- Dollar Victim to the Restraint of Risk Trends as Dow Bounce Offsets Response to Negative Data
- British Pound Finds Support in Growth Outlook to Fortify Fiscal Austerity and Rates, Now for the BoE
- Euro Recovers Some of its Lost Ground as the Market Eases its Scrutiny of Long-Term Troubles
- Canadian Dollar Rallies as the BoC Keeps the Door Open for Further Rate Hikes, Factory Activity Accelerates
- Australian Dollar Enjoys a Controlled Rally after August Employment Levels Rise more Quickly than Expected
- Japanese Yen Little Moved by Finance Minister’s Use of the Dreaded “Intervention” Term
Dollar Victim to the Restraint of Risk Trends as Dow Bounce Offsets Response to Negative Data
No matter how hard the dollar tries, its fundamental path is currently bound to underlying investor sentiment. This isn’t a unique relationship by any means. In fact, cross market correlation is near its highest level in over a year – a product of structural developments that include increased globalization and access to capital markets. With this current underlying all speculative endeavors, we would see the greenback retrace a hearty portion of the previous day’s gains found on a market-wide risk aversion move. That being said, it is worth noting that despite the activity of the past 48 hours of speculative activity (we’ll overlook Monday as the extended US holiday dampened activity levels), neither the currency nor risk appetite have furthered a meaningful trend one way or the other. Broad technical congestion offers certain evidence of this aimless oscillation of volatility. Today’s fundamental developments can be labeled as corrective. Yesterday, the return of speculative interest from the extended US holiday weekend and summer doldrums brought with it a clear direction that found clarity in the uncertainty surrounding the instability of the Eurozone’s financial future. Today, the news from this troubled region was arguably more novel than the regurgitation of old stories that seemed to stoke fear in the previous session; but the market’s attention had already shifted. The euro-region is still a big uncertainty for global investors; but the next big shock to the system is still a ways off – longer than most traders’ attention span can cover.
Looking strictly at the US economic docket today, we actually saw scheduled event risk that has significant sway over the health of the dollar and can simultaneously influence underlying investor sentiment. The most influential indicator on the docket was the Fed’s Beige Book. This is the official assessment of economic trends established by the central bank’s staff; and it is referenced when the Board of Governors (the people actually voting on policy chances) when they make their decisions. The general consensus of the report was for a modest paced recovery; but this time, the report suggested there were “widespread signs of a deceleration” in the positive progress. Breaking it down, five regional banks reported “moderate” paced expansion, five said conditions were decelerating or mixed and two noted “net improvements.” What does this mean to your average speculator? This is merely confirmation of what the market has been pricing in for a number of weeks now: that the bought of post-recession, stimulus-fed recovery has reached its limits; and the global economy is now beginning to level off. The next, long-term concern is how the balance for supporting growth and necessity of fiscal sobriety will play out. This is still highly uncertain and therefore ripe for speculation. Interestingly enough, the other scheduled release for the day would add to the picture. Consumer credit through July reportedly dropped by $3.6 billion – the 17th time in 18 months that it has fallen. On the one hand, this is a concerning development because it suggests consumers are so dissuaded by job and income prospects that they are reining in their spending through credit lines. At the same time, this is encouraging because this highly overleveraged group is unwinding exposure. Politicians would lament this data, but economists are encouraged. Speculators, on the other hand, don’t see this as immediately shifting risk appetite; so they are uninterested.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPAUD and GBPCHF are More Attuned to Current Conditions
British Pound Finds Support in Growth Outlook to Fortify Fiscal Austerity and Rates, Now for the BoE
Though its performance was obscured somewhat by risk appetite trends, the British pound performed admirably through Wednesday’s active trading session. The most accessible piece of event risk on the day was the manufacturing activity report for July which reported a third consecutive monthly improvement and the fastest pace of annualized growth since 1994. This is an encouraging reading for an economy that is taking risky steps towards fiscal austerity and for those interest rate hawks that believe the central bank could hike while keeping other means for policy extraordinarily loose. As long as economic activity holds up, the government will find it easier to cut spending and improve their debt position and the MPC can act on inflation by raising the overnight rate. Therefore, the NIESR GDP estimate (a gauge used to forecast growth three months down the line) was equally encouraging with a 0.7 percent reading – though it slipped from its high from the previous month. Now we will see whether this data has any bearing on the BoE. Most likely, it won’t. However, speculators will be more reactive to hawkish musings.
Euro Recovers Some of its Lost Ground as the Market Eases its Scrutiny of Long-Term Troubles
The market’s interest in Europe’s troubles waned Wednesday; but fundamental developments were arguably more interesting than they were the previous day. For data, the German factory activity grew far less than expected and trade slowed less than expected. More interesting though was Ireland’s plans to split Anglo Irish into a good and bad bank and the significantly higher rates Portugal drew on its bond auctions.
Canadian Dollar Rallies as the BoC Keeps the Door Open for Further Rate Hikes, Factory Activity Accelerates
Considering the consensus for the Bank of Canada’s rate decision Wednesday was for a 25 bps hike to 1.00 percent; this event alone wouldn’t impress speculators. So, to ensure the Canadian dollar was throttled higher, the policy group gave the impression in its statement that it was leaving the door open to future rate hikes. To add to the bullish sentiment, the Ivey PMI business activity gauge hit a 26-month high.
Australian Dollar Enjoys a Controlled Rally after August Employment Levels Rise more Quickly than Expected
Though the RBA disappointed by offering few clues as to when the next rate hike would be, fundamental bulls would find some redemption in today’s August employment report. The 30,900 jobs added were more than expected; but the real interest was in the jobless rate matching its lowest level since January of 2009 and the biggest increase in full-time jobs since July of 2008. This will add just a little pressure to further hikes.
Japanese Yen Little Moved by Finance Minister’s Use of the Dreaded “Intervention” Term
The words have been spoken. Finance Minister Noda said in a statement that the government was ready to take “bold measures” to support the economy and curb the yen’s advance. And, this time, he said his suite of options “naturally” included “intervention.” At this point, speculators are no longer concerned about verbal warnings. They will only respond to action. And, even the response to actual FX manipulation could be tame.
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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 |
|
JPY |
23:50 |
BSI Large All Industry (QoQ) (3Q) |
4 |
Companies plan to raise plant and equipment spending by 9.7%. |
|
|
JPY |
23:50 |
BSI Large Manufacturing (QoQ) (3Q) |
10 |
||
|
CNY |
Chinese Trade Balance (USD) (AUG) |
$26.90B |
$28.73B |
July surplus was highest since ’08. |
|
|
AUD |
1:30 |
Employment Change (AUG) |
25.0K |
23.5K |
Australian employment growth slowed in July, driving down the nation’s currency and pushing the jobless rate from 5.1% to 5.3%. |
|
AUD |
1:30 |
Unemployment Rate (AUG) |
5.2% |
5.3% |
|
|
AUD |
1:30 |
Full Time Employment Change (AUG) |
-4.2K |
||
|
AUD |
1:30 |
Part Time Employment Change (AUG) |
27.7K |
||
|
AUD |
1:30 |
Participation Rate (AUG) |
65.5% |
65.5% |
|
|
JPY |
5:00 |
Consumer Confidence Households (AUG) |
43.6 |
43.3 |
Japan’s household sentiment rose for a sixth month in June. |
|
JPY |
5:00 |
Consumer Confidence (AUG) |
43.4 |
||
|
EUR |
5:30 |
French Non-Farm Payrolls (QoQ) (2Q F) |
0.2% |
0.2% |
Increased 0.2% in Q1 and Q2. |
|
EUR |
6:00 |
German Consumer Price Index (MoM) (AUG F) |
0.0% |
0.0% |
German inflation slowed more than economists forecast in August as gas prices declined. |
|
EUR |
6:00 |
German Consumer Price Index (YoY) (AUG F) |
1.0% |
1.0% |
|
|
EUR |
6:00 |
German CPI – EU Harmonised (MoM) (AUG F) |
0.0% |
0.0% |
|
|
EUR |
6:00 |
German CPI – EU Harmonised (YoY) (AUG F) |
0.9% |
0.9% |
|
|
GBP |
8:30 |
Visible Trade Balance (Pounds) (JUL) |
-7.500B |
-7.401B |
U.K. trade deficit narrowed more than forecast in June as exports rose to a two-year high. |
|
GBP |
8:30 |
Trade Balance Non EU (Pounds) (JUL) |
-4.300B |
-4.262B |
|
|
GBP |
8:30 |
Total Trade Balance (Pounds) (JUL) |
-3.300B |
-3.260B |
|
|
GBP |
11:00 |
Bank of England Interest Rate Decision |
0.50% |
0.50% |
Overnight index swaps imply a 4% change of rate hike at this meeting. |
|
GBP |
11:00 |
Bank of England Asset Purchase Target |
200B |
200B |
|
|
12:15 |
Housing Starts (AUG) |
185.0K |
189.1K |
Housing starts likely fell in August to lowest level since December. |
|
|
CAD |
12:30 |
New Housing Price Index (MoM) (JUL) |
0.1% |
0.1% |
|
|
CAD |
12:30 |
International Merchandise Trade (C$) (JUL) |
-0.8B |
-1.1B |
Trade deficit widened in June. |
|
USD |
12:30 |
Trade Balance (JUL) |
-$47.0B |
-$49.9B |
July deficit was highest since 2008. |
|
USD |
12:30 |
Initial Jobless Claims (SEP 4) |
470K |
472K |
Initial jobless claims fell last week to lowest level in 5 weeks. |
|
USD |
12:30 |
Continuing Claims (AUG 28) |
4450K |
4456K |
|
|
USD |
15:00 |
DOE U.S. Crude Oil Inventories (SEP 3) |
950K |
3425K |
Crude oil inputs averaged 14.8 million barrels per day during the week ending August 27. |
|
USD |
15:00 |
DOE U.S. Gasoline Inventories(SEP 3) |
-1000K |
-212K |
|
|
USD |
15:00 |
DOE U.S. Distillate Inventory(SEP 3) |
700K |
-739K |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
EUR |
8:00 |
European Central Bank Monthly Report |
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 |
1.2730 |
1.5482 |
83.97 |
1.0114 |
1.0363 |
0.9189 |
0.7237 |
106.89 |
130.00 |
0.8222 |
|
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 |
13.0075 |
1.5153 |
7.2204 |
7.7690 |
1.3429 |
Spot |
7.2717 |
5.8482 |
6.1881 |
|
Support 1 |
12.0500 |
1.4500 |
7.1615 |
7.7490 |
1.3440 |
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 |
1.2823 |
1.5641 |
84.48 |
1.0184 |
1.0569 |
0.9256 |
0.7292 |
107.92 |
131.73 |
0.8303 |
|
Resistance 1 |
1.2776 |
1.5562 |
84.22 |
1.0149 |
1.0466 |
0.9223 |
0.7265 |
107.41 |
130.86 |
0.8262 |
|
Pivot |
1.2718 |
1.5453 |
83.79 |
1.0105 |
1.0406 |
0.9160 |
0.7212 |
106.60 |
129.47 |
0.8232 |
|
Support 1 |
1.2671 |
1.5374 |
83.53 |
1.0070 |
1.0303 |
0.9127 |
0.7185 |
106.09 |
128.60 |
0.8192 |
|
Support 2 |
1.2613 |
1.5265 |
83.10 |
1.0026 |
1.0243 |
0.9064 |
0.7132 |
105.28 |
127.21 |
0.8162 |
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 |
1.2890 |
1.5661 |
85.12 |
1.0238 |
1.0493 |
0.9317 |
0.7344 |
108.66 |
132.19 |
0.8306 |
|
Resistance 2 |
1.2850 |
1.5616 |
84.83 |
1.0207 |
1.0460 |
0.9285 |
0.7317 |
108.22 |
131.64 |
0.8285 |
|
Resistance 1 |
1.2810 |
1.5571 |
84.54 |
1.0176 |
1.0428 |
0.9253 |
0.7291 |
107.78 |
131.09 |
0.8264 |
|
Spot |
1.2730 |
1.5482 |
83.97 |
1.0114 |
1.0363 |
0.9189 |
0.7237 |
106.89 |
130.00 |
0.8222 |
|
Support 1 |
1.2650 |
1.5393 |
83.40 |
1.0052 |
1.0298 |
0.9125 |
0.7183 |
106.00 |
128.91 |
0.8180 |
|
Support 2 |
1.2610 |
1.5348 |
83.11 |
1.0021 |
1.0266 |
0.9093 |
0.7157 |
105.56 |
128.36 |
0.8159 |
|
Support 3 |
1.2570 |
1.5303 |
82.82 |
0.9990 |
1.0233 |
0.9061 |
0.7130 |
105.12 |
127.81 |
0.8138 |
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
