Dollar Closes its First Five-Day Advance Since April with Risk Aversion, Consumer Data Offering Support

Dollar Closes its First Five-Day Advance Since April with Risk Aversion, Consumer Data Offering Support
Euro Traders Skeptical of Record German Growth, Concerned over Region’s Financial Stability
British Pound Stalls at Key Support as the Market Assess Economic, Fiscal and Interest Rate Potential
Japanese Yen May Forge Real Bear Reversal as the Call for Intervention Grows
Australian Dollar Will Look to the RBA’s Minutes for Interest Rate Expectations as Risk Appetite Slips
Swiss Franc Climbs against the Euro Once Again, Will the SNB Attempt Another Intervention Run?

In contrast to Wednesday’s remarkable rally on otherwise weak economic offerings, the dollar carved a modest range Friday despite a round of top-tier event risk. Nonetheless, the greenback would put in for its fifth consecutive advance for its best run since late April. The consistency in this rally can be partially attributed to the technical implications of a reversal that has broken a nine successive weeks of selling that more than halved the progress over the seven months through June. Taking a few steps back, we can put this most recent action into perspective. While the current upswing for the greenback can be labeled corrective until more progress is made; the drive that pushed the currency to its lows was itself a correction. Where does that leave us from a fundamental perspective? The market is still looking for a definitive direction to establish a trend that can develop through much of a business or economic cycle. To establish such a meaningful move will require a definitive evolution of investor sentiment, economic, or capital flow trends.

What chance did the dollar have a volatility heading into the end of this past week? Aside from the usual hindrance with liquidity draining into Friday’s close, underlying speculative interests were sidetracked by predisposed fundamental concerns. Heading into a significant round of scheduled event risk, global investors have shown that they are more sensitive to disappointing developments; and dollar traders are preoccupied with risk appetite trends than anything else. Naturally, the seemingly positive European GDP numbers (we will discuss the reason for doubt in the euro section below) would attempt to go against the flow. This would further curb momentum in the risk aversion move that was so prevalent on Wednesday. The US data that was up for review would have the disadvantage of printing mixed results and meeting an indifferent crowd. An annual pace of 1.2 percent growth in consumer prices would is well below the normal central bank target of 2.0 percent and was no contradiction to the Fed’s decision to put a floor under its unusual stimulus measures this past week. Both the University of Michigan consumer confidence survey and retail sales figures could have claimed a bigger impact as proxies for overall growth. However, retail sales would print close to the forecast with a 0.4 percent increase that was further undermined by the performance breakdown (gas station sales rose 2.3 percent and autos sales rose 1.6 percent; but most of the other discretionary spending numbers contracted on the month). The sentiment report was lacking for details; so its modest advance from an eight-month low would do little to definitively support the economic outlook. And, in the end, the United States’ relative economic health isn’t the primary fundamental driver for the dollar – risk appetite trends are.

The immediate currency heading into next week for the dollar is whether it can maintain its trajectory and pace. We know that interest rate and growth considerations take a back seat to investor sentiment trends; but confidence can be catalyzed or destroyed by meaningful fundamental events. As it stands, there are few notable indicators or exogenous incidents that promise guidance from the US or globally. A pause now would not be favorable for the greenback; because it is still in the early development of its nascent upswing. Dollar traders will have to keep a close eye on the financial headlines and correlations across capital markets. An unexpected report released to an edgy market could get things moving.

Euro Traders Skeptical of Record German Growth, Concerned over Region’s Financial Stability

Fundamental traders that believe a currency should react to a simple ‘better-than-expected’ economic reading by rallying were in for a surprise Friday. The docket was lined with major indicators that have a pivotal bearing on most of the fundamental pillars that define the euro’s future. Top headlines were the preliminary readings of the German and Eurozone GDP figures. The former would be the most remarkable as Europe’s largest economy reported 2.2 percent growth in the three-month period to June – the biggest increase on record. Considering the regional figure is an amalgamation of its many members (of which Germany is a considerable portion of the whole), the 1.0 percent quarterly increase would not come as too great a shock. This is certainly a remarkable outcome; but the first inklings of skepticism come from the knowledge that this is a rebound from the worst recession in modern history. Furthermore, Spain is still contracting, Portugal put in for anemic growth and Greece is in an accelerating plunge. And ultimately, the second half forecast on growth has already been lowered. Financial health is the primary concern.

British Pound Stalls at Key Support as the Market Assess Economic, Fiscal and Interest Rate Potential

Amongst the majors, there are those pairs that are already steeped in trend and then there are those that have yet to establish a clear direction. It may seem that GBPUSD falls into the former category; but in fact the pair has to this point reverted to floor of a two-and-a-half month channel floor. Next week, the CPI data will add to interest rate speculation, public debt numbers to fiscal and housing numbers to growth predictions.

Japanese Yen May Forge Real Bear Reversal as the Call for Intervention Grows

It is remarkable that the Bank of Japan and the Cabinet Office did not make more of an effort to verbalize their concerns over the appreciation of their currency to a 15-year high against the US dollar. Does this reflect a slackened concern with the exchange rate and its effects on economic health? That could be a dangerous reality given the fiscal and economic troubles. But which is the greater evil: negligence or manipulation?

Australian Dollar Will Look to the RBA’s Minutes for Interest Rate Expectations as Risk Appetite Slips

As a high-yield currency that has lost much of the capital appreciation potential in further rate hikes, the Aussie dollar will have an even greater correlation with risk appetite trends over the coming week. Yet, unless investor sentiment actually picks up next week, this tighter correlation may come to little. Fundamental traders should take note of the RBA minutes to garner any timetable on future monetary policy.

Swiss Franc Climbs against the Euro Once Again, Will the SNB Attempt Another Intervention Run?

The SNB released its equivalent of a half-year profit report. The 2.78 billion francs in losses over the period seems astounding; but it was smaller than their initial 4 billion franc forecast; and we have to remember the group is not a for-profit entity. What this data does lead us to is whether or not the central bank will once again attempt to intervene in its currency’s appreciation with EURCHF tumbling and risk aversion rising.

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

Dollar_Closes_its_First_Five_Day_Advance_Since_April_body_Picture_3.png, Dollar Closes its First Five-Day Advance Since April with Risk Aversion, Consumer Data Offering Support