By John Kicklighter, Currency Strategist
  • Dollar Recovers Early Losses but Doesn’t Offer Trend as Risk Mixed
  • Euro Still Jostled by Headlines but Traders Less Susceptible this Time Around
  • British Pound Slide after BoE Minutes Only Temporary, Market was Prepared
  • Australian Dollar Still the Most Volatile Under Sentiment-based Volatility
  • Swiss Franc: Watching Trade Figures for Evidence of Burdensome Exchange Rate
  • Canadian Dollar Traders Look Forward to Friday CPI, Next Week’s BoC Decision
  • Gold Slides for a Third Day, Finally Some Direction from the Metal

Dollar Recovers Early Losses but Doesn’t Offer Trend as Risk Mixed

When trading ranges narrow but correlations are still very strong, volatility within the constricting channels very often increases. This is both the situation we are facing with the US dollar and the broader capital markets. Looking across the dollar-based majors, we would note that there were no efforts to break from the congestion that has set in over the past week. This shouldn’t surprise given the lack of a genuine catalyst from the economic docket or the financial headlines. Rumor and conjecture can stir speculation while former top-tier indicators still carry some of their historic influence; but when the markets are showing this level of correlation, it suggests investors and traders are waiting for a meaningful driver that can shift an underlying fundamental trend. To give a sense of how locked in these markets are to the deeper currents, it is worth noting that the EURUSD (a pair rooted in fundamentals and liquidity) maintains a 96 percent correlation to its more risk-sensitive AUDUSD counterpart over the past 20 days. Looking outside the asset class, there is a similar 96 percent correspondence between the AUDUSD and the S&P 500. This suggests that the catalyst that finally does awaken a new trend will have to carry a lot of weight. On the other hand, when that spark is found, it will be easier to spot as a true trend generator considering the entire market will be on the move.

It isn’t difficult to determine what would realistically start the capital markets in motion on a sustainable trend. Risk appetite is a component of every investment decision made; and it frequently shows through in broader trends. What varies is the catalyst for risk trends. Tuesday, volatility was roused by headlines that suggested German and French leaders were considering a massive rescue program that could potentially curb uncertainty surrounding one of the biggest financial black holes in the world: the European debt crisis. Yet, the headlines here were merely conjecture; and unsubstantiated rumors doesn’t carry enough weight when the entire market is tuned in to the balance of risk and reward. The US earnings season is proving a similar situation. Headline reports from banks and Blue Chips seem are reporting numbers that best forecasts; but analysts and traders are highly skeptical of accounting adjustments. In the end, the market awaits a real impact on liquidity and pock books.

Over the coming 24 hours, the probability of a meaningful trend catching is as low as it was over the previous 24 hours. Indicators like existing home sales and jobless claims cover economic trends whose bearings we are well aware of. Commentary from Fed officials will similarly lack for influence as the Fed’s hold in its dovish pattern is also engrained. The most obvious threat at this point is a real development in Europe’s financial crisis; but expectations there are limited ahead of the EU summit.

Related : Discuss the Dollar in the DailyFX Forum , John’s Video : GBPCAD, EURGBP Over EURUSD, AUDUSD on Volatility without Trend

Euro Still Jostled by Headlines but Traders Less Susceptible this Time Around

Much like the previous day, Wednesday’s session was littered with European headlines covering the developments for the region’s financial crisis. Yet, as before, the updates were still based on rumor and possibilities rather than true progress. Offering some balance, the most recent session had a bearish tinge on the regional rescue effort. Talks between French President Sarkozy and German Chancellor Merkel over how they will handle the deepening crisis reportedly broke down. This is in stark contrast to the suggestion that they had agreed to a 2 trillion euro program the day before. If they are serious about preventing the next stage of collapse; they will have a unified voice by the EU Summit on Sunday. Yet, they still need to bring all other EU members on board and present a genuine means of funding a larger plan.

British Pound Slide after BoE Minutes Only Temporary, Market was Prepared

There was a definite reaction to the BoE minutes Wednesday; but it was notably more constrained than what we saw in the aftermath of the CPI data. Surprisingly, the overview of the last rate decision showed that the vote to increase the bond purchasing program was unanimous; and there was even debate over whether it should be 50 or 100 billion sterling. The conformity is somewhat surprising; but the outcome is the same nonetheless. Along with Governor King’s dour outlook and November’s updated growth and inflation forecasts, the sterling will be troubled.

Australian Dollar Still the Most Volatile Under Sentiment-based Volatility

When risk appetite was advancing this past week, the Australian dollar led the charge. And, though we have lost a general direction, the Aussie currency is still the move volatile player amongst its liquid counterparts. The headlines were light to start the new trading session with unremarkable comments from Prime Minister Gillard and RBA’s Edey. We are locked into risk trends with this yield; and that won’t change.

Swiss Franc: Watching Trade Figures for Evidence of Burdensome Exchange Rate

In the upcoming European session, we are expecting trade figures from Switzerland. Normally, we would overlook most data from this region; but this particular release taps directly into a primary concern for this particular currency: the burden of the franc on the economy and policy officials’ effort to ease that pressure. Don’t expect much in the way of volatility; but this an important indicator for gauging future SNB efforts.

Canadian Dollar Traders Look Forward to Friday CPI, Next Week’s BoC Decision

Through the immediate future, the Canadian dollar will take its cues from swells in risk appetite trends an investment currency and little else. In the foreseeable future, though, there is event risk that can generate some side volatility and perhaps adjust the loonie’s sensitive to risk. We should look ahead to Friday’s CPI report as a lead in to next week’s BoC rate decision. A rate cut can fundamentally change the game here.

Gold Slides for a Third Day, Finally Some Direction from the Metal

There isn’t much momentum to be found in these markets; but gold is nevertheless forging ahead with its bearish breakdown from month-long congestion. Now working on its fourth consecutive decline, we have to wonder whether its slide is a reflection of building confidence in fiat currencies and assets backed by governments. It’s unlikely that that is the case; rather this is more realistically an effort to raise cash.

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**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

N ext 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

RBA Foreign Exchange Transaction (AUD)

367M

Fall could reveal lower AUD demand

0:30

AUD

NAB Business Confidence (3Q)

6

Confidence was higher in Q2 data

5:00

JPY

Coincident Index (AUG F)

107.4

Final revision of indices not expected to move yen pairs

5:00

JPY

Leading Index (AUG F)

103.8

6:00

EUR

German Producer Prices (MoM) (SEP)

0.2%

-0.3%

Price data may not shift ECB rate expectations much as debt remains main focus

6:00

EUR

German Producer Prices (YoY) (SEP)

5.5%

5.5%

6:00

CHF

Exports (MoM) (SEP)

-7.0%

Swiss trade data may see improvement as September data will include peg effect

6:00

CHF

Imports (MoM) (SEP)

0.9%

6:00

CHF

Trade Balance (Swiss franc) (SEP)

0.76B

7:00

JPY

Convenience Store Sales (YoY)

7.9%

Increase may not push BoJ

8:30

GBP

Retail Sales (MoM) (SEP)

0.2%

-0.1%

Retail sales expected to move higher again, though BoE remains concentrated on additional easing

8:30

GBP

Retail Sales (YoY) (SEP)

0.6%

-0.1%

8:30

GBP

Retail Sales w/Auto Fuel (MoM) (SEP)

0.0%

-0.2%

8:30

GBP

Retail Sales w/Auto Fuel (YoY) (SEP)

0.6%

0.0%

9:00

CHF

ZEW Survey (Expectations) (OCT)

-75.7

Swiss ZEW could improve on peg

12:30

USD

Initial Jobless Claims (OCT 8)

400K

404K

Weekly data showing mixed expectations, though markets will be focused on earnings this week

12:30

USD

Continuing Claims (OCT 14)

3680K

3670K

12:30

CAD

Wholesale Sales (MoM) (AUG)

0.4%

0.8%

Falling sales in August may reveal US slowdown

13:45

USD

Bloomberg Economic Expectations (OCT)

-34

Bloomberg surveys continue to fall

13:45

USD

Bloomberg Consumer Comfort (OCT 16)

-50.8

14:00

EUR

Euro-Zone Consumer Confidence (OCT A)

-20.1

-19.1

Advance number expected lower; not expected to move markets significantly

14:00

USD

Existing Home Sales (SEP)

4.90M

5.03M

US housing markets still showing weakness

14:00

USD

Existing Home Sales (MoM) (SEP)

-2.6%

7.7%

14:00

USD

Leading Indicators (SEP)

0.2%

0.3%

Indicator continues to stagnate

14:00

USD

Philadelphia Fed. (SEP)

-9.5

-17.5

Eastern manufacturing may improve

14:30

USD

EIA Natural Gas Storage Change (SEP)

112

Storage continues to rise, though could peak as seasons change

21:45

NZD

Net Migration s.a. (SEP)

200

Net migration continues higher

23:01

GBP

Nationwide Consumer Confidence (SEP)

49

48

Confidence could be helped by additional easing

GMT

Currency

Upcoming Events & Speeches

10:00

EUR

German Economic Ministry New GDP Forecasts

14:15

USD

Fed's Bullard to Speak at St. Louis Economic Policy Conference

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

1.6100

86.00

0.9400

1.0785

1.0750

0.9020

112.00

126.50

Resist 1

1.3900

1.5925

81.50

0.9250

1.0675

1.0375

0.8750

108.00

123.00

Spot

1.3741

1.5764

76.75

0.9033

1.0215

1.0210

0.7904

105.47

120.99

Support 1

1.3150

1.5700

76.35

0.8500

0.9950

0.9400

0.7500

102.00

116.00

Support 2

1.3025

1.5525

75.50

0.7800

0.9750

0.9125

0.6850

100.00

114.00

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

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

13.4864

1.8719

8.0743

7.7764

1.2689

Spot

6.6392

5.4186

5.6273

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

1.3922

1.5922

76.96

0.9096

1.0304

1.0405

0.8044

106.99

122.30

Resist 1

1.3832

1.5843

76.85

0.9065

1.0260

1.0308

0.7974

106.23

121.65

Pivot

1.3778

1.5769

76.76

0.9007

1.0172

1.0256

0.7937

105.78

121.05

Support 1

1.3688

1.5690

76.65

0.8976

1.0128

1.0159

0.7867

105.02

120.40

Support 2

1.3634

1.5616

76.56

0.8918

1.0040

1.0107

0.7830

104.57

119.80

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

1.3956

1.5944

77.54

0.9188

1.0350

1.0394

0.8051

107.30

122.70

Resist. 2

1.3902

1.5899

77.34

0.9149

1.0316

1.0348

0.8014

106.84

122.27

Resist. 1

1.3849

1.5854

77.14

0.9111

1.0282

1.0302

0.7977

106.38

121.84

Spot

1.3741

1.5764

76.75

0.9033

1.0215

1.0210

0.7904

105.47

120.99

Support 1

1.3633

1.5674

76.36

0.8955

1.0148

1.0118

0.7831

104.56

120.14

Support 2

1.3580

1.5629

76.16

0.8917

1.0114

1.0072

0.7794

104.10

119.71

Support 3

1.3526

1.5584

75.96

0.8878

1.0080

1.0026

0.7757

103.64

119.29

v

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

To contact John , email jkicklighter@dailyfx.com . Follow me on twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com.
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2011/10/20/Dollar_Recovers_Early_Losses_but_Doesnt_Offer_Trend_as_Risk_Mixed.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.