• Dollar, Anchored by Aimless Risk Trends, Looks to Friday’s CPI and Confidence Figures
  • Euro Climbs in the Absence of Immediately Fundamental Threats
  • British Pound Shows Uneven Gains after Strong Retail Sales Data, High Inflation Forecast
  • Swiss Franc Plunges after SNB Holds Rates, Cuts its Forecasts and Perhaps Intervenes
  • Australian Dollar Steady after Mixed Readings on Inflation Expectations, Consumer Inflation Expectations
  • Japanese Holds its Post-Intervention Losses as Market Expects Follow Up

Dollar, Anchored by Aimless Risk Trends, Looks to Friday’s CPI and Confidence Figures

The directionless nature of speculative-based markets is both a boon and a burden when trying to establish the dollar’s fundamental bearings. On the one hand, without a clear trend in risk appetite to benchmark the currency against, it is difficult to determine whether the greenback is actually still playing the fundamental role of safe haven currency to FX traders. Whether this relationship is breaking down or still holds fast is essential to both analyzing and trading the US dollar. Having this definable driver to defer to means we can establish the current health of the currency; and when developing forecasts, we can project the rather straightforward direction and tempo of risk appetite rather than attempting to categorize and verify the importance of the infinite variables factoring in a currencies strength. And, at the same time, an absence of clear speculative drive is beneficial in that it fits the tempered bearish momentum that swept over the greenback this past week. That being said, we would still see a divergent performance from the dollar across its major counterparts. EURUSD extended its advance to a fifth consecutive day – and put some momentum on it. In contrast, both GBPUSD and USDJPY were virtually unchanged to end the day. Then there was USDCHF. A complicated pair to bear out on a safe haven scale, unique fundamental drivers certainly helped it to jump start its biggest rally since August 4th.

In analyzing the bearing and pace of the dollar, it is still essential to interpret fundamental developments for their impact on investor sentiment. Today’s scheduled macroeconomic event risk would carry little weight when it comes to altering speculative interests (even if the economic implications are considerable). Perhaps the most media-friendly reading for the day was the second quarter current account balance. The $123.3 billion deficit was smaller than projected but nonetheless the largest shortfall since the final months of 2009. Considering the primary weight on this broad trade reading was the physical balance, this data comes as little surprise since the monthly readings are known well in advance of this release. As for investor capital inflows (the opposing force to this gap), we would actually receive the TIC flows report for July along with the aggregate quarterly figure. The more timely reading rose $61.2 billion with predicable increases in Treasury and agency debt as well as unexpected purchases of corporate bonds and stocks. As for the slip in initial jobless claims to a 450,000 pace and the deceleration in factory-level inflation data to a 3.1 percent pace; this is second tier data on already heavily speculated subjects (employment and rates).

And, though it looks highly likely that we will end out this week with a sigh from risk trends; there is still a far better chance for event-based volatility on Friday than in the previous 48 hours. On deck early in the New York session are the consumer price index for August and University of Michigan Consumer Confidence survey for September. Significant surprises properly aligned to prevailing uncertainties can generate a rise in volatility through sheer virtue of their historical role as market-movers. However, interest rate expectations are near zero through the coming year and few doubt growth will slow through the end of the year. Needless to say, this data may have to offer something remarkable to get price action moving. In the meantime, we should keep our eyes on the long-term effects of the Fed’s SOMA program. The central bank bought another $1.379 billion in Treasuries to maintain its stimulus program. This will act as a natural weight on the dollar as long as risk is absent.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: A High Risk AUDUSD Short is Based on Tempered Momentum

Euro Climbs in the Absence of Immediately Fundamental Threats

The euro put in for a robust performance Thursday; but the strength was more relative than absolute. If we look to the drivers over the period, we see that the SNB’s dovish turn, the RBNZ’s moderate language and the dollar’s floundering would provide indirect strength to the single currency. If we were to look at the actual European fundamental developments for the day, the backdrop is far less impressive. On the economic docket, the region’s trade deficit contracted to a 172 million euro shortfall; but most investors are less concerned with external trade figures and more interested in internal imbalances. What was truly was Greek Finance Minister Papaconstantinou’s commentary that the nation would not default or restructure. As he put it the region would be falling apart if that were the case. Is this a threat to investors and EU politicians?

British Pound Shows Uneven Gains after Strong Retail Sales Data, High Inflation Forecast

There were two notable economic reports that would cater directly to a couple of the Sterling’s more important fundamental drivers: interest rate speculation and the stability of an economic recovery. The growth forecast was lowered slightly by the first drop in retail sales (0.5 percent) since January. On the other hand, the BoE’s quarterly survey of consumer inflation expectations boosted the target to a two-year high 3.4 percent clip.

Swiss Franc Plunges after SNB Holds Rates, Cuts its Forecasts and Perhaps Intervenes

It has proven exceptionally difficult to push the Swiss franc down. However, the SNB showed itself quite capable of achieving the impossible. There is little doubt that the central bank’s decision to hold caught no one off guard. However, their dovish projections for a “marked” slowdown in the second half and lowered inflation forecasts curbed its appeal. And, there is even speculation that they intervened at the same time.

Australian Dollar Steady after Mixed Readings on Inflation Expectations, Consumer Inflation Expectations

Without a clear boost for yield demand, the Australian dollar is struggling to gain traction. And, considering AUDUSD has stalled just after marking what many would consider a significant break, the risk of a reversal is growing rapidly. As for the fundamental backdrop, the outlook for business activity in the third quarter while inflation expectations grew to 3.1 percent. Can the RBA maintain its balance of inflation and growth?

Japanese Holds its Post-Intervention Losses as Market Expects Follow Up

Traders were on pins and needles after Japan’s Finance Minister confirmed intervention on behalf of the Japanese yen as they were waiting for round two. The BoJ offered evidence today that the invention may have measured two trillion yen; and many believe they have capacity for much more. However, there are severe reservations that FX manipulation alone will cut it. Will the BoJ follow up with stimulus? Only time will tell.

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

ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

EUR

6:00

German Producer Prices (MoM) (AUG)

0.3%

0.5%

Producer prices increased annually in July for a fourth straight month.

EUR

6:00

German Producer Prices (YoY) (AUG)

3.5%

3.7%

EUR

8:00

Italian Industrial Orders s.a. (MoM) (JUL)

-0.4%

3.2%

Italian industrial orders probably declined in June from the month prior, halting a three-month rise.

EUR

8:00

Italian Industrial Orders n.s.a. (YoY) (JUL)

18.3%

26.6%

EUR

8:00

Italian Industrial Sales s.a. (MoM) (JUL)

0.8%

EUR

8:00

Italian Industrial Sales n.s.a. (YoY) (JUL)

8.9%

EUR

8:00

Euro-Zone Current Account s.a. (euros) (JUL)

-4.6B

Posted account surplus in June for the first time this year.

EUR

8:00

Euro-Zone Current Account n.s.a. (euros) (JUL)

1.0B

EUR

9:00

Euro-Zone Construction Output s.a. (MoM) (JUL)

2.7%

Euro-Zone construction output rose in June for a third time in 4 months.

EUR

9:00

Euro-Zone Construction Output w.d.a. (YoY) (JUL)

3.1%

USD

12:30

Consumer Price Index (MoM) (AUG)

0.3%

0.3%

The cost of living in the U.S. climbed in July for the first time in four months in August, rising 0.3%. The month-over-month increase was the largest in a year and exceeded economist expectations.

USD

12:30

Consumer Price Index (YoY) (AUG)

1.1%

1.2%

USD

12:30

CPI Ex Food & Energy (MoM) (AUG)

0.1%

0.1%

USD

12:30

CPI Ex Food & Energy (YoY) (AUG)

1.0%

0.9%

USD

12:30

Consumer Price Index Core Index s.a. (AUG)

221.676

USD

12:30

Consumer Price Index n.s.a. (AUG)

218.011

USD

13:55

U. of Michigan Confidence (SEP P)

70.0

68.9

Rose less than expected in August.

Currency

GMT

Upcoming Events & Speeches

USD

15:30

Fed’s Daniel Tarullo Speaks in Washington D.C.

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

EUR/GBP

Resistance 2

1.3815

1.6375

95.05

1.0600

1.0922

0.9850

0.7635

127.60

146.05

0.8725

Resistance 1

1.3500

1.5965

89.00

1.0460

1.0750

0.9665

0.7440

120.00

140.00

0.8600

Spot

1.3078

1.5625

85.78

1.0157

1.0265

0.9369

0.7240

112.18

134.02

0.8371

Support 1

1.2500

1.5300

83.00

0.9900

0.9950

0.8100

0.6850

103.80

125.00

0.8065

Support 2

1.2150

1.5125

80.00

0.9650

0.9700

0.7835

0.6585

100.00

119.00

0.7780

CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resistance 2

14.4500

1.8025

8.7915

7.8165

1.4945

Resistance 2

7.7500

5.7800

6.2750

Resistance 1

13.8500

1.6755

8.3675

7.8075

1.4655

Resistance 1

7.5800

5.5400

6.1150

Spot

12.7929

1.4909

7.1518

7.7650

1.3378

Spot

7.0453

5.6943

6.0948

Support 1

12.0500

1.4500

6.6950

7.7640

1.3000

Support 1

1.1650

5.3000

5.8000

Support 2

11.7200

1.3665

6.4300

7.7590

1.2500

Support 2

7.0000

5.1000

5.6000

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

EUR/GBP

Resistance 2

1.3198

1.5714

86.35

1.0283

1.0316

0.9430

0.7357

113.49

135.05

0.8454

Resistance 1

1.3138

1.5670

86.06

1.0220

1.0291

0.9400

0.7299

112.83

134.54

0.8413

Pivot

1.3057

1.5604

85.65

1.0109

1.0265

0.9365

0.7257

111.75

133.76

0.8362

Support 1

1.2997

1.5560

85.36

1.0046

1.0240

0.9335

0.7199

111.09

133.25

0.8320

Support 2

1.2916

1.5494

84.95

0.9935

1.0214

0.9300

0.7157

110.01

132.47

0.8269

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

EUR/GBP

Resistance 3

1.3235

1.5802

86.80

1.0277

1.0389

0.9500

0.7349

113.84

136.05

0.8457

Resistance 2

1.3195

1.5758

86.55

1.0247

1.0358

0.9468

0.7322

113.43

135.54

0.8435

Resistance 1

1.3156

1.5713

86.29

1.0217

1.0327

0.9435

0.7295

113.01

135.03

0.8414

Spot

1.3078

1.5625

85.78

1.0157

1.0265

0.9369

0.7240

112.18

134.02

0.8371

Support 1

1.3000

1.5537

85.27

1.0097

1.0203

0.9303

0.7185

111.35

133.01

0.8328

Support 2

1.2961

1.5492

85.01

1.0067

1.0172

0.9270

0.7158

110.93

132.50

0.8306

Support 3

1.2921

1.5448

84.76

1.0037

1.0141

0.9238

0.7131

110.52

131.99

0.8285

v

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

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