By John Kicklighter, Currency Strategist
  • Dollar Left to Drift after EU Summit, Traders Look to 3Q GDP
  • Euro Enjoys Volatility but Suffers for Direction as EU Plan Filled with Holes
  • Japanese Yen Anchored by Risk Trends, Awaits Possible BoJ Changes
  • Canadian Dollar Completely Retraces Tuesday Tumble Despite BoC Outlook
  • New Zealand Dollar Puts in for a Cautious Climb after the RBNZ Holds
  • British Pound Weathers Data to Follow European Concerns
  • Gold Notches its First Four-Day Rally Since August’s Push to Record Highs

Dollar Left to Drift after EU Summit, Traders Look to 3Q GDP

Traders were looking for a straightforward plan to come out of the extended EU meeting Wednesday (whether it was ultimately encouraging or not). With risk appetite trends tied into this global fundamental threat, there would be no escaping the headline-prone event. This was especially true for the US dollar. As the market’s last bastion for liquidity and the primary counterpart to the Euro; the greenback was heavily vested. So, as the masses slowly began to realize that there wouldn’t be any definitive guidance on the world’s most prominent financial crisis (at least not during the active trading hours Wednesday); the dollar would find itself anchored to key levels against man of liquid counterparts. There is little doubt that this is dangerous position to leave the currency and general risk trends in. After a sharp but questionable swell in speculative positioning; there is an acute need for a catalyst to keep optimism building. On the other hand, the uncertainty also discourages longs from unwinding exposure and prevents speculative shorts from diving back in. We are in the eye of the storm.

For the Dow Jones FXCM Dollar Index (ticker = USDollar ), the lack of direction for risk trends and the euro has led to a flimsy advance (though it was the second largest in 18 trading days). The resultant, second day of congestion alters neither the bull trend behind the S&P 500 (our favored gauge of risk trends) nor the Dollar Index. The market needs a clear view of the fundamental landscape ahead or there will be a lack of conviction that translates into chop and stalled trends. That said, even if we are offered bearings on the European situation; it doesn’t guarantee a sustainable trend. Though equities, yields and risk-sensitive assets have climbed through October; the general outlook for growth and rates of return are still trending consistently lower. That means each push higher conflicts with the underlying current - ‘relief rally’, one not meant to last.

As we try to establish whether the market is reassured or fully skeptical of Europe’s efforts; it is important to look for other drivers that may carry substantial weight with investor sentiment. Near the top of the list for fundamentally influential event risk is the upcoming, first reading of 3Q GDP. According to Bloomberg’s consensus forecast, the world’s largest economy is expected to nearly double its annualized growth pace of 1.3 percent reported through June to 2.5 percent in the quarter ending September. This may seem an encouraging jump; but we have to realize that the market is already pricing that outcome in and the reaction to the news will ultimately depend on the prevailing winds of confidence at the time of the release. That said, the medium and longer-term influence of the data will take some time to develop and carries more weight.

Related : Discuss the Dollar in the DailyFX Forum , John’s Video : Euro, Risk Trends Left in a Lurch Awaiting EU Clarity, US GDP

Euro Enjoys Volatility but Suffers for Direction as EU Plan Filled with Holes

The week’s top event risk proved confusing and complicated. Traders from equities to rates to FX were waiting to see what measures the European Union would take to shoring up its burgeoning financial crisis . While there is a general sense of skepticism that policy makers will be able to find a simple and tidy solution to the financial crisis that has developed out of Greece’s debt troubles; there was a reasonable expectation for at least short-term relief. We have numerous instances in the recent past where cobbled together efforts by the region (found out of necessity) have purchased a short-term bounce for the euro and risk trends. Yet, there is far more headwind this time around. On boosting the EFSF, there is a tentative agreement to leverage it a few times; but details have been delayed to December. For the recapitalization, the EBA is estimating a difficult-to-believe 106 billion euro. And, the 50 percent write off on Greek debt is hard to see as a positive at any angle.

Japanese Yen Anchored by Risk Trends, Awaits Possible BoJ Changes

Though the market is zoned in on the ongoing European developments; those trading the yen crosses need to be on high alert for any updates from the Bank of Japan. The policy authority is meeting; and it is widely expected that they will expand their asset purchasing program by 5 trillion yen (it is already 50 trillion). It is also rumored that they could begin buying longer dated government bonds (JGBs) and that there may even be additional programs introduced. This alone wouldn’t turn the yen permanently; but if it coincided with positive risk trends…

Canadian Dollar Completely Retraces Tuesday Tumble Despite BoC Outlook

In a day when volatility was high; but the markets were generally tethered to mean points; the Canadian dollar put in for a strong and clear run – a rally. This currency completely reversed its losses from the previous day following the BoC’s statement that downgraded growth and anchored rates. That said, the Quarterly report was just as gloomy; and risk trends weren’t really showing up. And, yet the loonie would climb…

New Zealand Dollar Puts in for a Cautious Climb after the RBNZ Holds

It was a difficult read heading into the RBNZ rate decision. On the one hand, the Aussie and Canadian dollars’ reaction to inflation and policy action was incredibly amplified by an active market; there could be more interest her. That said, Governor Bollard already suggested a neutral but bullish bearing. In his comments following the announced hold, the policy maker suggested rate hikes could come sooner rather than later.

British Pound Weathers Data to Follow European Concerns

The Sterling is being guided by its economic and policy connections to the broader European area. This was evident in the pound’s performance through data that showed a further drop in the CBI’s business sentiment survey for October. The mutual interests will no doubt carry forward; but data can still dampen or amplify the side-line catalyst. We’ll watch particularly the consumer confidence and retail sales data due.

Gold Notches its First Four-Day Rally Since August’s Push to Record Highs

While most other markets were struggling for direction, gold would have no qualms in extending its bullish run for a fourth session. This is officially the longest run for the precious metal since late August (notably, just before it stalled at its current record highs). Though it seems risk is edging higher with European confidence trickling over; this isn’t likely a stable scenario. That said, gold will remain cautiously bullish.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**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

2:00

CNY

Industrial Profits YTD (YoY) (SEP)

28.2%

Data will gauge intensity of slowing

8:00

EUR

Euro-Zone M3 s.a. (3M) (SEP)

2.6%

2.3%

Money supply expected to be buoyed by recent ECB asset bond operations

8:00

EUR

Euro-Zone M3 s.a. (YoY) (SEP)

2.8%

2.8%

9:00

EUR

Euro-Zone Business Climate Indicator (OCT)

-0.2

-0.06

All confidence surveys, save for the Consumer Confidence final revision, expected lower as leaders stall

9:00

EUR

Euro-Zone Consumer Confidence (OCT F)

-19.9

-19.9

9:00

EUR

Euro-Zone Economic Confidence (OCT)

93.8

95

9:00

EUR

Euro-Zone Industrial Confidence (OCT)

-7

-5.9

9:00

EUR

Euro-Zone Services Confidence (OCT)

-1

0

10:00

GBP

CBI Reported Sales (OCT)

-16

-15

Consumer sales once again expected weaker as spending dries

12:30

USD

Gross Domestic Product (Annualized) (Q3 A)

2.5%

1.3%

Q3 expected to have moderate pickup – most likely from increased government spending. Traders may have to focus on investment and consumption components for more accurate gauge of US economy

12:30

USD

Personal Consumption (Q3 A)

1.9%

0.7%

12:30

USD

Gross Domestic Product Price Index (Q3 A)

2.4%

2.5%

12:30

USD

Core Personal Consumption Exp (QoQ) (Q3A)

2.2%

2.3%

12:30

USD

Initial Jobless Claims (OCT 22)

400K

403K

Weekly numbers remain in sticky range

12:30

USD

Continuing Claims (OCT 15)

3700K

3719K

13:45

USD

Bloomberg Consumer Comfort (OCT 23)

-48.4

Breakdown shows Midwest still suffering heavy declines

14:00

USD

Pending Home Sales (MoM) (SEP)

0.1%

-1.2%

Drop in rate for year-to-year figures showing consumers cautious

14:00

USD

Pending Home Sales (YoY) (SEP)

11.8%

13.1%

15:00

USD

Kansas City Fed Manf. Activity (OCT)

8

6

Regional industries expected stronger

23:01

GBP

GfK Consumer Confidence Survey (OCT)

-30

-30

British confidence expected stable; looking if the UK will weather any potential European developments

23:30

JPY

Household Spending (YoY) (SEP)

-3.5%

-4.1%

Spending continues to decline

23:30

JPY

Job-To-Applicant Ratio (SEP)

0.67

0.66

Japanese economy expected to weaken again despite government change

23:30

JPY

Jobless Rate (SEP)

4.5%

4.3%

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (OCT)

-0.4%

-0.1%

Tokyo expected to fall into deflation again as consumer confidence, retail spending falls; Nationwide may see pickup on food prices

23:30

JPY

Tokyo CPI (YoY) (OCT)

-0.5%

-0.2%

23:30

JPY

National CPI (YoY) (SEP)

0.1%

0.2%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (SEP)

0.2%

0.2%

23:30

JPY

National CPI Ex Food (SEP)

-0.4%

23:50

JPY

Industrial Production (MoM) (SEP P)

-2.1%

0.8%

Preliminary numbers show continued weakness as yen still at records

23:50

JPY

Industrial Production (YoY) (SEP P)

-2.3%

0.4%

EUR

German CPI (MoM) (OCT P)

0.1%

0.1%

German preliminary inflation data may not move markets, ECB views much as bank urged to help with debt crisis

EUR

German CPI (YoY) (OCT P)

2.5%

2.6%

EUR

German CPI - EU Harmonized (MoM) (OCT P)

0.0%

0.2%

EUR

German CPI - EU Harmonized (YoY) (OCT P)

2.8%

2.9%

JPY

Bank of Japan Rate Decision

0.10%

0.10%

Widely expected to hold

GMT

Currency

Upcoming Events & Speeches

21:00

CAD

Bank of Canada Governor Carney Speaks in New York

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

1.6445

86.00

0.9400

1.0785

1.1080

0.9020

112.00

126.50

Resist 1

1.3925

1.6035

81.50

0.9250

1.0675

1.0770

0.8750

108.00

123.00

Spot

1.3904

1.5962

76.25

0.8823

1.0052

1.0403

0.7948

106.01

121.70

Support 1

1.3150

1.5900

76.00

0.8500

0.9950

1.0400

0.7500

102.00

116.00

Support 2

1.3025

1.5700

75.50

0.7800

0.9750

1.0100

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

13.4245

1.7589

7.9611

7.7735

1.2708

Spot

6.5288

5.3534

5.5133

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

1.4069

1.6116

76.62

0.8934

1.0223

1.0502

0.8044

106.94

122.73

Resist 1

1.3986

1.6039

76.43

0.8878

1.0137

1.0453

0.7996

106.48

122.22

Pivot

1.3893

1.5965

76.08

0.8804

1.0092

1.0387

0.7955

105.61

121.46

Support 1

1.3810

1.5888

75.89

0.8748

1.0006

1.0338

0.7907

105.15

120.94

Support 2

1.3717

1.5814

75.54

0.8674

0.9961

1.0272

0.7866

104.28

120.18

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

1.4117

1.6142

77.11

0.8970

1.0182

1.0584

0.8091

107.89

123.49

Resist. 2

1.4064

1.6097

76.90

0.8933

1.0149

1.0539

0.8055

107.42

123.04

Resist. 1

1.4011

1.6052

76.68

0.8896

1.0117

1.0494

0.8020

106.95

122.60

Spot

1.3904

1.5962

76.25

0.8823

1.0052

1.0403

0.7948

106.01

121.70

Support 1

1.3797

1.5872

75.82

0.8750

0.9987

1.0312

0.7876

105.07

120.81

Support 2

1.3744

1.5827

75.60

0.8713

0.9955

1.0267

0.7841

104.60

120.36

Support 3

1.3691

1.5782

75.39

0.8676

0.9922

1.0222

0.7805

104.13

119.91

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/2011/10/27/Dollar_Left_to_Drift_after_EU_Summit_Traders_Look_to_3Q_GDP.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.