- Dollar Swimming as Traders Scramble for its Primary Appeal: Liquidity
- Euro Stumbles as ECB Capitulates to Crisis, Restarts Bond Purchases
- Japanese Yen Doesn’t Ignore this Round of FX Intervention but Why?
- British Pound Performs Well Against High Risk Currencies; but What about GBPUSD?
- Swiss Franc: Immediate Intervention Reaction is Skepticism, But Look Twice
- Gold: Why is this Safe Haven Falling When Financial Markets are Freezing
Dollar Swimming as Traders Scramble for its Primary Appeal: Liquidity
The capital markets have made that critical transition from a mere risk aversion phase to the beginnings of a financial market panic. There are two ways that this scenario plays out; and unfortunately for the long-term bulls, the more likely scenario is the one that ushers capital markets much lower. Perhaps the most crucial factor in determining whether this is a lasting, broader market shift is timing. Back on May 6th, 2010; the equities markets suffered what was later coined a ‘flash crash’. The resultant tumble drove the S&P 500 down over 9 percent; but there was a notable intraday reversal following the wave of selling that was further extended through the subsequent trading days. A market distortion that exploited particularly thin markets was partly to blame; but there were other components to this equation that prevented this individual market event from turning into an immediate crisis. This go around, we have fundamental, fiscal and capital troubles all coming together at the same time. And, this perfect storm may catastrophically undermine the passive belief that markets can simply rise under their own steam indefinitely and/or the world’s policy officials will always come to the rescue of stranded investors.
The staying power of a bear market phase is boosted by a number of fundamental factors that simply lingered in the background until the speculative crowd recognized they were all closing in at the same time. At present, the market is aware of isolated financial market crises that are linking to become a global problem; the compulsory end of stimulus and a slowdown in the world’s economy. For the dollar’s part, the currency has gained substantial ground with the risk aversion effort – the Dow Jones FXCM Dollar Index (ticker = USDollar) enjoyed a commendable 2.1 percent rally – but there was a notable variation in performance across the different majors. While the greenback enjoyed an incredible rally (the biggest in many years) against high-yield or speculatively-favored currencies like the Australian, New Zealand and Canadian dollars; it has refrained from trend generating moves against its more liquid and stable counterparts in the Euro, British pound and Swiss franc. To set the dollar on pace for a market-wide and lasting bull trend; we need to see more than the carry (backed by US stimulus) unwind and transition to fear for liquidity. The dollar is quickly losing its role as a safe haven and reserve currency; but when there is an unrelenting need for liquidity, investor will unquestioningly return to the most liquid markets – US Treasuries, money markets and dollars.
All the components for a crisis for liquidity are there; but those measures of financial stability (capital availability, orderly market transactions) have yet to truly breakdown. Friday’s employment report can act as another catalyst that can stoke panic. With the markets waking up to the slowdown in the global economy and the US government signaling that it was reaching its limits for economic support; there will be a natural skepticism in how this data is interpreted. The best the data can do is instigate a natural bounce as shorts take profit and bold speculators try to pick a bottom; but the effort will naturally fall short. The biggest barrier to further financial stress is QE3. And so, we await the Fed next week.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: S&P 500 Plunges on Speculative Panic but EURUSD Looks for a Capital Crisis
Euro Stumbles as ECB Capitulates to Crisis, Restarts Bond Purchases
One of the primary reasons to be genuinely concerned about the health of the international financial markets is that there are signs of trouble in all of the world’s sectors. And, central to the threat this time around are the straights that the Euro-area is navigating. Collectively the largest economy in the world, we are seeing the troubles that a shared monetary policy with fiscal counterbalance can create. With a Greek default (whether explicit or market-defined) a foregone conclusion; we are seeing the contagion spread closer to the EU’s core. Officials have been unwilling to recognize the severity of the issue or otherwise compromise on a necessary fix; but they are slowly coming around. This past session, ECB President Trichet upped the ante after he inferred no interest to raise rates in the immediate future after the ECB meet and followed up by saying the group’s bond purchasing program would be reinstituted. In fact, it was rumored that purchases of Portuguese and Irish debt were already made. But, in a sign of the times; the reaction to this announcement was ‘what about Spanish and Italian bond purchases’?
Japanese Yen Doesn’t Ignore this Round of FX Intervention but Why?
There is only one type of FX intervention: unsuccessful. Though policy authorities have large amounts of money on hand; they cannot continue to fight a prevailing and well-capitalized market trend (like risk aversion). However, there are times when the manipulators act when the markets themselves are already transitioning. This is not one of those times for the yen. While the Ministry of Finance acted with a 500 billion yen sale and the BoJ upped its asset purchase program; this is only a one-off move. If carry unwinding continues, most yen crosses will continue to fall.
British Pound Performs Well Against High Risk Currencies; but What about GBPUSD?
The Bank of England’s rate decision was already a write-off event; but this go around, the market hardly even realized the event was scheduled. It comes as no surprise that the essentially drifting currency was at the mercy of strong capital flows to safe haven currencies and away from particularly riskier currencies. However, there will undoubtedly be consequences for the MPC’s lack of guidance as financial conditions decline.
Swiss Franc: Immediate Intervention Reaction is Skepticism, But Look Twice
Between the Japanese and Swiss effort at intervention; the latter arguably made the grander showing. However, the franc has shown no lasting impression of the SNB’s decision to drop rates and flood the market with money. However, the moves they have made to devalue their currency are serious as they severely lower rates and ramp up supply. At some point, the banking economy appeal will bow to perceived value.
Gold: Why is this Safe Haven Falling When Financial Markets are Freezing
It should be a relatively straightforward equation: risk appetite falls and the appetite for safe havens rise. But that has so much money behind it is ever that simple. The favored hedge to inflation, risk aversion and currency devaluation; gold actually closed in the red Thursday as investors were forced to raise capital from well-performing investments to post margin on losing positions. What is doing better than gold?
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
5:00 |
JPY |
Coincident Index (JUN P) |
108.7 |
106.3 |
Both estimates of preliminary indices head higher on domestic recovery hopes |
|
5:00 |
JPY |
Leading Index (JUN P) |
103.4 |
99.6 |
|
|
6:45 |
EUR |
French Trade Balance (euros) (JUN) |
-6500M |
-7422M |
May shrink as imports slow |
|
7:00 |
CHF |
Foreign Currency Reserves (JUL) |
196.0B |
Has tapered off since May 2010 high |
|
|
7:15 |
CHF |
Consumer Price Index (MoM) (JUL) |
-0.6% |
-0.2% |
Moderately higher change in long-term consumer prices unlikely to lead to any rate hikes by SNB; may be more dovish as bank tries to control Franc’s rise |
|
7:15 |
CHF |
Consumer Price Index (YoY) (JUL) |
0.7% |
0.6% |
|
|
7:15 |
CHF |
CPI – EU Harmonised (MoM) (JUL) |
0.0% |
||
|
7:15 |
CHF |
CPI – EU Harmonised (YoY) (JUL) |
0.6% |
||
|
8:00 |
EUR |
Italian Industrial Production s.a. (MoM) (JUN) |
0.2% |
-0.6% |
Expected stagnation in Italian industries could show cracks in the country’s recovery efforts |
|
8:00 |
EUR |
Italian Industrial Production w.d.a. (YoY) (JUN) |
1.8% |
1.8% |
|
|
8:00 |
EUR |
Italian Industrial Production n.s.a. (YoY) (JUN) |
4.9% |
||
|
8:30 |
GBP |
PPI Output n.s.a. (MoM) (JUL) |
0.2% |
0.1% |
British producer prices expected to show mild recovery, though probably too small to show any actual effects on the next BoE rate decision |
|
8:30 |
GBP |
PPI Input n.s.a. (MoM) (JUL) |
0.7% |
0.4% |
|
|
8:30 |
GBP |
PPI Input n.s.a. (YoY) (JUL) |
18.7% |
17.0% |
|
|
8:30 |
GBP |
PPI Output n.s.a. (YoY) (JUL) |
5.8% |
5.7% |
|
|
8:30 |
GBP |
PPI Output Core n.s.a. (MoM) (JUL) |
0.2% |
0.2% |
|
|
8:30 |
GBP |
PPI Output Core n.s.a. (YoY) (JUL) |
3.2% |
3.2% |
|
|
9:00 |
EUR |
Italian GDP s.a. and w.d.a. (QoQ) (Q2 P) |
0.3% |
0.1% |
Longer term Italian output still expected weaker as global recover stalls |
|
9:00 |
EUR |
Italian GDP s.a. and w.d.a. (YoY) (Q2 P) |
0.8% |
1.0% |
|
|
10:00 |
EUR |
German Indus Prod s.a. (MoM) (JUN) |
0.0% |
1.2% |
German industries may benefit from some exports |
|
10:00 |
EUR |
German Indus Prod n.s.a. and w.d.a. (YoY) (JUN) |
8.1% |
7.6% |
|
|
11:00 |
Unemployment Rate (JUL) |
7.4% |
7.4% |
Canadian labor improvements may grow at a slower pace, due to slower US demand as economy faces unhinging |
|
|
11:00 |
CAD |
Net Change in Employment (JUL) |
20.0K |
28.4K |
|
|
11:00 |
CAD |
Full Time Employment Change (JUL) |
7.3 |
||
|
11:00 |
CAD |
Part Time Employment Change (JUL) |
21.1 |
||
|
11:00 |
CAD |
Participation Rate (JUL) |
66.9 |
||
|
12:30 |
CAD |
Building Permits (MoM) (JUN) |
-5.0% |
20.9% |
Decline points towards trouble for sector |
|
12:30 |
USD |
Change in Non-farm Payrolls (JUL) |
85K |
18K |
Major data of the day – slightly higher number could feed risk appetite after today’s heavy decline in the markets |
|
12:30 |
USD |
Change in Private Payrolls (JUL) |
123K |
57K |
|
|
12:30 |
USD |
Change in Manufacturing Payrolls (JUL) |
10K |
6K |
|
|
12:30 |
USD |
Unemployment Rate(JUL) |
9.2% |
9.2% |
|
|
12:30 |
USD |
Avg Hourly Earnings (MoM) (JUL) |
0.2% |
0.0% |
Lesser employment data also released today may not have as profound effect on markets as earlier NFPs |
|
12:30 |
USD |
Avg Hourly Earnings (YoY) (JUL) |
1.9% |
1.9% |
|
|
12:30 |
USD |
Avg Weekly Hours All Employees (JUL) |
34.3 |
34.3 |
|
|
12:30 |
USD |
Change in Household Survey Employment (JUL) |
-445 |
||
|
14:00 |
CAD |
Ivey Purchasing Managers Index (JUL) |
64.6 |
68.2 |
PMI index showing mixed expectations for Canadian economy |
|
14:00 |
CAD |
Ivey Purchasing Managers Index s.a. (JUL) |
62.9 |
59.9 |
|
|
19:00 |
USD |
Consumer Credit (JUN) |
$5.000B |
$5.077B |
May be due to decrease in borrowing |
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 |
1.6600 |
86.00 |
0.8550 |
1.0275 |
1.1800 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6475 |
81.50 |
0.8275 |
1.0000 |
1.1000 |
0.8750 |
113.50 |
140.00 |
|
Spot |
1.4127 |
1.6256 |
79.00 |
0.7669 |
0.9786 |
1.0482 |
0.8392 |
111.60 |
128.42 |
|
Support 1 |
1.4000 |
1.5935 |
77.00 |
0.7600 |
0.9425 |
1.0400 |
0.7745 |
109.00 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
76.25 |
0.7500 |
0.9055 |
1.0200 |
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 |
1.7425 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
12.0238 |
1.7383 |
6.9352 |
7.8012 |
1.2194 |
Spot |
6.5283 |
5.2727 |
5.5120 |
|
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 |
1.4464 |
1.6501 |
82.01 |
0.7856 |
0.9916 |
1.0879 |
0.8761 |
115.91 |
132.93 |
|
Resist 1 |
1.4296 |
1.6379 |
80.50 |
0.7762 |
0.9851 |
1.0681 |
0.8577 |
113.75 |
130.67 |
|
Pivot |
1.4203 |
1.6317 |
78.74 |
0.7709 |
0.9727 |
1.0580 |
0.8483 |
112.03 |
128.59 |
|
Support 1 |
1.4035 |
1.6195 |
77.23 |
0.7615 |
0.9662 |
1.0382 |
0.8299 |
109.87 |
126.34 |
|
Support 2 |
1.3942 |
1.6133 |
75.47 |
0.7562 |
0.9538 |
1.0281 |
0.8205 |
108.15 |
124.26 |
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 |
1.4330 |
1.6417 |
79.89 |
0.7787 |
0.9896 |
1.0636 |
0.8520 |
113.30 |
130.03 |
|
Resist. 2 |
1.4280 |
1.6377 |
79.67 |
0.7758 |
0.9869 |
1.0597 |
0.8488 |
112.88 |
129.63 |
|
Resist. 1 |
1.4229 |
1.6337 |
79.44 |
0.7728 |
0.9841 |
1.0559 |
0.8456 |
112.45 |
129.23 |
|
Spot |
1.4127 |
1.6256 |
79.00 |
0.7669 |
0.9786 |
1.0482 |
0.8392 |
111.60 |
128.42 |
|
Support 1 |
1.4025 |
1.6175 |
78.56 |
0.7610 |
0.9731 |
1.0405 |
0.8328 |
110.75 |
127.62 |
|
Support 2 |
1.3974 |
1.6135 |
78.33 |
0.7580 |
0.9703 |
1.0367 |
0.8296 |
110.32 |
127.22 |
|
Support 3 |
1.3924 |
1.6095 |
78.11 |
0.7551 |
0.9676 |
1.0328 |
0.8264 |
109.90 |
126.82 |
v
Written by: John Kicklighter, Senior 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
The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
