British Pound Traders Brace for Volatility from BoE Report

Date

11/12/2014 1:36:33 AM

(MENAFN- DailyFX) DailyFX.com - r>

Talking Points:

Dollar Drops as FX Volatility Rate Forecasts Offset
British Pound Traders Brace for Volatility from BoE Report
Yen Crosses Rally as Market Speculates on Election Tax Hike Delay

Dollar Drops as FX Volatility Rate Forecasts Offset

The US Dollar took a modest spill versus most of its major counterparts this past session as moderation in rate speculation offset a jump in FX volatility. Two important themes have traded influence over the Greenback: investor sentiment and the yield advantage held over major counterparts. On the risk front the standard-bearer S&P 500 tagged a fresh record high but did so on increasingly slower progress while volume showed the lowest turnover in 10 weeks. While this restraint was likely partly attributable to the Veteran’s holiday that closed fixed income exchanges this projects a trend of moderation that we have seen develop shortly after the rebound began. Meanwhile on the FX side the currency market’s short-term (1-week) volatility reading jumped nearly 10 percent and has made a similarly sized jump this morning. At 9.4 now a move back towards 11 – the 12-month peaks set in September and opening week of November – could reinvigorate the Dollar.

However waiting for ‘risk’ has proven a crap shoot for traders; and there is little in the way of definitive event risk that can be expected to generate a shock with enough mass to shift market-wide sentiment. In the meantime rate speculation seems to be percolating. Both Fed Fund and Eurodollar futures slipped Tuesday but overnight swaps with a 12-month outlook are hovering hawkishly around 50 bps. On the wires both Dallas Fed President Fisher and Philly Fed President Plosser kept to their policy colors by both warning of risks associated with keeping rates too low for too long. Yet the pull their views carry is likely tempered by the fact that bot is set to retire next year – neither would have been a voter in 2015 regardless. Ahead we have some low-grade event risk dove Kocherlakota is set to speak and there are a few shorter duration Treasury auctions. Heavier movements in the Pound Euro and Yen would likely generate more Dollar movement.

British Pound Traders Brace for Volatility from BoE Report

Top event risk for the majors through the upcoming session is the Bank of England’s Quarterly Inflation Report. As important as monetary policy is for establishing the bearings and activity levels of currencies the Sterling is notoriously short-changed for updates on this theme. The BoE does not offer a meaningful update after meetings that don’t result in policy change – and there hasn’t been an update in a while. Minutes offer more detail but are still vague and are limited in forecast. The best updates for the policy group’s outlook comes with this periodical report. Compared to the burgeoning optimism and hawkish views in the updates through the second half of 2013 and first half of 2014 the last report took a more dovish tone. Furthermore we have seen growth forecasts dim and policy officials have individually voiced a more balanced view with interviews. Given the GBPUSD’s trend these past four months and the still-hawkish lean behind market forecasts a more timid outlook would generate a bigger (bearish) response. And given its track record for impact this event risk should be watched closely.

Yen Crosses Rally as Market Speculates on Election Tax Hike Delay

Through the close of Tuesday’s session the Yen suffered losses between 0.8 percent (versus the Dollar) and 1.6 percent (against the NZD). The impetus for this drop were rumors that the Japanese Prime Minister Shinzo Abe may soon have to call a snap election and/or that the second sales tax increase could be pushed back due to stagnant growth conditions. A mixture of uncertainty and a push towards implicit stimulus both stokes a tawdry appetite for risk while also undermining long-term confidence in Japan’s financial and fiscal health. Both drive the Yen lower (crosses higher). This morning the market remains focused on this theme with Advisors speaking more belligerently.

Euro and European Markets Can’t Remain on Divergent Paths For Much Longer

Though its allegiances fluctuate there is generally a strong relationship between EURUSD and general risk trends as well as the relative confidence in European capital markets. This is demonstrated when we overlay a chart of the exchange rate with the Euro Stoxx 50 equity index. Historically the correlation tends to be strongly positive. Currently that relationship (20-day 1-month rolling correlation) is the most negative it has been since July of last year. The ECB’s efforts are forging this divergence but global risk appetite will eventually reconcile them.

Australian and New Zealand Dollars Lead Majors Gains

Despite a measured performance in global equities performance modest gains from the Deutsche Bank Carry Harvest index and a rise in FX volatility; the struggling carry currencies (Australian and New Zealand Dollars) generated the past session’s top performance. Both currencies have struggled against the US and European currencies these past months which may confera rebound through moderation. Because neither their yield forecasts nor the appetite for carry seems to be providing a strong motivation for gains. In other words be wary of follow through.

Emerging Markets: Has Russia’s Most Recent Move Stabilized the Ruble

The MSCI Emerging Market ETF posted a modest decline on low volume this past session. From the FX range the EM was once again an even split between moderate gains and losses. The biggest mover was once again the Russian Ruble. A 2.3 percent drop developed despite the Russian Central Bank’s recent efforts to try and stem capital outflow. Default swaps and volatility levels show the market is very dubious.

Gold Positioning Grows More Extreme Even as Prices Seem to Form Range

While gold offered up another switch back with its 1.1 percent rally to further firm up its November range positioning is showing remarkable consistency. Volume in this congestion is drying up – leveraging the risk of a breakout. Meanwhile open interest in the futures market has climbed to its highest level in 17 months as ETF holdings has hit a five-year low. This looks like positioning for further losses.

**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

" style="text-align:center"> GMT	" style="text-align:center"> Currency	" style="text-align:center"> Release	" style="text-align:center"> Survey	" style="text-align:center"> Previous	" style="text-align:center"> Comments
" style="text-align:center"> 23:30	" style="text-align:center"> AUD	Westpac Consumer Confidence (NOV)		" style="text-align:center"> 0.90%	It has been trending lower this year.
" style="text-align:center"> 23:30	" style="text-align:center"> AUD	Westpac Consumer Conf Index (NOV)		" style="text-align:center"> 94.8	It has been trending lower this year.
" style="text-align:center"> 23:50	" style="text-align:center"> JPY	Tertiary Industry Index (MoM) (SEP)	" style="text-align:center"> 0.80%	" style="text-align:center"> -0.10%	A volatile measure
" style="text-align:center"> 23:50	" style="text-align:center"> JPY	Japan Money Stock M2+CD (YoY) (OCT)	" style="text-align:center"> 3.00%	" style="text-align:center"> 3.00%	Both measures show expansion. These measures may increase at a higher pace due to the recent additional easing by the BOJ
" style="text-align:center"> 23:50	" style="text-align:center"> JPY	Japan Money Stock M3 (YoY) (OCT)	" style="text-align:center"> 2.50%	" style="text-align:center"> 2.50%
" style="text-align:center"> 0:30	" style="text-align:center"> AUD	Wage Cost Index (QoQ) (3 Q)	" style="text-align:center"> 0.60%	" style="text-align:center"> 0.60%	Wage cost index is important to see how the non-mining sector part of the economy is performing
" style="text-align:center"> 0:30	" style="text-align:center"> AUD	Wage Cost Index (YoY) (3 Q)	" style="text-align:center"> 2.60%	" style="text-align:center"> 2.60%
" style="text-align:center"> 0:30	" style="text-align:center"> AUD	Credit Card Balances (SEP)		" style="text-align:center"> $A49.5B	Credit card balances have remained flat this year while credit purchases have showed a slight decline when compared to the beginning of the year
" style="text-align:center"> 0:30	" style="text-align:center"> AUD	Credit Card Purchases (SEP)		" style="text-align:center"> $A22.3B
" style="text-align:center"> 7:00	" style="text-align:center"> EUR	German Wholesale Price Index (YoY) (OCT)		" style="text-align:center"> -0.90%	Whole price index has been showing contraction this year on a YoY basis. This measure might indicate that Europe’s largest economy might be entering into an anemic economic environment with possible risks of deflation
" style="text-align:center"> 7:00	" style="text-align:center"> EUR	German Wholesale Price Index (MoM) (COT)		" style="text-align:center"> 0.10%
" style="text-align:center"> 9:30	" style="text-align:center"> GBP	ILO Unemployment Rate (3M) (SEP)	" style="text-align:center"> 5.90%	" style="text-align:center"> 6.00%	Unemployment rate and jobless claims have been declining this year. These measures might show a stronger economy. The BOE is likely going to take account of how well the labor market is performing when deciding on monetary policy.
" style="text-align:center"> 9:30	" style="text-align:center"> GBP	Jobless Claims Change (OCT)	" style="text-align:center"> -20.0K	" style="text-align:center"> -18.6K
" style="text-align:center"> 9:30	" style="text-align:center"> GBP	Claimant Count Rate (OCT)	" style="text-align:center"> 2.70%	" style="text-align:center"> 2.80%
" style="text-align:center"> 9:30	" style="text-align:center"> GBP	Average Weekly Earnings (3M/YoY) (SEP)	" style="text-align:center"> 0.80%	" style="text-align:center"> 0.70%
" style="text-align:center"> 9:30	" style="text-align:center"> GBP	Weekly Earnings ex Bonus (3M/YoY) (SEP)	" style="text-align:center"> 1.10%	" style="text-align:center"> 0.90%
" style="text-align:center"> 9:30	" style="text-align:center"> GBP	Employment Change (3M/3M) (SEP)	" style="text-align:center"> 125K	" style="text-align:center"> 46K
" style="text-align:center"> 10:00	" style="text-align:center"> EUR	Euro-Zone Industrial Production s.a. (MoM) (SEP)	" style="text-align:center"> 0.70%	" style="text-align:center"> -1.80%	Industrial Production has entered into contraction since September 2014. This is one of the many indicators that have been showing economic weakness in the Eurozone.
" style="text-align:center"> 10:00	" style="text-align:center"> EUR	Euro-Zone Industrial Production w.d.a. (YoY) (SEP)	" style="text-align:center"> -0.20%	" style="text-align:center"> -1.90%
" style="text-align:center"> 12:00	" style="text-align:center"> USD	MBA Mortgage Applications (NOV 7)		" style="text-align:center"> -2.60%	It is a volatile measure. A strong measure can show a strong demand for housing
" style="text-align:center"> 13:30	" style="text-align:center"> CAD	Teranet/National Bank HPI (MoM) (OCT)		" style="text-align:center"> 0.40%	Canada’s house prices have been rising this year. The BOC is likely going to monitor housing developments when deciding on monetary policy
" style="text-align:center"> 13:30	" style="text-align:center"> CAD	Teranet/National Bank HPI (YoY) (OCT)		" style="text-align:center"> 5.40%
" style="text-align:center"> 13:30	" style="text-align:center"> CAD	Teranet/National Bank HP Index (OCT)		" style="text-align:center"> 167.64
" style="text-align:center"> 15:00	" style="text-align:center"> USD	Wholesale Inventories (SEP)	" style="text-align:center"> 0.20%	" style="text-align:center"> 0.70%	Inventories have been growing this year while trade sales have recently started to decline
" style="text-align:center"> 15:00	" style="text-align:center"> USD	Wholesale Trade Sales (MoM) (SEP)	" style="text-align:center"> -0.10%	" style="text-align:center"> -0.70%
" style="text-align:center"> 21:30	" style="text-align:center"> NZD	Business NZ Performance of Manufacturing Index (OCT)		" style="text-align:center"> 58.1	Measure is higher than the value from the beginning of the year.

" style="text-align:center"> GMT	" style="text-align:center"> Currency	" style="text-align:center"> Upcoming Events & Speeches
" style="text-align:right"> 8:00	USD	Fed's Plosser Speaks on the Economy in London
" style="text-align:right"> 8:30	EUR	ECB's Visco Speaks in Rome
" style="text-align:right"> 10:30	GBP	Bank of England Inflation Report
" style="text-align:right"> 14:00	EUR	ECB President Mario Draghi Speaks in Rome
" style="text-align:right"> 18:30	USD	Fed's Kocherlakota Speaks on Monetary Policy in Wisconsin

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

" style="text-align:center"> CLASSIC SUPPORT AND RESISTANCE

" style="text-align:center"> EMERGING MARKETS 18:00 GMT						" style="text-align:center"> SCANDIES CURRENCIES 18:00 GMT
" style="text-align:center"> Currency	" style="text-align:center"> USD/MXN	" style="text-align:center"> USD/TRY	" style="text-align:center"> USD/ZAR	" style="text-align:center"> USD/HKD	" style="text-align:center"> USD/SGD	" style="text-align:center"> Currency	" style="text-align:center"> USD/SEK	" style="text-align:center"> USD/DKK	" style="text-align:center"> USD/NOK
" style="text-align:center"> Resist 2	" style="text-align:center"> 14.0100	" style="text-align:center"> 2.3800	" style="text-align:center"> 12.7000	" style="text-align:center"> 7.8165	" style="text-align:center"> 1.3650	" style="text-align:center"> Resist 2	" style="text-align:center"> 7.5800	" style="text-align:center"> 6.1750	" style="text-align:center"> 7.2900
" style="text-align:center"> Resist 1	" style="text-align:center"> 13.6800	" style="text-align:center"> 2.3000	" style="text-align:center"> 11.8750	" style="text-align:center"> 7.8075	" style="text-align:center"> 1.3250	" style="text-align:center"> Resist 1	" style="text-align:center"> 7.5000	" style="text-align:center"> 6.0900	" style="text-align:center"> 7.0000
" style="text-align:center"> Spot	" style="text-align:center"> 13.6388	" style="text-align:center"> 2.2647	" style="text-align:center"> 11.2617	" style="text-align:center"> 7.7529	" style="text-align:center"> 1.2960	" style="text-align:center"> Spot	" style="text-align:center"> 7.4348	" style="text-align:center"> 6.0094	" style="text-align:center"> 6.8655
" style="text-align:center"> Support 1	" style="text-align:center"> 13.0300	" style="text-align:center"> 2.0700	" style="text-align:center"> 10.2500	" style="text-align:center"> 7.7490	" style="text-align:center"> 1.2000	" style="text-align:center"> Support 1	" style="text-align:center"> 6.7750	" style="text-align:center"> 5.8000	" style="text-align:center"> 6.3145
" style="text-align:center"> Support 2	" style="text-align:center"> 12.8350	" style="text-align:center"> 1.7500	" style="text-align:center"> 9.3700	" style="text-align:center"> 7.7450	" style="text-align:center"> 1.1800	" style="text-align:center"> Support 2	" style="text-align:center"> 6.0800	" style="text-align:center"> 5.7300	" style="text-align:center"> 6.1300

" style="text-align:center"> INTRA-DAY PROBABILITY BANDS 18:00 GMT

" style="text-align:center"> \CCY	" style="text-align:center"> EUR/USD	" style="text-align:center"> GBP/USD	" style="text-align:center"> USD/JPY	" style="text-align:center"> USD/CHF	" style="text-align:center"> USD/CAD	" style="text-align:center"> AUD/USD	" style="text-align:center"> NZD/USD	" style="text-align:center"> EUR/JPY	" style="text-align:center"> Gold
" style="text-align:center"> Res 3	" style="text-align:center"> 1.2483	" style="text-align:center"> 1.5947	" style="text-align:center"> 116.41	" style="text-align:center"> 0.9829	" style="text-align:center"> 1.1519	" style="text-align:center"> 0.8652	" style="text-align:center"> 0.7777	" style="text-align:center"> 143.90	" style="text-align:center"> 1170.60
" style="text-align:center"> Res 2	" style="text-align:center"> 1.2456	" style="text-align:center"> 1.5919	" style="text-align:center"> 116.09	" style="text-align:center"> 0.9805	" style="text-align:center"> 1.1496	" style="text-align:center"> 0.8630	" style="text-align:center"> 0.7755	" style="text-align:center"> 143.55	" style="text-align:center"> 1163.67
" style="text-align:center"> Res 1	" style="text-align:center"> 1.2429	" style="text-align:center"> 1.5891	" style="text-align:center"> 115.78	" style="text-align:center"> 0.9781	" style="text-align:center"> 1.1474	" style="text-align:center"> 0.8608	" style="text-align:center"> 0.7734	" style="text-align:center"> 143.21	" style="text-align:center"> 1156.74
" style="text-align:center"> Spot	" style="text-align:center"> 1.2376	" style="text-align:center"> 1.5835	" style="text-align:center"> 115.15	" style="text-align:center"> 0.9733	" style="text-align:center"> 1.1429	" style="text-align:center"> 0.8564	" style="text-align:center"> 0.7690	" style="text-align:center"> 142.51	" style="text-align:center"> 1142.87
" style="text-align:center"> Supp 1	" style="text-align:center"> 1.2323	" style="text-align:center"> 1.5779	" style="text-align:center"> 114.52	" style="text-align:center"> 0.9685	" style="text-align:center"> 1.1384	" style="text-align:center"> 0.8520	" style="text-align:center"> 0.7646	" style="text-align:center"> 141.81	" style="text-align:center"> 1129.00
" style="text-align:center"> Supp 2	" style="text-align:center"> 1.2296	" style="text-align:center"> 1.5751	" style="text-align:center"> 114.21	" style="text-align:center"> 0.9661	" style="text-align:center"> 1.1362	" style="text-align:center"> 0.8498	" style="text-align:center"> 0.7625	" style="text-align:center"> 141.47	" style="text-align:center"> 1122.07
" style="text-align:center"> Supp 3	" style="text-align:center"> 1.2269	" style="text-align:center"> 1.5723	" style="text-align:center"> 113.89	" style="text-align:center"> 0.9637	" style="text-align:center"> 1.1339	" style="text-align:center"> 0.8476	" style="text-align:center"> 0.7603	" style="text-align:center"> 141.12	" style="text-align:center"> 1115.14

--- Written by: John Kicklighter Chief Strategist for DailyFX.com

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

" style="text-align:justify"> 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.

original source

Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.