- Dollar on Edge with Deficit Deadline, ISM Report Stokes Volatility
- Euro Drawn Between Dollar Volatility, EU Trouble, Upcoming ECB Decision
- Australian Dollar Readies for RBA Decision as Risk Trends Pick Up
- British Pound Tumbles with Risk, Helped Along by Manufacturing Contraction
- Japanese Yen Looking at More Volatility as Intervention Rhetoric Heats Up
- Swiss Franc Solidifies Gains After Economics Minister Says Strength to Stay
- Gold Ramps up the Volatility as Market Debates US Financial Rescue Effort
Dollar on Edge with Deficit Deadline, ISM Report Stokes Volatility
Given the volatility the FX and capital markets demonstrated through the close on Friday and the running countdown for the US to surpass the legal limit on its deficit; excitement was guaranteed through for the opening day of the new trading week. Volatility on the dollar-based majors and broader capital markets stepped it up yet again – though direction is still as lacking as ever. Through Monday’s open, the greenback was once again under pressure as risk appetite started off strong. In fact, S&P 500 futures gapped up 1.2 percent on the Asian open from Friday’s close. In contrast, the dollar didn’t produce such a dramatic jump; but it did lose ground through much of the Asian and early European sessions as news that Congressional leaders reached a compromise on the budget deficit that could offer quick relief to tense financial and credit markets. Though, the fact that the Dow Jones FXCM Dollar Index (ticker = USDollar) slipped as a viable debt solution seemed to be in the works should reflect on the skepticism that is still prevalent in the markets.
This cynicism that a debt deal would be pushed through or that it would offer the dollar an immediate boost could have weighed the greenback indefinitely had a wave of risk aversion not leveraged the currency’s battered safe haven appeal. As the day wore on, data from China, Australia, Japan, the Euro Zone and the United Kingdom reflected a slowing in factory activity that seems to be reflecting a downshift in global growth. The concern was nagging; but fear that a serious economic slump could be in the works didn’t really set in until the US ISM manufacturing activity survey for July crossed the wires. The 50.9 reading was a substantial miss (below even the lowest economist forecast from Bloomberg) and threatened the primary source of growth the US economy has drawn from since the recovery was established back in 2009. In turn, the S&P 500 Index would turn a remarkable bullish gap on the open into an eventual 2.5 percent retracement through the first half of the day.
The ISM indicator, along with the other manufacturing readings from the around the world, are an important reminder that economic activity is cooling. The feeble health of the developed world’s consumer is finally meeting the global shift towards austerity (China, Euro Zone, UK). That leaves the US in a unique position: either join the stimulus withdrawal and suffer the economic slowdown; or pursue financial responsibility and potentially turn a slowdown into a double dip recession. This is another layer of complication to the deficit debate at hand. According to the original timeline; the window is supposed to close by the coming session. That said, it seems that the revised two-stage program that has garnered support from Congressional leaders and already passed the House looks to have a good chance of making it all the way through. Yet, it is still under heavy debate as to whether the planned cuts would be enough to prevent a downgrade by the major credit rating agencies. Such an outcome would surely be dollar negative. Though if this effort tips the global economy, there could be a redeeming value to the greenback.
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: Controlling Risk is Tantamount as Volatility Prevails and Direction Absent
Euro Drawn Between Dollar Volatility, EU Trouble, Upcoming ECB Decision
Fortunately for the euro, headlines about the US deficit debate are still crowding out many of the updates surrounding the Euro Zone’s own troubles. Notable for the day was the fact that the Italian 10 year government bond yield closed at a record high 6.00 percent while the Spanish equivalent advanced to 6.20 percent. Remember, Greece, Ireland and Portugal required bailouts not long after breaching the 7.00 percent level. In the meantime, volatility in risk trends contributed to dramatic losses for European benchmark equity indexes. It will be interesting to see how this combination of funding troubles and the economic slowdown influences the ECB’s decision later this week. Can then keep ignoring it?
Australian Dollar Readies for RBA Decision as Risk Trends Pick Up
We are quickly approaching the RBA rate decision; and rate expectations are somewhat mixed. Looking at overnight index swaps; we see that there is a 16 percent probability of a 25 bps rate cut yet the 12 month forecast is pricing in 27 bps of easing. If we recall the last meeting, Governor Stevens leveraged the importance of CPI; and the 2Q figures a two-and-a-half year high 3.6 percent. Is that enough to make a call?
British Pound Tumbles with Risk, Helped Along by Manufacturing Contraction
It seems much of the world is on the same path of austerity and economic slowdown that the UK pioneered with its self-imposed deficit efforts. Under these circumstances, it isn’t good to be first; because it is exponentially harder to recovery from a slowdown that was ahead of the global curve. We were reminded of this Monday when the UK factory activity reading turned negative for the first time since September 2009.
Japanese Yen Looking at More Volatility as Intervention Rhetoric Heats Up
Talk of Japanese intervention is picking up amongst policy officials, economists and traders. According to Nikkei news group, the central bank is preparing for FX intervention; and an independent move could be quickly followed by a coordinated effort. Should we take these warnings seriously? The short-term impact can certainly generate volatility; but fighting larger trends (like dollar selling) is always a losing game.
Swiss Franc Solidifies Gains After Economic Minister Says Strength to Stay
There are many examples of failed efforts of intervention; but some of the worst results have to fall to the Swiss National Bank which has come under significant scrutiny due to the losses on its reserves fighting the market tide. The futility of this effort seems to be setting in, however, as we had the nation’s Economic Minister warned the high exchange rate is here to stay and it means “extremely tough years” for exporters ahead.
Gold Ramps up the Volatility as Market Debates US Financial Rescue Effort
Like the US dollar and Treasuries, gold put in for an exceptionally volatile session through Monday. Through that same comparison, though, the metal was just as lacking for direction. To stoke capital flows into the metal once again (or away from it should there be palatable deficit resolution); we need an unmistakable view of the United States’ fiscal position: destined for downgrade or slow return to prudence.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:30 |
AUD |
House Price Index (YoY) (Q2) |
-3.0% |
-0.2% |
Lower expected house index may suggest softening real estate sector |
|
1:30 |
AUD |
House Price Index (QoQ) (Q2) |
-1.0% |
-1.7% |
|
|
1:30 |
AUD |
Building Approvals (MoM) (JUN) |
3.0% |
-7.9% |
A mild recovery in building recoveries despite prices fall points to future recovery |
|
1:30 |
AUD |
Building Approvals (YoY) (JUN) |
-10.3% |
-14.4% |
|
|
1:30 |
JPY |
Labor Cash Earnings (YoY) (JUN) |
0.4% |
1.0% |
Japanese labor market still soft |
|
4:30 |
AUD |
Reserve Bank of Australia Rate Decision |
4.75% |
4.75% |
Major event of the day: Q2 CPI came in higher than expected despite record-high AUD; RBA may change their commentary on rate hikes |
|
6:30 |
AUD |
RBA Commodity Price Index (JUL) |
109.4 |
Commodities price index may hit new high on record strength of metals |
|
|
6:30 |
AUD |
RBA Commodity Index SDR (YoY) (JUL) |
28.2% |
||
|
7:15 |
CHF |
Retail Sales (Real) (YoY) (JUN) |
-4.1% |
Previous was lowest since March 2009 |
|
|
7:30 |
CHF |
SVME-Purchasing Managers Index (JUL) |
52.5 |
53.4 |
PMI expected to be hurt by strong franc |
|
8:30 |
GBP |
Purchasing Manager Index Construction (JUL) |
53.1 |
53.6 |
Index may fall due to government cuts |
|
9:00 |
EUR |
Euro-Zone Producer Price Index (MoM) (JUN) |
0.1% |
-0.2% |
Index correlated with consumer prices expected to weaken on a long-term basis on slower recovery, demand |
|
9:00 |
EUR |
Euro-Zone Producer Price Index (YoY) (JUN) |
5.9% |
6.2% |
|
|
12:30 |
USD |
Personal Income (JUN) |
0.2% |
0.3% |
Consumption driver of the US economy expected to stay relatively flat as overall economy still weak, uncertain |
|
12:30 |
USD |
Personal Spending (JUN) |
0.2% |
0.0% |
|
|
12:30 |
USD |
Personal Consumption Exp Deflator (YoY) (JUN) |
2.5% |
||
|
12:30 |
USD |
Personal Consumption Exp Core (MoM) (JUN) |
0.2% |
0.3% |
|
|
12:30 |
USD |
Personal Consumption Exp Core (YoY) (JUN) |
1.4% |
1.2% |
|
|
21:00 |
USD |
Total Vehicle Sales (JUL) |
11.85M |
11.41M |
A small pick-up in vehicle sales may be due to beginning of 2nd half purchasing by institutions |
|
21:00 |
USD |
Domestic Vehicle Sales (JUL) |
9.25M |
8.95M |
|
|
23:01 |
GBP |
BRC Shop Price Index (YoY) (JUL) |
2.9% |
Retail sales index may indicate CPI |
|
|
23:30 |
AUD |
AiG Performance of Service Index (JUL) |
48.5 |
Service sector at post-recession levels |
|
|
GBP |
Halifax Plc House Prices s.a. (MoM) (JUL) |
0.0% |
1.2% |
House prices watched by BoE may support further lax policies to support economic recovery |
|
|
GBP |
Halifax House Price (3MoY) (JUL) |
-2.8% |
-3.5% |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
12:30 |
USD |
Annual Revisions: Personal Income and Spending |
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 |
0.8900 |
1.0275 |
1.1800 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6475 |
81.50 |
0.8550 |
1.0000 |
1.1000 |
0.8750 |
113.50 |
140.00 |
|
Spot |
1.4268 |
1.6297 |
77.08 |
0.7817 |
0.9561 |
1.0964 |
0.8762 |
109.98 |
125.62 |
|
Support 1 |
1.4000 |
1.5935 |
77.00 |
0.7800 |
0.9425 |
1.0400 |
0.7745 |
109.00 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
76.25 |
0.7600 |
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 |
11.7277 |
1.6911 |
6.7309 |
7.7906 |
1.2018 |
Spot |
6.3245 |
5.2217 |
5.3789 |
|
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 |
1.4571 |
1.6575 |
78.89 |
0.8056 |
0.9667 |
1.1127 |
0.8889 |
113.85 |
130.45 |
|
Resist 1 |
1.4420 |
1.6436 |
77.99 |
0.7936 |
0.9614 |
1.1045 |
0.8826 |
111.92 |
128.03 |
|
Pivot |
1.4302 |
1.6337 |
77.14 |
0.7834 |
0.9553 |
1.0984 |
0.8779 |
110.31 |
126.12 |
|
Support 1 |
1.4151 |
1.6198 |
76.24 |
0.7714 |
0.9500 |
1.0902 |
0.8716 |
108.38 |
123.70 |
|
Support 2 |
1.4033 |
1.6099 |
75.39 |
0.7612 |
0.9439 |
1.0841 |
0.8669 |
106.77 |
121.79 |
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 |
1.4462 |
1.6454 |
77.97 |
0.7926 |
0.9657 |
1.1106 |
0.8882 |
111.61 |
127.17 |
|
Resist. 2 |
1.4414 |
1.6415 |
77.74 |
0.7899 |
0.9633 |
1.1071 |
0.8852 |
111.21 |
126.79 |
|
Resist. 1 |
1.4365 |
1.6376 |
77.52 |
0.7872 |
0.9609 |
1.1035 |
0.8822 |
110.80 |
126.40 |
|
Spot |
1.4268 |
1.6297 |
77.08 |
0.7817 |
0.9561 |
1.0964 |
0.8762 |
109.98 |
125.62 |
|
Support 1 |
1.4171 |
1.6218 |
76.64 |
0.7762 |
0.9513 |
1.0893 |
0.8702 |
109.16 |
124.84 |
|
Support 2 |
1.4122 |
1.6179 |
76.42 |
0.7735 |
0.9489 |
1.0857 |
0.8672 |
108.75 |
124.45 |
|
Support 3 |
1.4074 |
1.6140 |
76.19 |
0.7708 |
0.9465 |
1.0822 |
0.8642 |
108.35 |
124.07 |
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.
