- Dollar Sees Extreme Volatility as Risk Trends Warp
- Swiss Franc: Where to Now after the SNB’s Puts in its Floor
- Euro Shows a Mixed Day Against All But the Franc
- Australian Dollar Rallies after RBA’s Stevens Talks Stability, GDP Impresses
- British Pound Ties to Europe Pull Sterling Lower, Monetary Policy to Follow?
- Japanese Yen: Will Officials Attempt to Copy the SNB?
- Gold Sees a Safe Haven Competitor Drop Out yet the Metal Falls…
Dollar Sees Extreme Volatility as Risk Trends Warp
Was risk appetite stronger or weaker through this past session? This is just as difficult a question to answer from a technical perspective as it is a fundamental question. For the US dollar, we know the benchmark currency must rely on its position as a liquidity provider (an extreme version of risk aversion) to really gain the market’s attention. For those whose idea of fundamental is to simply look at the economic docket, Wednesday’s developments were relatively encouraging. On the economic docket, there was the unexpected improvement in the ISM’s service sector report for August which rose to a 53.3 reading. Given this particular sector accounts for approximately three-quarters of the country’s output and the S&P 500 began a session-long advance starting shortly after the data’s release, it could be considered a straight forward sentiment booster. That wouldn’t be necessarily wrong; but it is very short-sighted and prevents us from seeing the trend beyond Wednesday.
The trouble with investor / consumer / policymaker sentiment runs deeper than one reading on one sector of the US economy can account for. In fact, there is little dispute over the direction for the US economy through the medium-term future; so the suggestion that this particular indicator (edging up from its lowest reading since February 2010) can change the global outlook is well-beyond reason. Looking at the Dow Jones FXCM Dollar Index (ticker = USDollar), we see a more realistic reflection on sentiment. The extreme safe haven currency rallied through the close and it maintained its advance despite the climb from equities and the positive data.
Ultimately, sentiment remains negative. The prospects for the global economy and financial markets are dim. However, the measures for risk appetite / risk aversion have been sent a shock. We have seen the role of safe haven and high yielding assets wax and wane over the past few months; and Tuesday’s top headline marked another significant change in the safe haven spectrum. News that the SNB was pulling out all the stops on its currency (more on that below) dropped it out of the safe haven race. As a result, the US dollar has less competition in the safety arena. The greenback is improving its standing not by its own doing but by defacto via a lack of alternatives. That said, we need to keep on top of the spread of the ‘European’ financial troubles and balance it against the possibility of QE3 – a constant headwind for the dollar.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: Will the SNB Turn EURCHF and Will Risk Trend Push EURUSD Through 1.40?
Swiss Franc: Where to Now after the SNB’s Puts in its Floor
The SNB caught me off guard with its announcement that it would target a floor of 1.20 on EURCHF. Given the significant cost such a move would engender, it seemed likely that the central bank would hold off and see whether sentiment conditions and the situation in Europe would improve enough to negate the need for action on Switzerland’s part. However, President Hildebrand and company telegraphed their expectations and moved preemptively. It is important to recognize that this is not technically a peg as it set’s a floor on the pair; but it doesn’t include inhibitors for appreciation (officials would prefer EURCHF rally). Yet, will the franc collapse after this move? Not necessarily. This certainly kills any speculative effort to drive this particular pair lower; and it arguably curbs its role as a safe haven in the broader FX sense (manipulation and volatility do that to a currency). On the other hand, a floor of 1.20 doesn’t dissuade a natural transfer of capital looking simply for harbor from the Euro Zone’s troubles. If the financial health of the Euro-area continues to fall apart, the franc is still an attractive alternative. To truly undermine the appeal of the franc, policy officials need to reduce Switzerland’s appeal as a sound banking economy.
Euro Shows a Mixed Day Against All But the Franc
Aside from EURCHF (which dropped a remarkable 8 percent); the euro posted a mixed session through Wednesday. A block to speculative capital flows out of the Euro-area into Switzerland is a significant plug for this beleaguered currency; but it doesn’t really bolster its own appeal or even its relative value. Looking at Greek 2-year government yields, they hit a fresh record high 52.3 percent as German Chancellor Merkel said the country wouldn’t receive its September tranche if it didn’t meet targets. Further, ECB deposit holdings reportedly surged to 166 billion euros.
Australian Dollar Rallies after RBA’s Stevens Talks Stability, GDP Impresses
The interest rate outlook for the RBA is still hovering around 116 bps worth of cuts over the next 12 months; but that forecast is looking increasingly overblown. In the past 24 hours we have seen the central bank hold its benchmark rate, Governor Stevens has said it was good to keep policy stable in volatile times and the 2Q GDP figures unexpectedly rise. Does this sound like evidence of 75 bps of cuts by December?
British Pound Ties to Europe Pull Sterling Lower, Monetary Policy to Follow?
Following the same track as EURUSD, GBPUSD gave up an early rally Wednesday to stumble into a 200-point plus decline through the close. The connections between the Euro-group and the UK economies means financial troubles will easily spill over to the geographically proximate country. However, these same tangible effects will encourage the BoE to contemplate policy easing against its own austere backdrop.
Japanese Yen: Will Officials Attempt to Copy the SNB?
Will the Bank of Japan copy the SNB and adopt a peg. This is a reasonable question after a major central bank took an incredible monetary policy step. However, after Finance Minister Azumi suggested a call to the G7 to voice a common belief that excess yen gains were bad for the economy, the first steps seem clear. For the second largest economy to adopt a peg, the term ‘currency wars’ will certainly be used.
Gold Sees a Safe Haven Competitor Drop Out yet the Metal Falls…
The US dollar is only attractive when liquidity is absolutely needed, the Japanese yen is a funding currency and now the Swiss franc is being heavily manipulated. Alternatives to gold’s safe haven status are beyond flimsy. And yet, with the SNB news this past session, gold still retreated. We need to remember that the metal isn’t an accepted form of payment and it is a very expensive investment…
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
0:00 |
NZD |
QV House Prices (YoY) (AUG) |
-0.4% |
Falling house prices may dampen rates |
|
|
1:30 |
AUD |
Gross Domestic Product (QoQ) (Q2) |
1.0% |
-1.2% |
Australian productivity may grow slower on a longer term basis as rates constrict investment spending |
|
1:30 |
AUD |
Gross Domestic Product (YoY) (Q2) |
0.6% |
1.0% |
|
|
5:00 |
JPY |
Coincident Index (JUL P) |
108.8 |
108.8 |
Japanese economy gauges could improve on domestic demand |
|
5:00 |
JPY |
Leading Index (JUL P) |
105.9 |
103.2 |
|
|
6:30 |
AUD |
Foreign Reserves (Australian dollar) (AUG) |
A$40.7B |
Slowly decreasing on outflow |
|
|
8:30 |
GBP |
Industrial Production (MoM) (JUL) |
0.2% |
0.0% |
British industries expected to continue weakening on lower demand, slower recovery |
|
8:30 |
GBP |
Industrial Production (YoY) (JUL) |
-0.4% |
-0.3% |
|
|
8:30 |
GBP |
Manufacturing Production (MoM) (JUL) |
0.0% |
-0.4% |
|
|
8:30 |
GBP |
Manufacturing Production (YoY) (JUL) |
1.9% |
2.1% |
|
|
10:00 |
EUR |
German Industrial Production n.s.a. (YoY) (JUL) |
6.7% |
6.7% |
Germany industrial data points to a mild recovery, though overall economy still weak |
|
10:00 |
EUR |
German Industrial Production s.a. (MoM) (JUL) |
0.5% |
-1.1% |
|
|
11:00 |
USD |
MBA Mortgage Applications (SEP 2) |
-9.6% |
More could point to housing recovery |
|
|
13:00 |
Bank of Canada Rate Decision |
1.0% |
1.0% |
The Bank is expected to hold onto its rates despite rising inflation pressures on weaker domestic economy; commentary will guide price action |
|
|
14:00 |
CAD |
Ivey Purchasing Managers Index (AUG) |
52.2 |
45.4 |
Higher expected price indexes suggesting inflation concerns |
|
14:00 |
CAD |
Ivey Purchasing Managers Index s.a. (AUG) |
52.3 |
46.8 |
|
|
14:00 |
USD |
JOLTs Job Openings (JUL) |
3109 |
Labor market data could drop again |
|
|
22:45 |
NZD |
Value of All Buildings s.a. (Q2) |
-6.3 |
May suggest slowing construction sector |
|
|
22:45 |
NZD |
Manufacturing Activity (Q2) |
2.9% |
NZ manufacturing expected to weaken due to lower domestic and overseas demand |
|
|
22:45 |
NZD |
Manufacturing Activity Volume s.a. (QoQ) (Q2) |
1.9% |
||
|
23:50 |
JPY |
Bank Lending Banks ex-Trust (AUG) |
-0.6% |
Slower bank lending could point to a slower recovery |
|
|
23:50 |
JPY |
Bank Lending incl Trusts (YoY) (AUG) |
-0.5% |
||
|
23:50 |
JPY |
Current Account Total (Yen) (JUL) |
1175.8B |
526.9B |
Japanese trade balance showing improvement again, pointing to possibly continued foreign demand despite record yen |
|
23:50 |
JPY |
Adjusted Current Account Total (Yen) (JUL) |
990.8B |
922.8B |
|
|
23:50 |
JPY |
Current Account Balance (YoY) (JUL) |
-32.5% |
-50.2% |
|
|
23:50 |
JPY |
Trade Balance – BOP Basis (Yen) (JUL) |
149.1B |
131.5B |
|
|
23:50 |
JPY |
Machine Orders (MoM) (JUL) |
-4.2% |
7.7% |
Domestic machine orders showing some slowdown |
|
23:50 |
JPY |
Machine Orders (YoY) (JUL) |
8.3% |
17.9% |
|
|
GBP |
New Car Registrations (YoY) (AUG) |
-3.5% |
Major purchases could slow |
||
|
JPY |
Bank of Japan Rate Decision |
0.1% |
0.1% |
Commentary will drive action, though PM Noda’s selection could influence central bank to ease lending, help recovery |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
15:15 |
USD |
Fed’s Evans Speaks in London |
|
18:00 |
USD |
Fed Releases Beige Book Economic Survey |
|
20:00 |
USD |
Fed’s Williams Speaks to Seattle Rotary Club |
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 |
|
Resist 2 |
1.5160 |
1.6745 |
86.00 |
0.9050 |
1.0275 |
1.0750 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6600 |
81.50 |
0.8840 |
1.0000 |
1.0800 |
0.8750 |
113.50 |
140.00 |
|
Spot |
1.3982 |
1.5936 |
77.67 |
0.8619 |
0.9916 |
1.0488 |
0.8207 |
108.60 |
123.78 |
|
Support 1 |
1.4000 |
1.5935 |
76.35 |
0.7800 |
0.9425 |
1.0350 |
0.7745 |
108.00 |
123.25 |
|
Support 2 |
1.3700 |
1.5750 |
75.50 |
0.7500 |
0.9055 |
0.9925 |
0.6850 |
106.00 |
119.00 |
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 |
|
Resist 2 |
13.8500 |
1.8235 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.8000 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
12.5313 |
1.7634 |
7.1982 |
7.7934 |
1.2118 |
Spot |
6.4744 |
5.3270 |
5.4136 |
|
Support 1 |
11.5200 |
1.6500 |
6.5575 |
7.7490 |
1.2000 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.5725 |
6.4295 |
7.7450 |
1.1800 |
Support 2 |
5.8085 |
4.9115 |
4.9410 |
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 |
|
Resist 2 |
1.4383 |
1.6299 |
78.33 |
0.9148 |
1.0017 |
1.0677 |
0.8449 |
110.91 |
125.99 |
|
Resist 1 |
1.4183 |
1.6118 |
78.00 |
0.8884 |
0.9966 |
1.0583 |
0.8328 |
109.75 |
124.88 |
|
Pivot |
1.4077 |
1.6019 |
77.36 |
0.8362 |
0.9916 |
1.0532 |
0.8267 |
108.80 |
123.97 |
|
Support 1 |
1.3877 |
1.5838 |
77.03 |
0.8098 |
0.9865 |
1.0438 |
0.8146 |
107.64 |
122.87 |
|
Support 2 |
1.3771 |
1.5739 |
76.39 |
0.7576 |
0.9815 |
1.0387 |
0.8085 |
106.69 |
121.96 |
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 |
|
Resist. 3 |
1.4208 |
1.6142 |
78.56 |
0.8765 |
1.0034 |
1.0666 |
0.8355 |
110.45 |
125.60 |
|
Resist. 2 |
1.4151 |
1.6091 |
78.33 |
0.8729 |
1.0005 |
1.0622 |
0.8318 |
109.99 |
125.15 |
|
Resist. 1 |
1.4095 |
1.6039 |
78.11 |
0.8692 |
0.9975 |
1.0577 |
0.8281 |
109.53 |
124.69 |
|
Spot |
1.3982 |
1.5936 |
77.67 |
0.8619 |
0.9916 |
1.0488 |
0.8207 |
108.60 |
123.78 |
|
Support 1 |
1.3869 |
1.5833 |
77.23 |
0.8546 |
0.9857 |
1.0399 |
0.8133 |
107.67 |
122.87 |
|
Support 2 |
1.3813 |
1.5781 |
77.01 |
0.8509 |
0.9827 |
1.0354 |
0.8096 |
107.21 |
122.41 |
|
Support 3 |
1.3756 |
1.5730 |
76.78 |
0.8473 |
0.9798 |
1.0310 |
0.8059 |
106.75 |
121.95 |
v
Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
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