% 3.00% Market participants will view lower inflation levels as China /AUD bullish as it leaves room for further accommodation by the PBOC. 01:30 CNY PPI YoY (Dec) -1.30% -1.40% 7:45 EUR France Trade Balance (Nov) -4600M -4697M The French print has been south of -4000 all but once since 2011. 9:00 EUR Italy Deficit to GDP YTD (3Q) 4.10% 9:30 GBP Visible Trade Balance GBP/Mn (Nov) - £9450 - £9732 Visible Trade Balance GBP/Mn is just above all-time lows. 9:30 GBP Trade Balance Non EU GBP/Mn (Nov) - £3254 9:30 GBP Trade Balance (Nov) - £2619 10:00 EUR Economic Confidence (Dec) 99 98.5 Price action may be limited / moves may be faded here ahead of event risk with the ECB at 12:45GMT . Industrial Orders out of Germany may support the Euro following better than expected German Factory Orders on Wednesday. 10:00 EUR Business Climate Indicator (Dec) 0.18 10:00 EUR Consumer Confidence (Dec F) -13.6 -13.6 10:00 EUR Services Confidence (Dec) -0.8 10:00 EUR Industrial Confidence (Dec) -3 -3.9 11:00 EUR Germany Industrial Production SA MoM (Nov) 1.50% -1.20% 11:00 EUR Germany Industrial Production WDA YoY (Nov) 3.00% 1.00% 12:00 GBP Bank of England Bank Rate 0.50% 0.50% BoE price action has remained limited as Carney's BoE has been light on the statements. 12:00 GBP BOE Asset Purchase Target (Jan) 375B 375B 12:30 USD Challenger Job Cuts YoY (Dec) -20.60% The Challenger Job Cuts print has been on the decline since August. 12:30 USD RBC Consumer Outlook Index (Jan) 49.7 12:45 EUR ECB Announces Interest Rates 0.25% 0.25% Any serious mention of Negative Deposit Facility Rates or new QE would adversely impact the Euro when the Fed is Tapering 12:45 EUR ECB Deposit Facility Rate 0.00% 0.00% 12:45 EUR ECB Marginal Lending Facility 0.75% 0.75% 13:15 CAD Housing Starts (Dec) 192.2K With USD/CAD pushing multi-year highs, negative data out of Canada may add more fuel to its push higher. 13:30 CAD Building Permits MoM (Nov) 7.40% 13:30 CAD New Housing Price Index MoM (Nov) 0.10% 13:30 CAD New Housing Price Index YoY (Nov) 1.50% 13:30 USD Initial Jobless Claims ( Jan 4 ) 320K 339K This will be the last insight into the U.S. jobs market before NFPs on Friday. ADP Employment Change figures beat on Wednesday. 13:30 USD Continuing Claims ( Dec 28 ) 2833K 14:45 USD Bloomberg Consumer Comfort ( Jan 5 ) -28.7 23:50 JPY Official Reserve Assets (Dec) $1275.4B Foreign buying of Japanese bonds last week was the lowest since late September. 23:50 JPY Japan Buying Foreign Bonds ( Jan 3 ) - ¥680.6B 23:50 JPY Japan Buying Foreign Stocks ( Jan 3 ) - ¥141.4B 23:50 JPY Foreign Buying Japan Bonds ( Jan 3 ) - ¥776.7B 23:50 JPY Foreign Buying Japan Stocks ( Jan 3 ) ¥838.3B GMT Currency Upcoming Events & Speeches 1:00 JPY Bloomberg Jan . Japan Economic Survey 10:00 EUR Italy Bank of Italy Report on Balance-Sheet Aggregates 13:30 EUR ECB President Draghi Presser 15:00 USD House Monetary Policy Subcommittee Hearing on Fed Bond Buying 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 13.4800 2.2500 11.8750 7.8165 1.3650 Resist 2 7.5800 5.8950 6.5135 Resist 1 13.2400 2.2000 10.7250 7.8075 1.3250 Resist 1 6.8155 5.8475 6.2660 Spot 13.1270 2.1840 10.7668 7.7544 1.2722 Spot 6.5748 5.4941 6.1988 Support 1 12.6000 2.1000 10.2500 7.7490 1.2000 Support 1 6.0800 5.3350 5.7450 Support 2 12.4200 1.7500 9.3700 7.7450 1.1800 Support 2 5.8085 5.2715 5.5655 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 1.3681 1.6565 105.91 0.9204 1.0923 0.8969 0.8343 144.00 1252.06 Res 2 1.3655 1.6535 105.65 0.9183 1.0903 0.8947 0.8321 143.60 1245.82 Res 1 1.3630 1.6506 105.38 0.9162 1.0882 0.8925 0.8300 143.20 1239.58 Spot 1.3579 1.6447 104.86 0.9121 1.0842 0.8881 0.8256 142.40 1227.10 Supp 1 1.3528 1.6388 104.34 0.9080 1.0802 0.8837 0.8212 141.60 1214.62 Supp 2 1.3503 1.6359 104.07 0.9059 1.0781 0.8815 0.8191 141.20 1208.38 Supp 3 1.3477 1.6329 103.81 0.9038 1.0761 0.8793 0.8169 140.80 1202.14 v The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets , L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon this information. Forex Capital Markets , L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets , L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
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