• Dollar: Will a Sharp Downgrade in GDP following Housing, Durables Orders Data Help or Hinder the Greenback?
  • Euro’s Fundamental Health Continues to Deteriorate but Exchange Rates Hold up Through Anchored Risk
  • Japanese Yen: USDJPY Holds Near 85 as Speculators Show Their Hesitancy in Exploring New Lows
  • British Pound Finding Itself Under Greater Pressure Rather Than Hailed for Pursuing Austerity
  • Australian Dollar Faces Greater Uncertainties for Growth, Interest Rates
  • Swiss Franc Forges Another Record Low against the Euro as it Fosters a Unique Safe Haven Status

Dollar: Will a Sharp Downgrade in GDP following Housing, Durables Orders Data Help or Hinder the Greenback?

It was bound to happen eventually. After five consecutive days of advancement, the US dollar finally put in for a bearish close on Wednesday. That being said, the resultant correction was relatively modest. In fact, if we look at the stripped down representation of the greenback, we see that not only was the daily change modest; but the entire days range would fall within the breadth of Tuesday’s session. This suggests that volatility was as lacking as direction. This is an important dynamic to take note of because it means today’s performance is just as likely a stalled advance as it is the early signs of a more encompassing reversal. The same hesitance to reversing dollar exposure itself can be ascertained in the technical bearings for many of the majors. Perhaps the prime example, EURUSD has edged back up to, and subsequently held up to, the former support level seen in 1.27. In similar fashion, GBPUSD and AUDUSD have come upon their ceilings derived from former floors on price action. Determining whether the greenback’s rally will regain traction or ultimately collapse is a matter of establishing the fundamental backdrop for the currency. As a safe haven, the reliance on investor sentiment is key; but there are complicating factors to this equation.

Shaping today’s fundamental bearings, the most prominent factor for price action was investor sentiment. While US equities and other growth-sensitive asset classes would spend the first half of the day and US trading session in the red; they would eventually recover lost ground and drift modestly in positive territory. The scheduled event risk that has crossed the wires over the past 48 hours played a big role in this development. On Tuesday, fear and wholesale risk unwinding was sparked by the surprise quotient of the record-breaking drop in US existing home sales. This binding driver would encourage correlation and put investors on high alert. At the same time, it had the side effect of desensitizing market participants to big changes in data and set a temporary standard for how influential such an indicator could be. This is why the collective disappointment in new home sales and durable goods orders released today would have a relatively restrained impact on price action. New home sales dropped a greater-than-expected 12.4 percent to a record low 276,000 annual pace of turnover. However, considering new construction is far more sensitive to inventory and consumer demand, this outcome is not so shocking set against the existing reports staggering decline. Far more discouraging in assessing the health of the US economy was the unexpectedly weak durable goods orders reports. The core orders figures dropped 3.8 percent and investment proxy 8 percent to weaken one of the last pillars for expansion the US has.

Though already important, growth has become increasingly important as a gauge for the dollar’s performance. Interest in Friday’s upcoming 2Q GDP revision is increasing as speculation over the significance of the reduction increases. Normally, we would say that the underperformance of the world’s largest economy would define risk trends and consequently bolster the safe haven dollar. However, speculation that the US economy could collapse before its counterparts or spark a localized financial crisis may break this link. We’ll discuss this in more depth tomorrow.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD, GBPUSD Short Interest Stalls, USDJPY Top Potential

Euro’s Fundamental Health Continues to Deteriorate but Exchange Rates Hold up Through Anchored Risk

Euro bulls can’t often say they are thankful for the currency’s connection to underlying sentiment trends (as it has found itself on the short-side of this relationship recently); but today, a preoccupation with stable risk trends would help the shared currency weather questionable developments. The top event risk through the morning – the German IFO business sentiment survey – would actually print better than expected. However, skepticism can easily show through the three-year high of the indicator as the rest of Europe shows signs of economic and financial deterioration. More interesting to those that follow the bigger economic currents in the European economy was the disappointing showing at the Portuguese government bond auction. The average yield pulled in the six and 10-year sale was higher than comparable issues. Following Ireland’s sovereign credit downgrade; it is somewhat surprising that greater attention is not being paid to regional financial troubles once again.

Japanese Yen: USDJPY Holds Near 85 as Speculators Show Their Hesitancy in Exploring New Lows

The Japanese yen marked a critical, bullish break against the US dollar and euro amongst other pairs; so it is unusual that the currency wouldn’t be able to extend its gains Wednesday. A simple explanation would be that a tepid rebound in the appetite for yield would buoy the yen crosses; but the real explanation may run deeper than that. At recent historical highs, the yen requires greater and greater levels of conviction to advance further. If this assurance falters at these heights, the resultant collapse can be speculatively catastrophic. Now we want another risk run.

British Pound Finding Itself Under Greater Pressure Rather Than Hailed for Pursuing Austerity

Just a month ago, the British pound was rallying in large part due to the United Kingdom’s effort to avoid the international stigma of a bloating budget deficit by adopting significant austerity measures. Today, the same factor that had encouraged the sterling now weighs it down. The risk of a downgrade seems a lot further away than a fiscal shock or perhaps even a return to recession. We must remember this going forward.

Australian Dollar Faces Greater Uncertainties for Growth, Interest Rates

The Australian dollar was already hurting for its discouraging outlook for growth and interest rate potential; but today’s fundamental developments only furthers solidifies the concern. The June leading index from the Conference Board printed a weaker-than-expected pick up and the 2Q private capital expenditure report would tumble 4 percent. We are starting to see expectations of a rate cut within 12 months.

Swiss Franc Forges Another Record Low against the Euro as it Fosters a Unique Safe Haven Status

While it is easy to look back to history and justify the Swiss franc’s role as a safe haven; the currency has lost a lot of this appeal as the banking system has become far more transparent and the nation’s financial proximity to Europe is worrisome. That being said, the lack of boundaries between the European and Swiss markets makes it is a perfect funnel for capital looking for safety from a Greek or Irish contagion.

For Real Time Forex News, visit:http://www.dailyfx.com/real_time_news/

**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

Japan Buying Foreign Bonds (Yen) (AUG 20)

2177.7B

Japanese investors were net buyers of foreign bonds during the week ended August 13, including net 2.2 trillion yen of overseas debt.

JPY

23:50

Japan Buying Foreign Stocks (Yen) (AUG 20)

8.0B

JPY

23:50

Foreign Buying Japan Stocks (Yen) (AUG 20)

-40.3B

JPY

23:50

Foreign Buying Japan Bonds (Yen) (AUG 20)

219.1B

AUD

0:00

Conference Board Leading Index (JUN)

0.3%

Rose in June as exports climbed.

AUD

1:30

Private Capital Expenditure (2Q)

2.3%

-0.2%

Unexpectedly declined in 2Q.

EUR

6:00

German GfK Consumer Confidence Survey (SEP)

4.0

3.9

Likely rose for third month in Sept.

CHF

7:15

Employment Level (2Q)

3.975M

3.961M

Swiss employment level likely rose for a second quarter in 2Q.

CHF

7:15

Employment Level (YoY) (2Q)

0.8%

0.1%

EUR

7:30

Italian Consumer Confidence Index s.a. (AUG)

105.3

105.6

Sits at highest level since April.

EUR

8:00

Euro-Zone M3 s.a. (3M) (JUL)

0.1%

0.0%

M3 money supply increased in June for the first time in eight months.

EUR

8:00

Euro-Zone M3 s.a. (YoY) (JUL)

0.3%

0.2%

GBP

10:00

CBI Distributive Trades Survey (AUG)

18

33

July rise was the most in 3 years.

USD

12:30

Initial Jobless Claims (AUG 21)

490K

500K

Jobless claims hit 500K last week for the first time since November.

USD

12:30

Continuing Claims (AUG 14)

4495K

4478K

USD

13:00

RPX Composite 28 Day Index (JUN 30)

195.86

Held positive in May for a third consecutive month.

USD

13:00

RPX Composite 28 Day (YoY) (JUN)

2.14%

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

1.0900

1.0922

0.9850

0.7635

127.60

146.05

0.8725

Resistance 1

1.3500

1.5965

89.00

1.0700

1.0750

0.9335

0.7440

120.00

140.00

0.8600

Spot

1.2656

1.5449

84.79

1.0307

1.0602

0.8835

0.6993

107.31

130.99

0.8192

Support 1

1.2500

1.5125

83.00

1.0300

0.9950

0.8100

0.6850

103.80

125.00

0.8065

Support 2

1.2150

1.5000

80.00

1.0135

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

12.9960

1.5273

7.3338

7.7773

1.3582

Spot

7.4514

5.8839

6.3114

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

1.2782

1.5517

85.45

1.0388

1.0708

0.8958

0.7118

108.68

132.28

0.8259

Resistance 1

1.2719

1.5483

85.12

1.0348

1.0655

0.8896

0.7055

107.99

131.64

0.8226

Pivot

1.2664

1.5436

84.51

1.0298

1.0615

0.8834

0.7002

106.96

130.40

0.8202

Support 1

1.2601

1.5402

84.18

1.0258

1.0562

0.8772

0.6939

106.27

129.76

0.8169

Support 2

1.2546

1.5355

83.57

1.0208

1.0522

0.8710

0.6886

105.24

128.52

0.8145

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

1.2827

1.5640

85.87

1.0440

1.0738

0.8970

0.7104

109.11

133.24

0.8279

Resistance 2

1.2785

1.5592

85.60

1.0407

1.0704

0.8936

0.7076

108.66

132.67

0.8257

Resistance 1

1.2742

1.5544

85.33

1.0374

1.0670

0.8902

0.7049

108.21

132.11

0.8235

Spot

1.2656

1.5449

84.79

1.0307

1.0602

0.8835

0.6993

107.31

130.99

0.8192

Support 1

1.2570

1.5354

84.25

1.0240

1.0534

0.8768

0.6937

106.41

129.87

0.8149

Support 2

1.2527

1.5306

83.98

1.0207

1.0500

0.8734

0.6910

105.96

129.31

0.8127

Support 3

1.2485

1.5258

83.71

1.0174

1.0466

0.8700

0.6882

105.51

128.74

0.8106

v

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

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