• Dollar Retrenches Itself Deep in its Month-Long Range as Scheduled Event Risk Evaporates, Weekend Approaches
  • Euro Financial Troubles Showing Greater Signs of Stress but Norway is Confident in its the Region’s Recovery
  • British Pound Finds Little Guidance from Mum BoE, Finds its Fundamental Potential Diminished by Trade
  • Canadian Dollar Marks its Worst Trade Deficit in Four Decades, Will Employment Redeem the Bull Run?
  • Australian Dollar Takes Another Big Step Towards Major Resistance at 0.94
  • Japanese Yen Traders Still Not Convinced of Invention as Noda Says Simulated Manipulation Tested

Dollar Retrenches Itself Deep in its Month-Long Range as Scheduled Event Risk Evaporates, Weekend Approaches

Technically, the US dollar would put in for a positive close through Thursday’s active session. However, an astute trader would appreciate the fact that the single currency is actually still mired in its month-long congestion pattern. It is easy to become caught up in the day-to-day changes from particular currency pairs; and the headlines of a positive or negative move can often be exaggerated to catch the attention of traders with extraordinarily short attention spans. And, this is not just an FX specific phenomenon. The S&P 500 (despite showing a greater level of volatility), crude oil and Treasury yields are all more or less holding broad ranges. The remarkable level of correlation between these various assets recently leads us to the conclusion that all of these markets are anchored for the same reason: the potential of financial and economic deterioration without the necessary catalyst to encourage investors to unwind or build up risky positions. So, while the masses wait for the inevitable spark to jump start the movement of capital, technical ranges will gather more and more potential energy. Perhaps the best representation of this congestion is EURUSD. Not only has this liquid pair found itself bound to a 300-point range for the past month, it has developed this chop at the mid-point of another correction (the upswing after the December to June selloff). Congestion within congestion.

Though the speculative markets find themselves in broader ranges, there are still fundamental developments and trading opportunities to be found on lower time frames. Today, the markets were preoccupied with a couple lower tier economic indicators. Scheduled data is tricky to account for. From a purely fundamental perspective, each piece of economic data offers evidence for an improvement or deterioration in the outlook for growth, interest rates, capital flow and other imperative aspects of investment. However, the time frame of most speculators dampens the market’s reaction to data that can’t be interpreted to have an immediate impact on the economic speedometer or general level of sentiment. The trade balance reading for July released through the US session is a good representation of this relative indifference. The deficit reported a bigger than expected improvement from a 21-month high to a $42.8 billion shortfall. Encouraged by a 1.8 percent increase in exports, this offers support for a general recovery when other areas of the economy are lacking. At the same time, the net outflow is still very large; and the outlook for further improvement lacking. Another problem with data is that it can actually be less influential that it may seem. The media has intensified its coverage of employment trends recently; and there has been greater coverage particularly over jobless claims. While this data is more timely than NFPs, it is less definitive and shows smaller changes to general trends (not exactly the formula for market movement). A further complication to this particular report, they had to fill in for the absence of 9 states’ statistics with estimates. Not all data is treated equally.

With only one more active trading day left to an otherwise disappointing week for volatility, expectations for a refreshed dollar trend are low. To be fair, even if there were a significant round of data, it probably wouldn’t stoke the fires. That will ultimately fall to risk appetite itself.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPCHF Edges into a Reversal, Awaiting a EURUSD Break

Euro Financial Troubles Showing Greater Signs of Stress but Norway is Confident in its the Region’s Recovery

The market has clearly shifted its focus away from debate surrounding the financial stability of the European region; because news specifically tailored to this concern heated up Thursday. For positives, the IFW Institute upgraded its forecasts for the German economy. The outlook for 2010 growth was raised from 2.1 to 3.1 percent and the 2011 projection from 1.2 to 1.7 percent. Look at the fringes of the EU, Hungary was moved off the imminent threat level when it raised twice the capital planned after vowing to keep its deficit to GDP ratio below 3.0 percent. Even the view of Greece (the perennial problem child for region) improved after it was report that Norway’s sovereign wealth fund (the second largest in the world) had increased its holdings of the nation’s debt. This confidence can be attributed to their flexibility in holding period. The fact that the Bank of Greece reported regional financial institutions borrowed another 96.2 billion euros from the ECB tells of the short-term problems they face. Add to that, ECB member Stark’s suggestion that more German banks need to raise capital; and the assessment is balanced.

British Pound Finds Little Guidance from Mum BoE, Finds its Fundamental Potential Diminished by Trade

While few fundamental traders were expecting anything to come from the Bank of England’s rate decision today, there was still considerable potential in the possibility that they would expand stimulus or give clues to the next move. Instead, the lack of a statement deflated all interest. What was interesting was the biggest deficit for the trade balance on record and the government’s warning of further spending cuts.

Canadian Dollar Marks its Worst Trade Deficit in Four Decades, Will Employment Redeem the Bull Run?

The Canadian dollar was one of the most provocative currencies on the day and will likely hold the markets interest through Friday. The currency was surprisingly stable through the past session despite the worst trade reading since 1971 in its July reading. Tomorrow’s employment report will be a little harder to ignore. A significant 30,000 improvement is expected after the previous month’s surprising contraction.

Australian Dollar Takes Another Big Step Towards Major Resistance at 0.94

It was slow to develop, but the early Thursday morning release of Australia’s stronger than expected employment statistics would eventually encourage the currency higher. This general drift could simply be chalked up to the slight breeze in risk appetite trends; but the rise to fresh three-month highs requires a little more vigor that that to carry such price action. The close to 0.94 the pair reaches, the more tension we’ll see.

Japanese Yen Traders Still Not Convinced of Invention as Noda Says Simulated Manipulation Tested

Stepping up their effort at verbal intervention, Japanese Finance Minister Noda said that the government was already running simulated intervention – generally a warning that they are prepared to act. The market, however, was unimpressed. The release of the government’s new 915 billion yen stimulus plan seems equally unremarkable. Representing only 0.2 percent of GDP, skeptics fail to see its leverage potential.

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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

NZD

22:45

Terms of Trade Index (QoQ) (2Q)

5.9%

Increased in 1Q for second quarter.

JPY

23:50

Gross Domestic Product (QoQ) (2Q F)

0.4%

0.1%

Japan’s economy grew much less than expected in the second quarter, pushing into third place globally behind the U.S. and China.

JPY

23:50

Gross Domestic Product Annualized (2Q F)

1.5%

0.4%

JPY

23:50

Nominal Gross Domestic Product (QoQ) (2Q F)

-0.7%

-0.9%

JPY

23:50

Gross Domestic Product Deflator (YoY) (2Q F)

-1.8%

-1.8%

JPY

23:50

Domestic Corp. Goods Price Index (MoM) (AUG)

-0.1%

-0.1%

Price index declined in July for a second consecutive month.

JPY

23:50

Domestic Corp. Goods Price Index (YoY) (AUG)

-0.2%

-0.1%

CNY

Chinese Exports (YoY%) (AUG)

35.0%

38.1%

China’s trade surplus likely topped $20B for a third month in August.

CNY

Chinese Imports (YoY%) (AUG)

27.5%

22.7%

AUD

6:30

Foreign Reserves (Australian dollar) (AUG)

47.5B

Reserves rose in the last 2 months.

EUR

6:45

French Manufacturing Production (MoM) (JUL)

0.7%

-1.3%

Manufacturing production declined in June for the first time in 2010.

EUR

6:45

French Manufacturing Production (YoY) (JUL)

4.4%

5.0%

EUR

6:45

French Industrial Production (MoM) (JUL)

0.7%

-1.7%

French industrial production fell in June for a second time in 3 months.

EUR

6:45

French Industrial Production (YoY) (JUL)

5.0%

5.7%

EUR

8:00

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

0.4%

0.6%

Italian industrial production rose 0.6% in June, its sixth consecutive monthly gain.

EUR

8:00

Italian Industrial Production w.d.a. (YoY) (JUL)

5.7%

8.2%

EUR

8:00

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

8.1%

GBP

8:30

Producer Price Index Input n.s.a. (MoM) (AUG)

0.1%

-1.0%

U.K. PPI input prices declined in July for a second month.

GBP

8:30

Producer Price Index Input n.s.a. (YoY) (AUG)

8.8%

10.8%

GBP

8:30

Producer Price Index Output n.s.a. (MoM) (AUG)

0.1%

0.1%

U.K. producer output prices rose by 0.2% in July as the costs of food, leather, and wood products increased.

GBP

8:30

Producer Price Index Output n.s.a. (YoY) (AUG)

4.8%

5.0%

GBP

8:30

PPI Output Core n.s.a. (MoM) (AUG)

0.1%

0.2%

GBP

8:30

PPI Output Core n.s.a. (YoY) (AUG)

4.6%

4.7%

EUR

9:00

Italian GDP s.a. and w.d.a. (QoQ) (2Q F)

0.4%

0.4%

Italian GDP rose 0.4% in 2Q for a second straight quarterly increase. Consumption, government spending, and investments were probably revised higher, but overall GDP held.

EUR

9:00

Italian GDP s.a. and w.d.a. (YoY) (2Q F)

1.1%

1.1%

EUR

9:00

Italian Private Consumption (2Q)

0.0%

0.0%

EUR

9:00

Italian Government Spending (2Q)

0.3%

-0.5%

EUR

9:00

Italian Total investments (2Q)

0.7%

0.6%

EUR

9:00

Italian Exports (2Q)

3.0%

5.3%

Rising exports outpaced imports in the first and second quarters.

EUR

9:00

Italian Imports (2Q)

1.8%

3.3%

CAD

11:00

Net Change in Employment (AUG)

30.0K

-9.3K

Unemployment has held at or above 8% in 17 of the past 18 months.

CAD

11:00

Unemployment Rate (AUG)

8.0%

8.0%

CAD

11:00

Full Time Employment Change (AUG)

-139

Canada’s labor participation has held below 68 in every month since March 2008.

CAD

11:00

Part Time Employment Change (AUG)

129.7

CAD

11:00

Participation Rate (AUG)

67.3

67.3

USD

14:00

Wholesale Inventories (JUL)

0.4%

0.1%

Increased in the last six months.

Currency

GMT

Upcoming Events & Speeches

JPY

23:50

Bank of Japan Meeting Minutes

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

0.9335

0.7440

120.00

140.00

0.8600

Spot

1.2704

1.5435

83.89

1.0150

1.0333

0.9239

0.7260

106.56

129.47

0.8231

Support 1

1.2500

1.5125

83.00

1.0100

0.9950

0.8100

0.6850

103.80

125.00

0.8065

Support 2

1.2150

1.5000

80.00

0.9960

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

12.9862

1.5108

7.2128

7.7691

1.3427

Spot

7.2750

5.8609

6.1892

Support 1

12.0500

1.4500

7.1615

7.7490

1.3400

Support 1

1.1650

5.3000

5.8000

Support 2

11.7200

1.3665

6.6950

7.7450

1.3000

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

1.2813

1.5532

84.34

1.0205

1.0436

0.9335

0.7337

107.47

130.77

0.8294

Resistance 1

1.2758

1.5483

84.11

1.0178

1.0385

0.9287

0.7298

107.02

130.12

0.8262

Pivot

1.2712

1.5430

83.81

1.0139

1.0343

0.9229

0.7250

106.49

129.35

0.8236

Support 1

1.2657

1.5381

83.58

1.0112

1.0292

0.9181

0.7211

106.04

128.70

0.8204

Support 2

1.2611

1.5328

83.28

1.0073

1.0250

0.9123

0.7163

105.51

127.93

0.8178

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

1.2860

1.5610

85.01

1.0270

1.0460

0.9366

0.7367

108.30

131.62

0.8313

Resistance 2

1.2821

1.5567

84.73

1.0240

1.0428

0.9334

0.7340

107.86

131.08

0.8292

Resistance 1

1.2782

1.5523

84.45

1.0210

1.0397

0.9302

0.7313

107.43

130.54

0.8272

Spot

1.2704

1.5435

83.89

1.0150

1.0333

0.9239

0.7260

106.56

129.47

0.8231

Support 1

1.2626

1.5347

83.33

1.0090

1.0269

0.9176

0.7207

105.69

128.40

0.8189

Support 2

1.2587

1.5303

83.05

1.0060

1.0238

0.9144

0.7180

105.26

127.86

0.8169

Support 3

1.2548

1.5260

82.77

1.0030

1.0206

0.9112

0.7153

104.82

127.32

0.8148

v

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

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com