The Australian Dollar sank against the spectrum of major currencies after third-quarter Consumer Price Index figures fell short of expectations, weighing heavily on the outlook for future interest rate hikes.

The report showed the annual inflation rate cooled to 2.8 percent – the lowest yet this year – while the quarterly increase amounted to a smaller-than-expected 0.7 percent. A Credit Suisse gauge tracking the probability for a rate hike at November’s RBA meeting dropped 30 percentage points, showing traders now see a mere 17 percent chance of an increase. An index showing the tightening outlook for the year ahead dropped 8 basis points to show markets are pricing in 47bps in rate hikes over the next 12 months. The Australian unit fell 0.85 percent on average against a trade-weighted index of major currencies.

* Dollar and Risk Appetite Trends Left Unfazed by Consumer Sentiment Data, Durable Goods Ahead
* British Pound Rallies after Strong GDP Reading Curbs Fear of a Renewed Recession, Stimulus Injection
* Euro Fails to Mount a Defense on its Own Fundamentals against a Strong Dollar and Pound
* New Zealand Dollar could Show Volatility in the Face of an RBNZ Hold
* Australian Dollar Tumbles after an otherwise Modest Disappointment from CPI
* Japanese Yen Benefits Speculative Wave even as another Stimulus Program Nears Approval

Dollar and Risk Appetite Trends Left Unfazed by Consumer Sentiment Data, Durable Goods Ahead

In an otherwise quiet session for capital markets, the dollar was able to post a significant gain Tuesday. This progress is all the more remarkable when we consider that the usual suspects for trend encouragement (stimulus speculation and risk appetite) were not in play. Looking at investor optimism, we find that the S&P 500 generated another narrow range through the session and would put in for a recovery from early morning losses. The same level of restraint was seen for other risk-sensitive assets including crude, the iShares Investment Grade Corporate Bond Fund and gold. The deviation in performance between gold and the greenback is particularly interesting considering the metal has recently found its place in the financial world as an alternative to the US dollar and the all securities that will be devalued by the expansion of stimulus programs. For developing a true bull trend, the burden likely still falls to EURUSD to hold below 1.38 and overtake last week’s swing lows at 1.37. That said, the bullish progress made by USDJPY and USDCHF should not be overlooked. Where the more fundamentally challenged (EURUSD and GBPUSD) and yield intensive (AUDUSD and NZDUSD) pairs have seen corrections and congestion; the yen and franc based majors have remained incredibly consistent in their respective declines. Should these pairs reverse course, it could point to a critical shift for the dollar.

The absence of a meaningful risk appetite tendency Tuesday would prove beneficial for data that could be easily construed as supportive of stimulus - and thereby detrimental to the dollar. Top event risk was the October consumer sentiment survey from the Conference Board. The 50.2 reading was modestly better than what was forecasted; but being so close to a balance between optimists and pessimists does not bode well for this critical sector’s contribution to economic activity. Looking into the breakdown of the survey, we see that both expectations and current conditions figures advanced from a seven-month low. More influential at this stage in the game though is the deterioration in Americans’ confidence in employment and income trends. The percentage of participants reporting jobs as plentiful dropped to its lowest level this year while income expectations fell to levels last seen since April of 2009. Housing data would also give motive for pause. While home prices reportedly rose 0.4 percent in the lagging Federal House Finance Agency’s August report; the Case-Shiller price index slowed to a 1.7 percent annual clip from 3.18 percent in the previous reading. We will have to watch the health of the housing and lending markets closely as foreclosures revive the risk of massive mortgage-backed securities failures. This has the potential to be a new crisis for the US and globe.

For the coming 24 hours, the docket is once again full; but should we expect a different reaction from the dollar to this round of data than what we saw through Tuesday? That depends on whether the data taps into deeper uncertainties about the future of the United States’ economic and financial health. Ahead of Friday’s GDP reading, the durable goods report likely carries the most weight. Manufacturing has shoulder more than its fair share of the recovery burden; so a stumble in this figure’s pace can wear down confidence quickly. New home sales will hold the same level of influence of Monday’s existing sales report; but here the bigger picture of the housing market is more important. Look for a lean in risk trends prior to the release to garner of sense of whether this data will be market-moving.

British Pound Rallies after Strong GDP Reading Curbs Fear of a Renewed Recession, Stimulus Injection

The advanced reading of third quarter GDP for the United Kingdom certainly proved market-moving for the pound. Set against the backdrop of last week’s announcement of record government spending cuts (81 billion sterling) and a growing conviction for an expanded stimulus effort from the Bank of England next week, traders were watching this data particularly close. This focus would ultimately prove favorable as the 0.8 percent expansion of Europe’s second largest economy through September was double what the consensus was calling for and the annualized reading accelerated to its fastest pace in three years (at 2.8 percent). Does this mean that the UK will weather the economic fallout of fiscal restraint and the central bank find room to maintain its policy? Not necessarily. Yet, this does provide hope; and Standard & Poor’s decision to raise the nation’s credit outlook from ‘negative’ to ‘stable’ certainly helps. Nonetheless, expect speculation to heat up as the BoE decision approaches.

Euro Fails to Mount a Defense on its Own Fundamentals against a Strong Dollar and Pound

With both the US dollar and British pound climbing in an otherwise quiet session, it should come as little surprise that the euro was weakening. The liquidity on these two particular pairs carries a lot of weight for the crosses. For a fundamental perspective, the GfK’s consumer confidence survey for November held at its 30-month high. Wednesday, the focus is on inflation in the German CPI and Eurozone M3 statistics.

New Zealand Dollar could Show Volatility in the Face of an RBNZ Hold

In the afternoon hours of the upcoming US session, the RBNZ will announce its policy decision. Both economists and market participants are predicting that the central bank will keep the benchmark lending rate unchanged at 3.00 percent; but this could still be a market-moving event. Comparisons to the Aussie dollar are inevitable; and any dovish commentary from Governor Bollard can prove a significant burden to the kiwi.

Australian Dollar Tumbles after an otherwise Modest Disappointment from CPI

Interest rates are the key to the Aussie dollar’s success. Doubt of this assessment should be directed to the currency’s reaction to the third quarter CPI data. Headline inflation cooled more quickly than expect to a 2.8 percent clip (from above target at 3.1 percent previously) while the core figure slipped to 2.5 percent. If the RBA is more cautious about their stance, this relieves significant pressure for forced hikes.

Japanese Yen Benefits Speculative Wave even as another Stimulus Program Nears Approval

Japanese Prime Minister Naoto Kan’s cabinet reportedly approved the proposed next 5.1 trillion yen stimulus plan. While this program still needs to go through congress, it is highly likely that this program will pass. In comparison to the US or UK, Japan is proving far more liberal with its stimulus and fiscal support. And, yet the yen continues to appreciate. This is a speculative trend; and will therefore not last for very long.

Contributed by DailyFx

EUR/USD: The market is in the process of rolling over and carving out what could be the right shoulder of a major head & shoulders top. Key neckline support comes in by 1.3695, and a break below will confirm reversal prospects and potentially open a material decline back towards a measured move objective by the 1.3300 area which also loosely coincides with the 50-Day SMA. The 10-Day SMA is also looking like it could be on the verge of crossing the 20-Day SMA for the first time since early September when the market was trading in the 1.2700’s. For now, look for any intraday rallies to be well capped ahead of 1.4000.

Contributed by DailyFx

GBP/USD: As per our commentary in Tuesday’s analysis, rallies were indeed very well capped by 1.5900 and this keeps our bearish bias intact. Look for a lower top by Tuesday’s 1.5900 highs ahead of the next drop back below the vey well supported 50-Day SMA by 1.5650 and towards 1.5300 further down. Ultimately, only a close back above 1.6000 would negate outlook and give reason for pause.

Contributed by DailyFx

USD/CAD: As expected, the market was very well supported on dips below parity, with the latest sharp bounce back above 1.0200 solidifying our constructive outlook and opening the door for significant gains over the coming weeks. Look for continued appreciation towards the multi-week highs by 1.0700 over the coming weeks, with only a break back below 0.9970 to ultimately negate outlook and give reason for concern. A higher low is now sought out by 1.0155 ahead of the next major upside extension to be confirmed on a break back above key short-term resistance at 1.0375.

Contributed by DailyFx

USD/CHF: With daily studies finally crossing up from oversold and the market managing to close back above the 20-Day SMA for the first time since August, we are encouraged with the prospects for the formation of a major base by the recently established record lows at 0.9460. From here, look for any intraday setbacks to be well supported on dips towards 0.9700, with the market now eying a move towards next key resistance by 1.0000 over the coming sessions. Last week’s inability to extend declines to yet another record low below 0.9460, set up a strong bullish reversal week to end a sequence of 9 consecutive weekly lower highs. This further strengthens our constructive outlook and over the medium and longer-term we see significant upside risk.

USD Dollar (USD) – The Dollar strengthened versus most major currencies in Forex trading after U.S. consumer confidence rose more than expected in October, 50.2 vs. 49.3 forecast. This rise from a seven month low encourage investors to prefer the Dollar instead other assets. The NASDAQ and Dow Jones advanced by 0.26% and 0.05% respectively. Crude oil declined by 0.1%, closing at $82.55 a barrel and Gold (XAU) decreased by 0.1%, closing at $1338.60 an ounce. Today, Core Durable Goods Orders are expected to decline from 1.7% to 0.1%, and New Home Sales are expected at 295K vs. 288K prior.

Euro (EUR) – The Euro weakened against the Dollar for the first time in three days on speculation that an increase in debt purchases by the Federal Reserve will cause inflation to accelerate. The EUR/USD has been fluctuating around 1.3800 to 1.3900 levels during the past week, and therefore, the trend is not clear. Only if the pair crosses the 1.3950 line, will the Euro continue with its positive trend. Overall, EUR/USD traded with a low of 1.3825 and with a high of 1.3982. Today, German Prelim CPI is expected to rise from -0.10% to 0.10%.

EUR/USD – Last: 1.3811

British Pound (GBP) – The Pound rose after the U.K. economy grew at double the pace economists had forecast for the third quarter, with GDP coming out at 0.8% vs. an expected 0.4%. The resistance of the GBP/USD on the one hour chart is 1.5900, and as long as the pair is trading below this level, the momentum is still negative for the pound. Overall, GBP/USD traded with a low of 1.5706 and with a high of 1.5896. No economic data is expected today.

GBP/USD - Last: 1.5822

Japanese Yen (JPY) –The Yen slid from almost its strongest level in 15 years against the dollar amid concerns that Japanese authorities may renew action to weaken the currency. The USD/JPY has been trading around 81.00-81.50 area in the last few days and the main support line on the daily chart is located at 80.40. The momentum is still bearish as long as it‘s trading below the 10 moving average. Overall, USD/JPY traded with a low of 80.61 and with a high of 81.65. No economic data is expected today.

USD/JPY-Last: 81.74

Canadian dollar (CAD) – The Canadian Dollar weakened against the Dollar for the first time in three days as stocks and raw materials declined, reducing demand for currencies tied to economic growth. The support level of the USD/CAD on the daily chart is located at 1.0150, and if the USD/CAD breaks below this price level, a short position is preferred. Overall, USD/CAD traded with a low of 1.0181 and with a high of 1.0266. Today, BOC Gov Carney Speaks.

USD/CAD - Last: 1.0265

 

 

 

USD Dollar (USD) – The Dollar remained down against most of the major currencies despite home sales data being better the expected at 4.53M vs 4.25M forecast. The dollar continues to be in the shadow of the G20 summit, remaining weak against the majors in Forex trading. The NASDAQ and Dow Jones advanced by 0.46% and 0.28%, respectively. Crude oil gained 1%, closing at $82.52 a barrel, and Gold (XAU) increased by 1.1%, closing at $1340 an ounce. Today, CB Consumer Confidence is expected at 49.00 vs. 48.5 prior.

Euro (EUR) – The Euro strengthened against the dollar with Industrial New Orders exceeding expectation at 5.3% vs 2.1% prior, resulting in a stronger Euro. The last few days have seen the pair within a daily range, with a support of 1.3856 and a resistance of 1.4049. As long as the pair remains above levels of 1.3900, the trend will remain positive. Overall, EUR/USD traded with a low of 1.3935 and with a high of 1.4079. No economic data is expected today.

EUR/USD – Last: 1.39619

British Pound (GBP) – The Pound strengthened against the dollar despite the Mortgage Approvals coming out worse than expected at 31.1K vs. 31.6K forecast. The buyers outweighed the sellers in search for higher yielding assets in the GBP.  The momentum for the pound remains negative despite the pair’s efforts to break the daily moving average at around 1.5776. The trend continues to be bearish with a strong support of 1.5650. Overall, GBP/USD traded with a low of 1.5677 and with a high of 1.5772. Today, Prelim GDP q/q is expected 0.4% vs. 1.2% prior, and later on MPC Member Posen will speak.

GBP/USD - Last:  1.5731

Japanese Yen (JPY) –The Yen reached a 15 year high against the dollar. The dollar weakened against all the major currencies today, which only supported a stronger Yen.  The Yen continued to strengthen against the dollar for the sixth consecutive day and reached highs that were last seen in 1995. The trend on the pair is still bearish, although we might see some minor corrections. Overall, USD/JPY traded with a low of 80.40 and with a high of 81.32. No economic data is expected today.

USD/JPY-Last: 80.78

Canadian dollar (CAD) – The Canadian Dollar strengthened to reach a weekly high against the US dollar as a result of government reports last week that hinted about inflation and retail sales exceeding economist expectations. The strengthened commodities support a strong Canadian dollar. The USD/CAD broke its moving average and entered its second day of negative performance; the trend continues to be bearish below the level 1.0220. Overall, USD/CAD traded with a low of 1.0154 and with a high of 1.0258. Today, BOC Gov Carney Speaks.

USD/CAD - Last: 1.0199

 

 

 

USD Dollar (USD) – The Dollar was mixed in Forex trading on Friday, as investors waited to see the outlook of the G20 summit, which vowed in the end to avoid weakening currencies to encourage exports. The NASDAQ advanced by 0.80% and the Dow Jones weakened   by 0.13%. Crude oil rose by 1.4%, closing at $81.69 a barrel. Gold (XAU) decreased by $0.50, closing at $1325 an ounce. Today, Fed Chairman Bernanke Speaks, and Existing Home Sales are expected to rise from 4.13M to 4.25M.

Euro (EUR) – The Euro rose against the Dollar after the Group of 20 finance ministers and central bankers vowed to refrain from weakening currencies to support exports. The EUR/USD has fluctuated around 1.3900 levels during the past week, and as long as it’s above 1.3900 levels, the momentum continues to be positive for the Euro. Overall, EUR/USD traded with a low of 1.3858 and with a high of 1.3972. Today, Industrial New Orders are expected at 2.1% vs. -2.0% prior.

EUR/USD – Last: 1.4033

British Pound (GBP) – The Pound traded its biggest weekly loss against the dollar since August. This comes on speculation that this weekend’s Group of 20 meeting in South Korea may result in an accord that will support the Dollar more than the pound. The trend of the GBP/USD on the daily chart has been bearish over the last few days, but still facing a support around 1.5600. Overall, GBP/USD traded with a low of 1.5651 and with a high of 1.5750. Today, BBA Mortgage Approvals are expected at 31.60K vs. 31.80K prior.

GBP/USD - Last: 1.5746

Japanese Yen (JPY) –The Yen closed almost unchanged against the Dollar after the resolutions of the G20. The USD/JPY has been trading around 81.00-81.50 area in the last few days. The main support line on the daily chart is located at 81.00 and the momentum is still bearish as long as it‘s trading below the 10 moving average. Overall, USD/JPY traded with a low of 80.99 and with a high of 81.50. No economic data is expected today.

USD/JPY-Last: 81.06

Canadian Dollar (CAD) – The Canadian Dollar fluctuated against the Dollar as the Bank of Canada signaled interest rate increases are on hold as the nation’s economic recovery may be weaker than expected. The support level of the USD/CAD on the daily chart is located at 1.0200, and if the USD/CAD breaks below this level, a short position is preferred. Overall, USD/CAD traded with a low of 1.0223 and with a high of 1.0302. No economic data is expected today.

USD/CAD - Last: 1.0210

 

 

 

Contributed by DailyFx

* Dollar Finds Balance as Big Ticket Fundamental Threats - G20, GDP, FOMC - Approach
* British Pound Collapses as Market Recognizes the Threat of Austerity and Weight of Stimulus
* Euro Firm Despite a Drop in Economic Activity and Disappointing Auction for Spain
* Canadian Dollar Approaches another Fundamental Wave in Retail Sales and CPI
* Australian Dollar Falls in the Face of Stable Risk Trends as Chinese Economy Cools
* Japanese Yen: Economic Minister Warns a Collapse in Chinese Economy Would be Dire for Japan

Dollar Finds Balance as Big Ticket Fundamental Threats - G20, GDP, FOMC - Approach

It is interesting to see how influential policy officials’ comments can be on positioning. Ultimately, the impact their remarks have on the markets boil down to what the topic happens to be and the frequency with which it is brought up. For example, Japanese policymakers’ constant threats against the yen’s advance are interpreted as empty and impotent threats; while RBA Governor Steven’s select prognostications are often treated as the market’s own outlook. As for Treasury Secretary Timothy Geithner’s sway, constant and repetitive reflections on the economy and currency have lost their charm. Therefore, it is interesting that many analysts and financial media outlets attributed a sharp rally in the dollar prior to Thursday morning’s Chinese GDP release to suggestions made by Geithner that currencies are “roughly in alignment.” This is a vague comment; and he has not pursued any policy directly aimed at manipulating the dollar. Yet, in the pursuit of an easy explanation, this is something to hang onto. More realistic is the notion that the impending threat of volatility in the wake of heavy event risk encouraged an early break that took advantage of pre-release liquidity and the need to defuse a bigger decline after the actual data. This is consistent with the modest advance through the end of Thursday – the fourth in the past five active trading days – as risk trends edged lower and stimulus slipped.

Fundamental developments are only as market-moving as speculative interests say they are. Over the past 72 hours, risk appetite trends have proven themselves to be the most influential dynamic when it comes to the dollar’s bearings. China’s growth update would provide a clear measure of confidence in the global economy and in turn define the value of the greenback as a safe haven and direct investment alternative to the world’s second largest powerhouse. Coming largely in line with expectations, the ‘surprise’ factor that often produces the greatest level of volatility was dampened. On the other hand, the deceleration in the country’s remarkable performance (to a 9.6 percent rate of annualized growth) would nevertheless remind investors that global activity was cooling and the best performers (for growth and returns) held their own risk. Being reminded that China is not a risk-free alternative to the United States financial, fiscal and economic troubles goes a long way to disrupt popular capital flows. In the meantime, the US Leading Indicators composite for September wasn’t a great rebuttal as the 0.3 percent growth can largely be attributed to rising stocks, low market rates and to an extent an improvement in manufacturing.

A fundamental current that continues to lose its authority over speculative interests are stimulus forecasts. Thursday, St. Louis Fed President Bullard remarked that a stimulus decision would not be made until after the 3Q GDP release (which he said may be stronger than 2Q), that the FOMC was not there to “ratify what the markets think,” and that he supported a program that moved in $100 billion market increments. All of this is deflates the massive easing program the market had priced in. We’ll see what Hoenig and Plosser say tomorrow. In the meantime, we need to keep a mind to the G20 this weekend and US 3Q GDP next week. And, off the docket, the mortgage-backed securities market is coming back to haunt us as foreclosures pick up. According to the Fed, foreigners are already bailing with their MBS holdings falling to a three-year low.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPUSD Hits its First Target, EURUSD Taking Time to Develop

British Pound Collapses as Market Recognizes the Threat of Austerity and Weight of Stimulus

The full weight of the UK’s fiscal and economic position doesn’t seem to have fully set in – much like the US stimulus scenario was underappreciated until a month ago and Europe’s debt obligations are still ignored to this day. With the announcement of the government’s biggest spending cut (81 billion pounds) on record and the loss of nearly 500,000 public jobs, the United Kingdom is at significant risk of stalling in its recovery and in turn pinching its financial markets. As it stands, the consensus forecast for 3Q GDP growth is a sparse 0.4 percent. Chancellor of the Exchequer Osbourne recognizes this threat; and therein lies the reasoning for his comment that he would approve a “deployment” of stimulus from the BoE should activity stall. Through Thursday’s session, we see that mortgage approvals dropped to a 17-month low and retail sales were unchanged. The outlook for growth is diving, stimulus seems more likely and the argument for a rate hike is fading.

Euro Firm Despite a Drop in Economic Activity and Disappointing Auction for Spain

There are grander fundamental concerns for FX traders at the moment. This is no doubt why disappointing developments hold limited weight for euro price action. In the previous session, the Eurozone PMI figure hit a year low and Spain’s debt auction fell short of its maximum. Further off the beaten path, French strikes are going strong and Allied Irish subordinate debt holders are being asked to take an 80 percent loss.

Canadian Dollar Approaches another Fundamental Wave in Retail Sales and CPI

Once again, the Canadian dollar steps up for potential volatility when the rest of the calendar falls into a lull. However, how much can we expect from top tier economic indicators when the implications for interest rate expectations have been handicapped by the dovish turn from the BoC? The CPI data will tell us if there is any argument to be made for a rate hike while retail sales are still important to gauge economic activity.

Australian Dollar Falls in the Face of Stable Risk Trends as Chinese Economy Cools

Who stands to suffer most from a slower Chinese economy? While the cooling of the Asian giant is generally encouraging in the effort to curb an economic and asset bubble; the temperance means the imports of natural materials will necessarily drop as well. Australia happens to be one of the largest suppliers of metals and energy commodities to China. How well can Australia stand on its own in this volatile global market?

Japanese Yen: Economic Minister Warns a Collapse in Chinese Economy Would be Dire for Japan

Despite the simmering political tensions between Japan and China, policy officials understand the economic dependence between the two. This reliance is the basis for the Japanese Economic Minister and BoJ Governor to express their support for China’s decision to hike its benchmark rate to curb bubbles. It was the minister that said a crisis in China would cause severe problems in the island nation.