FOREX: Dollar may have Lost its Euro Driver
The dollar is doing more than taking a mere break. The benchmark currency may have been knocked off its bullish path. With the euro finding a tangible level of stability and risk appetite trends failing to play to the dollar’s role as a ‘safe haven’ currency, the fundamental drive is sputtering. This does not mean that a full-on selling effort is inevitable; but it does significantly reduce the probability that the greenback will quickly revive the recovery effort that it launched at the beginning of November. Assessing the dollar’s performance, Friday’s close produced the third consecutive decline and subsequently marked the first weekly loss in four. More specifically, the tumble through the final 24 hour period was the sharpest since October 20th. And, this wasn’t the most the most discouraging development for the currency. Far more troublesome is the reality that the dollar plunged against high risk (fundamental and yield-based labels) and fellow safe havens alike. The fact that EURUSD plunged 1.6 percent and AUDUSD rallied an equivalent distance is not as remarkable as the more balanced USDJPY suffering its biggest dive (2.2 percent) since May 20th while USDCHF endured its worst decline (1.9 percent) going back to May 8th of last year.
When selling pressure was levied on the dollar Wednesday and Thursday, both USDJPY and USDCHF would buck the trend and hold up remarkably well. What changed to migration away from the benchmark? Momentum was a key component in this equation. As the flow through EURUSD and other benchmark pairs increased, the spillover would naturally impact the more ‘resilient’ pairs. That said, the true turning point here was simply capitulation amongst currency traders. Fundamentally, the dollar is a naturally weak currency due to the global progress towards diversifying away from the uniform reserve currency and given the Federal Reserve’s consistent effort to increase the money supply through the Treasury purchases. Consequently, the dollar needs an active catalyst to keep it buoyant. And, since Wednesday, we have seen the dollar’s most potent support – euro selling – reverse course. Like the dollar’s rebound a month ago, the euro has marked its turning point around its central bank decision. The ECB did little to expand its official support of the region’s financial system; but there has been considerable talk that the central bank is buying up government debt to narrow yield spreads that symbolized the region’s financial troubles.
Moving forward, the greatest potential for fundamental influence still lies with risk appetite trends. Interestingly enough, the S&P 500 put in for its smallest advance in the three-day rally and subsequently fell short of marking a new two-year high. However, given the proximity to this psychological level, it would be particularly easy for the benchmark equity index to overtake the technical milestone and carry investor sentiment along with the way. This could have transpired to end this past week had the US employment statistics not dampened confidence. In a bigger-picture sense, the monthly nonfarm payrolls will do little to alter the health of the underlying economy. In fact, at this pace, it would take approximately 200,000 to 250,000 net additions each month for the next six years for employment to return to pre-crisis levels. Nonetheless, the NFPs report is an assumed catalyst for volatility; and so, the market fulfills expectations with a reaction. Thus, a 39,000 net increase that represents the biggest shortfall from expectations will curb an already hesitant sense of confidence.
Friday, December 3, 2010
US stock futures rise on retail gains
Stock futures rose Thursday on encouraging retail revenue reports and hopes that Europe's financial crisis will be contained.
Retailers reported strong November revenue results that beat analyst expectations, fueling hopes that consumer spending will rebound over the holiday season.
Teen retailer Abercrombie & Fitch announced net sales last month of $318.9 million, a 32 percent increase from the same time last year. Costco Wholesale Corp. said that its November revenues rose 9 percent at stores open at least one year from 2009.
"The consumer is strong and month after month retailing has been very strong," said Ryan Detrick, the chief technical strategist at Schaeffer's Investment Research. "If you take a step back it's clear that the U.S. economy continues to slowly expand."
Investors are also hoping that European Central Bank President Jean-Claude Trichet will announce that the bank will expand its efforts to support weak members of the 16-country euro zone. The bank said Thursday that it will keep its benchmark interest rate at a record low 1 percent.
Dow Jones industrial average futures were up 44, or 0.4 percent, to 11,278. S&P 500 futures were up 5, or 0.5 percent, to 1,209. Nasdaq 100 futures were up 14, or 0.7 percent, to 2,173.
Expectations of a more aggressive move by the European Central Bank and signs that the job market is thawing in the U.S. helped send global stocks higher on Wednesday. The Dow Jones industrial average and the broader Standard and Poor's 500 each rose by more than 2 percent.
The Labor Department announced Thursday that new unemployment claims rose more than expected to 436,000 for the week that ended November 27. Economists predicted initial jobless claims would rise by a seasonally adjusted 13,000 to 420,000. Jobless claims had fallen four of the past six weeks.
In corporate news Thursday, PepsiCo Inc. announced that will buy a majority stake in Wimm-Bill-Dann Foods for $3.8 billion. The acquisition makes the U.S. soft drink and snack maker the biggest food and beverage company in Russia.
Stock futures rose Thursday on encouraging retail revenue reports and hopes that Europe's financial crisis will be contained.
Retailers reported strong November revenue results that beat analyst expectations, fueling hopes that consumer spending will rebound over the holiday season.
Teen retailer Abercrombie & Fitch announced net sales last month of $318.9 million, a 32 percent increase from the same time last year. Costco Wholesale Corp. said that its November revenues rose 9 percent at stores open at least one year from 2009.
"The consumer is strong and month after month retailing has been very strong," said Ryan Detrick, the chief technical strategist at Schaeffer's Investment Research. "If you take a step back it's clear that the U.S. economy continues to slowly expand."
Investors are also hoping that European Central Bank President Jean-Claude Trichet will announce that the bank will expand its efforts to support weak members of the 16-country euro zone. The bank said Thursday that it will keep its benchmark interest rate at a record low 1 percent.
Dow Jones industrial average futures were up 44, or 0.4 percent, to 11,278. S&P 500 futures were up 5, or 0.5 percent, to 1,209. Nasdaq 100 futures were up 14, or 0.7 percent, to 2,173.
Expectations of a more aggressive move by the European Central Bank and signs that the job market is thawing in the U.S. helped send global stocks higher on Wednesday. The Dow Jones industrial average and the broader Standard and Poor's 500 each rose by more than 2 percent.
The Labor Department announced Thursday that new unemployment claims rose more than expected to 436,000 for the week that ended November 27. Economists predicted initial jobless claims would rise by a seasonally adjusted 13,000 to 420,000. Jobless claims had fallen four of the past six weeks.
In corporate news Thursday, PepsiCo Inc. announced that will buy a majority stake in Wimm-Bill-Dann Foods for $3.8 billion. The acquisition makes the U.S. soft drink and snack maker the biggest food and beverage company in Russia.
Thursday, December 2, 2010
FOREX-Euro retains gains
The euro's rebound from a 2-½ month low stalled on Friday, though it retained most gains made after talk of European Central Bank buying of euro zone periphery debt helped knock down those yields.
The immediate focus of the market moved to U.S. payrolls data later in the day, with a surprisingly strong U.S. housing number adding to budding optimism on the U.S. economy.
The euro nestled at $1.3220 EUR=, little changed on the day and floating well above a 2-½ month low of $1.2969 plumbed on Tuesday in the wake of massive selling in euro zone periphery government bonds.
"I suspect the euro has bottomed out in the near term and will test $1.33-34," said a trader at a Japanese brokerage house.
Its 100-day moving average, at around $1.3327, is seen as the next resistance level. More important resistance lurks in the $1.3334-64 area, its August peak and a 38.2 percent retracement of its June-November rally.
Traders said the ECB was buying Portuguese and Irish debt on Thursday, calming investor panic over euro zone debt for now, helping the single currency.
The sharp fall in the yields of Spanish, Portuguese and other countries' bonds offset initial disappointment after ECB President Jean-Claude Trichet did not explicitly commit the bank to ramping up bond buying. [ID:nLDE6B10I4]
As widely expected, the ECB extended nonstandard provisions, committing to provide unlimited one-week, one-month and three-month funding for vulnerable banks until at least April.
Traders are now looking to the U.S. jobs data, due at 1330 GMT, which is expected to show an increase of 140,000 jobs last month, according to a Reuters survey.
Although data on Thursday showed initial jobless claims rose more than expected, anecdotal evidence of strong holiday sales and a surprise jump in the house sales index on Thursday are boosting investor risk appetite.
Some traders said a strong U.S. jobs figure is likely to encourage more risk appetite, which could help the euro.
But others said it would likely be the U.S. dollar that benefits from a strong number this time given the perception that the growth outlook is much more positive for the United States compared to the euro zone, whose debt woes are far from solved.
"Many investors outside Europe, including Asian investors, may still want to reduce euro zone government debt holdings," said another trader at a Japanese bank, noting that there has been persistent selling in euro/yen in recent days.
Euro/yen dipped 0.1 percent in early Friday to 110.58 yen EURJPY=R. Though it kept some distance from a 2-½ month low of 108.33 yen marked earlier in the week, it could face strong resistance around 111.65 yen, where its 14-day and 90-day moving averages are converging.
The dollar changed hands at 83.72 yen JPY=, down 0.1 percent from late U.S. levels and off Monday's two-month high of 84.41 yen. Strong support is seen at the top end of the pair's ichimoku cloud at around 83.18.
While option triggers at 84.50 and 85.00 as well as offers from Japanese exporters are seen hampering the dollar's advance, if the payroll data boosts U.S. bond yields further, that could help the dollar test those resistance levels, traders said.
The 10-year U.S. bond yield US10YT=RR rose above 3 percent on Thursday on an improving U.S. economic outlook. Two Fed officials also said on Thursday that the second bout of quantitative easing that began last month is subject to regular review. [ID:nN02241796]
The Australian dollar hovered at around $0.9765 AUD=D4, flat on the day and still up more than two percent from Wednesday's two-month low of $0.9536.
Its 55-day moving average, which comes in at around $0.9803, could be seen as a possible target. (Additional contribution from Reuters FX analyst Rick Lloyd in Singapore
The euro's rebound from a 2-½ month low stalled on Friday, though it retained most gains made after talk of European Central Bank buying of euro zone periphery debt helped knock down those yields.
The immediate focus of the market moved to U.S. payrolls data later in the day, with a surprisingly strong U.S. housing number adding to budding optimism on the U.S. economy.
The euro nestled at $1.3220 EUR=, little changed on the day and floating well above a 2-½ month low of $1.2969 plumbed on Tuesday in the wake of massive selling in euro zone periphery government bonds.
"I suspect the euro has bottomed out in the near term and will test $1.33-34," said a trader at a Japanese brokerage house.
Its 100-day moving average, at around $1.3327, is seen as the next resistance level. More important resistance lurks in the $1.3334-64 area, its August peak and a 38.2 percent retracement of its June-November rally.
Traders said the ECB was buying Portuguese and Irish debt on Thursday, calming investor panic over euro zone debt for now, helping the single currency.
The sharp fall in the yields of Spanish, Portuguese and other countries' bonds offset initial disappointment after ECB President Jean-Claude Trichet did not explicitly commit the bank to ramping up bond buying. [ID:nLDE6B10I4]
As widely expected, the ECB extended nonstandard provisions, committing to provide unlimited one-week, one-month and three-month funding for vulnerable banks until at least April.
Traders are now looking to the U.S. jobs data, due at 1330 GMT, which is expected to show an increase of 140,000 jobs last month, according to a Reuters survey.
Although data on Thursday showed initial jobless claims rose more than expected, anecdotal evidence of strong holiday sales and a surprise jump in the house sales index on Thursday are boosting investor risk appetite.
Some traders said a strong U.S. jobs figure is likely to encourage more risk appetite, which could help the euro.
But others said it would likely be the U.S. dollar that benefits from a strong number this time given the perception that the growth outlook is much more positive for the United States compared to the euro zone, whose debt woes are far from solved.
"Many investors outside Europe, including Asian investors, may still want to reduce euro zone government debt holdings," said another trader at a Japanese bank, noting that there has been persistent selling in euro/yen in recent days.
Euro/yen dipped 0.1 percent in early Friday to 110.58 yen EURJPY=R. Though it kept some distance from a 2-½ month low of 108.33 yen marked earlier in the week, it could face strong resistance around 111.65 yen, where its 14-day and 90-day moving averages are converging.
The dollar changed hands at 83.72 yen JPY=, down 0.1 percent from late U.S. levels and off Monday's two-month high of 84.41 yen. Strong support is seen at the top end of the pair's ichimoku cloud at around 83.18.
While option triggers at 84.50 and 85.00 as well as offers from Japanese exporters are seen hampering the dollar's advance, if the payroll data boosts U.S. bond yields further, that could help the dollar test those resistance levels, traders said.
The 10-year U.S. bond yield US10YT=RR rose above 3 percent on Thursday on an improving U.S. economic outlook. Two Fed officials also said on Thursday that the second bout of quantitative easing that began last month is subject to regular review. [ID:nN02241796]
The Australian dollar hovered at around $0.9765 AUD=D4, flat on the day and still up more than two percent from Wednesday's two-month low of $0.9536.
Its 55-day moving average, which comes in at around $0.9803, could be seen as a possible target. (Additional contribution from Reuters FX analyst Rick Lloyd in Singapore
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