• Dollar Halts its Modest Reversal as Risk Trends Balance, Fundamental Catalysts Evaporate
  • British Pound Sees a Sharp Jump in Volatility but Direction Absent following BoE Minutes
  • Euro Traders Comforted by Portuguese Bond Sale and Little Else
  • Japanese Yen Holds its Ground as Speculation of Export Buying Grows
  • New Zealand Dollar Climbs Despite Steady Depreciation in Interest Rate Expectations
  • Canadian Dollar Traders Await Leading Indicators Figure for Growth, CPI for Rate Expectations

Dollar Halts its Modest Reversal as Risk Trends Balance, Fundamental Catalysts Evaporate

The US dollar advanced for the first time this week; but the conviction behind the climb was as convincing as the reversal that opened the week. That is to say it was weak. In fact, if we were to assess the greenback’s progress over the past week (five active trading days); we see that the single currency has essentially carved a narrow range with no real inclination towards establishing trend. While this may be more difficult to qualify across the majors that are priced against the commodity currencies; the most liquid pairs very clearly show an anchor on price action. For reference, EURUSD and GBPUSD have moved a mere 200 points within this time frame; while USDJPY has restrained its activity level to 170 points for two weeks. This lack of drive is the product of both a deficit in notable fundamental drivers and the balancing of underlying investor sentiment. Doing little to bolster the greenback’s safe haven value, the events that were relevant to the media’s favorite cautionary tales would offer a mixed picture of market conditions. Dollar bids in reference to the threat of a European financial crisis cooled after Portugal (a troubled periphery EU member) reported strong demand for its sovereign debt sale. What’s more the intensity of concern surrounding a slowdown in global growth seemed to dissipate with the S&P 500 ending the day slightly in the green (alongside the rest of the North American Indexes).

For economic data, the docket was extraordinarily light; but the numbers that were released deserve a review as it furthers the medium-term outlook for the US and its peers to further spill economic speed. The housing market was the focus. According to the MBA statistics, mortgage applications through the week ending August 13th jumped a remarkable 13 percent. However, looking beyond the headline reading, we see that the loan activity was concentrated on refinancing rather than purchases. In fact, applications to refinance jumped the most since May of 2009 (17.1 percent) while those for purchases dropped 3.4 percent. This divergence is indicative of an economy plagued by an exceptionally high unemployment rate that has diminished American’s ability and desire to purchase a house despite the fact that 30-year rates are near lows that have not been seen in recent history. This is an interesting report to compare to the government’s recent report that US bankruptcies grew to a five-year high 1.57 million through the year ending June 30th. Altogether, consumer spending is receding, credit is drying up when it is needed the most and devalued assets (like homes) are being dumped on the market to further depress prices. With this building fundamental wave in mind, the masses will read any optimistic update from tomorrow’s Leading Indicators composite index with a skeptical eye.

While most traders’ fundamental attention span only endures a few days or perhaps weeks, it is important to keep the long-term view on the greenback. For that reason, we should make note of the PBoC’s reported 111 percent increase in South Korean bonds. While the $3.4 billion investment is miniscule compared to China’s US Treasury holdings; it is nonetheless evidence that one of the largest investors is diversifying.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD, USDJPY, GBPUSD

British Pound Sees a Sharp Jump in Volatility but Direction Absent following BoE Minutes

The British pound was one of the biggest movers Wednesday; but the activity level would not convert into a clear direction for the currency. On tap for the session were the minutes to the Bank of England’s last monetary policy decision. As expected the MPC (Monetary Policy Committee) voted 8-1 to keep the benchmark lending rate unchanged at 0.50 percent and the bond purchase program at 200 billion pounds. Once again, the sole dissenter was Andrew Sentance who had voted to hike the rate as he believed inflation expectations would become unhinged in the near future. Where is does the surprise element in this event come from? Speculation. In the lead up to the decision and these minutes, there was a growing buzz amongst market participants that the monetary authority would have to loosen the reins as austerity cut into growth. The absence of any suggestions to boost stimulus was seen as a bullish outcome; and subsequently help GBPUSD hold back from breaking its three-month rising channel. We will see what kind of pressure is exerted on the balance between growth and fiscal restraint in tomorrow’s session with the public finances numbers for July. If the debt load grows despite promises of spending cuts, sovereign rating issues will resurface.

Euro Traders Comforted by Portuguese Bond Sale and Little Else

The euro slipped against the dollar, pound, yen and Swiss franc Tuesday despite news that could have been construed as support to the regional economy. A Portuguese government bond auction was another potential hurdle to financial stability considerations; but the strong demand and improvement in yield (the price the government has to pay for loans) would seem to banish fear. That being said, we take note of the fact that the Greek-German 10-year yield spread hit a new three-month high. This region is still heading down the drain, just with less press.

Japanese Yen Holds its Ground as Speculation of Export Buying Grows

There are side effects to the market’s belief that Japanese government will not intervene on behalf of its currency around 15-year highs that run beyond the speculative community. If this safety net vanishes, exporters looking to convert profits to yen will look to buy the currency now rather than latter to prevent a further extension of the exchange rate from eating into return. Will this factor help clear the 85-mark?

New Zealand Dollar Climbs Despite Steady Depreciation in Interest Rate Expectations

Through Tuesday’s trading session, the New Zealand dollar deviated from the bearish path its Australian counterpart took. This was unusual considering interest rate expectations have steadily declined (now pricing in 58 bps of hikes over 12 months). To be reminded of this fact, upstream factory-level output inflation data cooled to a 1.1 percent pace to further curb the need to offset price pressures with rates.

Canadian Dollar Traders Await Leading Indicators Figure for Growth, CPI for Rate Expectations

Over the final 48 hours of this trading week, the Canadian dollar will face some of the most remarkable economic data scheduled. Tomorrow, the Leading Indicators composite will be used as a proxy for growth; but its impact on price action will probably lag Friday’s CPI numbers.

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ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

NZD

22:45

Producer Prices- Inputs (QoQ) (2Q)

1.3%

1Q input prices rose as prices paid by power companies rose 16%.

NZD

22:45

Producer Prices- Outputs (QoQ) (2Q)

1.8%

JPY

23:50

Japan Buying Foreign Bonds (Yen) (AUG 13)

1040.9B

Japanese investors were net buyers of foreign bonds during the week ended August 6, purchasing over $12 billion worth.

JPY

23:50

Japan Buying Foreign Stocks (Yen) (AUG 13)

-32.9B

JPY

23:50

Foreign Buying Japan Bonds (Yen) (AUG 13)

188.3B

JPY

23:50

Foreign Buying Japan Stocks (Yen) (AUG 13)

150.1B

AUD

1:30

RBA Foreign Exchange Transaction (A$) (JUL)

1229M

June reading was largest in a year.

AUD

1:30

Average Weekly Wages (QoQ) (MAY)

1.2%

1.1%

Average weekly wages rose by at least 1% QoQ in the last 7 quarters.

AUD

1:30

Average Weekly Wages (YoY) (MAY)

5.6%

5.8%

NZD

3:00

ANZ Consumer Confidence Index (AUG)

115.6

Declined in July for a second month.

JPY

4:30

All Industry Activity Index (MoM) (JUN)

-0.3%

0.2%

Increased in the last two months.

JPY

5:30

Tokyo Department Store Sales (YoY) (JUL)

-5.5%

Nationwide department store sales fell annually in the last 28 months.

JPY

5:30

Nationwide Department Store Sales (YoY) (JUL)

-6.0%

JPY

6:00

Machine Tool Orders (YoY) (JUL F)

144.8%

Rose annually in last 8 months.

EUR

6:00

German Producer Prices (MoM) (JUL)

0.1%

0.6%

German producer prices increased annually in each month of 2Q.

EUR

6:00

German Producer Prices (YoY) (JUL)

3.3%

1.7%

CHF

6:15

Trade Balance (Swiss franc) (JUL)

1.82B

1.77B

Swiss exports increased in the second quarter as foreign demand improved.

CHF

6:15

Exports (MoM) (JUL)

-6.4%

CHF

6:15

Imports (MoM) (JUL)

-9.9%

GBP

8:30

Major Banks Mortgage Approvals (JUL)

48K

Reading less than expected in June.

GBP

8:30

Retail Sales ex Auto Fuel (MoM) (JUL)

0.2%

1.0%

Retail sales excluding fuel rose over 3% in June, its fifth consecutive monthly increase.

GBP

8:30

Retail Sales ex Auto Fuel (YoY) (JUL)

1.8%

3.1%

GBP

8:30

Retail Sales inc Auto Fuel (MoM) (JUL)

0.3%

0.7%

GBP

8:30

Retail Sales inc Auto Fuel (YoY) (JUL)

0.6%

1.3%

GBP

8:30

Public Finances (PSNCR) (Pounds) (JUL)

0.9B

20.9B

Public finances rose in June to the highest level in three months.

GBP

8:30

Public Sector Net Borrowing (Pounds) (JUL)

4.8B

14.5B

GBP

8:30

M4 Money Supply (MoM) (JUL P)

0.3%

0.0%

M4 money supply was unchanged in June after declining 0.1% in May.

GBP

8:30

M4 Money Supply (YoY) (JUL P)

2.0%

3.0%

CHF

9:00

ZEW Survey (Expectations) (AUG)

2.2

Fell to 12-month low in July.

GBP

10:00

CBI Industrial Trends Total Orders (AUG)

-14

-16

Last positive reading was June ’08.

CAD

12:30

Leading Indicators (MoM) (JUL)

0.7%

1.0%

Gained for 13th month in June.

CAD

12:30

Wholesale Sales (MoM) (JUN)

0.4%

-0.1%

Sales declined in April and May.

USD

12:30

Initial Jobless Claims (AUG 14)

478K

484K

Jobless claims in the U.S. unexpectedly climbed last week.

USD

12:30

Continuing Claims (AUG 7)

4500K

4452K

USD

14:00

Philadelphia Fed. (AUG)

7.2

5.1

Sits at lowest level since Aug 2009.

USD

14:00

Leading Indicators (JUL)

0.1%

-0.2%

Declined in 2 of the past 3 months.

Currency

GMT

Upcoming Events & Speeches

USD

16:30

Fed’s James Bullard Speaks in Rogers, Arkansas

USD

17:00

Fed’s Charles Evans Speaks in Chicago, Illinois

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

1.2864

1.5606

85.42

1.0418

1.0280

0.8993

0.7151

109.88

133.28

0.8243

Support 1

1.2500

1.5125

85.00

1.0350

0.9950

0.8100

0.6850

106.90

125.00

0.8165

Support 2

1.2150

1.5000

80.00

1.0135

0.9700

0.7835

0.6585

103.80

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

12.6248

1.4987

7.2613

7.7696

1.3506

Spot

7.3349

5.7918

6.1550

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

1.2969

1.5787

85.93

1.0486

1.0369

0.9094

0.7239

110.69

134.46

0.8309

Resistance 1

1.2917

1.5696

85.68

1.0452

1.0324

0.9044

0.7195

110.28

133.87

0.8276

Pivot

1.2870

1.5598

85.43

1.0419

1.0298

0.9008

0.7149

109.94

133.16

0.8249

Support 1

1.2818

1.5507

85.18

1.0385

1.0253

0.8958

0.7105

109.53

132.57

0.8216

Support 2

1.2771

1.5409

84.93

1.0352

1.0227

0.8922

0.7059

109.19

131.86

0.8189

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

1.3026

1.5793

86.46

1.0539

1.0402

0.9123

0.7261

111.61

135.41

0.8326

Resistance 2

1.2985

1.5746

86.20

1.0509

1.0372

0.9090

0.7233

111.18

134.88

0.8306

Resistance 1

1.2945

1.5700

85.94

1.0479

1.0341

0.9058

0.7206

110.75

134.35

0.8285

Spot

1.2864

1.5606

85.42

1.0418

1.0280

0.8993

0.7151

109.88

133.28

0.8243

Support 1

1.2783

1.5512

84.90

1.0357

1.0219

0.8928

0.7096

109.01

132.21

0.8201

Support 2

1.2743

1.5466

84.64

1.0327

1.0188

0.8896

0.7069

108.58

131.68

0.8181

Support 3

1.2702

1.5419

84.38

1.0297

1.0158

0.8863

0.7041

108.15

131.15

0.8160

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