• Dollar Volatility Curbed by FOMC Meeting Minutes, Tempered Risk Appetite Trends
  • Euro Mixed as German Employment Data Overshadowed by Euro Zone Figures, Long-Term Doubts
  • British Pound Marks Sharp Declines against Most Counterparts Despite Relatively Stable Data
  • Australian Dollar Rallies after 2Q GDP Prints Strongest Growth in Three Years
  • New Zealand Dollar Temporarily Deviates from its Risk Appetite Track with a Financial Shudder
  • Swiss Franc: Is the SNB Readying for Intervention or Do Have they Realized its Futility?

Dollar Volatility Curbed by FOMC Meeting Minutes, Tempered Risk Appetite Trends

If we were going by the promise of event risk alone, we would have been led to believe that the US dollar was guaranteed volatility Tuesday. However, as we have seen time and again over the past few months, economic data and exogenous developments are only as effective in moving the market so far as they can stimulus interest in dominant fundamental drivers. Clearly, the underlying currents were little stirred for the currency market through the day because the greenback and many of its more risky compatriots ended the day little changed and encouraged modest volatility in between. Taking stock of the reserve currency itself, the Dollar Index technically ended the session slightly lower than where it opened; but the session fell within the range carved out by last week’s congestion. Naturally, EURUSD held above the mid-point of the June/July rally at 1.2625 and below a prominent range of highs approximately 150 points higher. Looking outside the mass of this liquid pair though, we do see interesting developments. On the bullish side of things, GBPUSD tumbled to a five-week low with the assistance of a sterling-based move. On the other side of that coin, USDCHF plunged lows not seen since January while USDJPY depreciated for a second consecutive day. What we should take away from these contrasting moves is that they were not consistent and thereby the product of outside influence.

Heading into the New York trading session Tuesday, expectations were high that there was enough fundamental clout in the collective schedule event risk on tap to either shift the outlook for the economy or catalyze investor sentiment (by sparking a transfer of capital into dollar-based assets in a state of panic or encouraging the wholesale dumping of the greenback as greed takes over). The most menacing event on the docket was without doubt the minutes from the FOMC’s rate decision on the 10th of the month. While policy makers had made a significant effort to acclimatize the markets to their bearish and dovish turns on their outlook and policy respectively; stating these in an official capacity brings with it a stark sense of reality. Gauging the investor sentiment implications of the event, the statement noted that the downside risks to recovery were larger and growth through the second half would be more modest than previously expected. This was more or less relayed by Bernanke in previous commentary. For the more recent debate over the dollar’s suitability as a safe haven, the focus was on the suggestion that the group was discussing further stimulus and that reinvestment in MBS was a viable option. Expansionary policy reflects concern over the stability of the economy and financial markets as well as devalues the currency through increasing currency supply. As for the other data on the day, the S&P/Case Shiller housing data is lagging and the Conference Board’s confidence survey improvement was offset by current conditions.

Considering the dollar was anchored through Tuesday’s trading session, should we expect a new trend to develop from Wednesday’s scheduled event risk? From an economic standpoint, the ISM manufacturing read represents one of the remaining (and faltering pillars of growth) and the ADP private payrolls figure is a good benchmark for NFPs. And yet, the best outcome from this mix is a catalyst for underlying risk appetite.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPUSD Marks Gains in Volatility while GBPCHF Stopped Out

Euro Mixed as German Employment Data Overshadowed by Euro Zone Figures, Long-Term Doubts

The dollar wasn’t the only currency that struggled for direction on the day. Without a clear bearing of investor confidence or fear, the market would avoid taking a definitive stance on one of the most fundamentally burdened economy in the world. To really get the euro moving, traders require a change in the stability of the region’s banking system and government fiscal picture. The data that was up for interpretation Tuesday would only indirectly feed these interests. Top event risk was the German unemployment figures for the month of August. The 17,000 net decrease in the number of jobless was slightly smaller than expected and the 14th consecutive decline. This could be considered evidence of this particular economy’s roaring strength; but the outlook for the ill-health of the European Union and global economies weighs optimism. At the same time, the Eurozone jobless rate held at a 12-year high and CPI estimate further stamped out interest rate expectations.

British Pound Marks Sharp Declines against Most Counterparts Despite Relatively Stable Data

The British pound was the second worst performing major Tuesday despite an unremarkable round of scheduled event risk. From the calendar, fundamental traders were taking in a better than expected reading from the BoE’s mortgage approvals report (48,720). The FSA noted in its own calculation though that year-over-year, home loans have dropped 23 percent and conditions were set against a significant improvement. Nonetheless, GBPUSD, EURGBP and GBPCHF would all post major breakouts. Tomorrow’s factory PMI data will not likely redirect the move.

Australian Dollar Rallies after 2Q GDP Prints Strongest Growth in Three Years

With the global economy slowing and China making a concerted effort to cool its lending-based expansion, the burden on Australia to maintain its fundamental lead is growing. And, despite the pressure, the currency came out ahead with the fastest pace of quarterly growth in 2Q (1.2 percent) in three years. This pace is unlikely to hold into the second half of the year; but for now it counters inflated risk premium.

New Zealand Dollar Temporarily Deviates from its Risk Appetite Track with a Financial Shudder

For all intents and purposes, the New Zealand dollar is not an ‘exciting’ currency. It usually follows where risk appetite trends or the Aussie dollar guides. That hasn’t been the case over the past 24 hours though. News that local bank South Canterbury Finance would fall into receivership (government owned) suggests this investment currency is not immune to financial turmoil going forward. In fact, it may lead the deterioration.

Swiss Franc: Is the SNB Readying for Intervention or Do Have they Realized its Futility?

Event risk has little sway over the Swiss franc. And, at this point, the normal day-to-day shifts in risk appetite don’t aren’t even the primary driver for the currency. Today, despite a lack of drive through most considerations of such a thing, the franc surged. The buying pressure developed first with EURCHF which plunged a new record low (with force). Now we wonder, will the SNB embark on another futile battle? Probably.

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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

AUD

23:30

AiG Performance of Manufacturing Index (AUG)

54.4

Above 50 represents expansion

AUD

1:30

Gross Domestic Product (QoQ) (2Q)

0.9%

0.5%

Australia GDP hasn’t growth more than 3% YoY since mid-2008

AUD

1:30

Gross Domestic Product (YoY) (2Q)

2.8%

2.7%

NZD

3:00

ANZ Commodity Price (AUG)

-0.8%

JPY

5:00

Vehicle Sales (YoY) (AUG)

15%

EUR

6:00

German Retail Sales (MoM) (JUL)

0.5%

-0.3%

Large surprises are typical in this release

EUR

6:00

German Retail Sales (YoY) (JUL)

1.2%

4.7%

AUD

6:30

RBA Commodity Index SDR (YoY) (AUG)

51%

AUD

6:30

RBA Commodity Price Index (AUG)

97.4

CHF

7:30

SVME-Purchasing Managers Index (AUG)

65.8

66.9

Underpins Franc’s strength

EUR

7:45

Italian PMI Manufacturing (AUG)

53.5

54.4

While a reading above 50 represents expansion, Eurozone manufacturing activity has been gradually slowing from its April peak near 57.5

EUR

7:50

French PMI Manufacturing (AUG F)

54.7

EUR

7:55

German PMI Manufacturing (AUG F)

58.2

58.2

EUR

8:00

Euro-Zone PMI Manufacturing (AUG F)

55

EUR

8:00

Italian Hourly Wages (MoM) (JUL)

0.1%

EUR

8:00

Italian Hourly Wages (YoY) (JUL)

2.5%

GBP

8:30

Purchasing Manager Index Manufacturing (AUG)

57

57.3

Steady near April’s peak near 58

USD

11:00

MBA Mortgage Applications (AUG 27)

4.9%

Refinancings boosting this number

USD

11:30

Challenger Job Cuts (YoY) (AUG)

-57.2%

USD

12:15

ADP Employment Change (AUG)

15K

42K

Early look at jobs ahead of Friday

USD

14:00

ISM Manufacturing (AUG)

52.7

55.5%

U.S. manufacturing is slowing sharply- much more than Europe

USD

14:00

ISM Prices Paid (AUG)

55.3

57.5

USD

14:00

Construction Spending (MoM) (JUL)

-0.5%

0.1%

Housing remains a huge drag

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

1.2680

1.5348

84.20

1.0151

1.0656

0.8906

0.6990

106.76

129.23

0.8261

Support 1

1.2500

1.5125

83.00

1.0130

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

13.2046

1.5265

7.3740

7.7784

1.3558

Spot

7.3844

5.8712

6.3025

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

1.2801

1.5531

85.07

1.0312

1.0732

0.9004

0.7121

108.49

131.94

0.8358

Resistance 1

1.2740

1.5440

84.64

1.0232

1.0694

0.8955

0.7055

107.63

130.58

0.8310

Pivot

1.2683

1.5383

84.23

1.0184

1.0635

0.8908

0.7011

106.90

129.63

0.8241

Support 1

1.2622

1.5292

83.80

1.0104

1.0597

0.8859

0.6945

106.04

128.27

0.8192

Support 2

1.2565

1.5235

83.39

1.0056

1.0538

0.8812

0.6901

105.31

127.32

0.8123

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

1.2849

1.5539

85.29

1.0283

1.0793

0.9039

0.7100

108.56

131.44

0.8348

Resistance 2

1.2807

1.5491

85.02

1.0250

1.0759

0.9006

0.7072

108.11

130.89

0.8326

Resistance 1

1.2764

1.5443

84.75

1.0217

1.0725

0.8973

0.7045

107.66

130.34

0.8304

Spot

1.2680

1.5348

84.20

1.0151

1.0656

0.8906

0.6990

106.76

129.23

0.8261

Support 1

1.2596

1.5253

83.65

1.0085

1.0587

0.8839

0.6935

105.86

128.12

0.8218

Support 2

1.2553

1.5205

83.38

1.0052

1.0553

0.8806

0.6908

105.41

127.57

0.8197

Support 3

1.2511

1.5157

83.11

1.0019

1.0519

0.8773

0.6880

104.96

127.02

0.8175

v

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

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