- Dollar Volatility Assured, Direction Absent Until Deficit Debate Resolved
- Euro Finds No Momentum in EU’s Colossal Crisis Resolution Effort
- British Pound May Finally Take Control Over its Own Activity…At Least Temporarily
- New Zealand Dollar: What Should We Expect from the RBNZ Decision?
- Australian Dollar Wavering on Rate Expectations as CPI Readings Approach
- Canadian Dollar Takes a Hit as the Yield Outlook Fades
- Gold Consolidates but Can Easily Regain Traction on US, EU Troubles
Dollar Volatility Assured, Direction Absent Until Deficit Debate Resolved
Looking back over the week, the fundamental scene for the dollar has changed little. The budget debate continues, event risk that was on the docket had limited influence over the market’s primary fundamental concerns and global demand for liquidity is still elevated. And yet, the currency tumbled through the period to touch lows that the Dow Jones FXCM Dollar Index (ticker = USDollar) hasn’t seen in nearly three months. A simple correlation can be drawn to the rally in risk appetite trend as seen in the 2.2 percent advance from the S&P 500 through Friday; but that wouldn’t account for the less obvious connections that will most likely guide the greenback in the days and weeks ahead.
While the bearings for economic activity, yield potential and financial stability haven’t changed materially recently; the dollar’s relative position certainly has. Considering value in the FX market is always established in contrast to counterparts; we saw the currency’s relative appeal drop sharply as the stability of the euro and draw of high-yielding currencies like the Australian and New Zealand dollar improve. No doubt, the influence of these indirect factors will remain next week (with particular risk for volatility from the euro given its peculiar reaction to the seemingly comprehensive bailout program); but we should expect US developments to exact greater influence over the dollar as well as underlying risk currents moving forward. This transition looms as the market sees scheduled and critically vague concerns from the US take over headlines.
Perhaps the most imposing consideration moving forward is the standoff on the US deficit. Officials have until August 2nd to raise the ceiling on the United States legal borrowing limits. If this is not done, the country will technically default. It is highly improbably that policymakers will allow that to happen; but their delay has already raised the stakes. A long-term solution is certainly a necessity over time; but there is little doubt that the government’s squabbling has drawn the attention of credit rating agencies and subsequently encouraged these groups to fast track reviews regardless of the ceiling. The closer August 2nd draws without a comprehensive deal on the table; the greater volatility will become for the dollar and capital markets as investors are forced to speculate on the future. Alternatively, should a clear arrangement be worked out to lower the deficit over time; dollar uncertainty will diminish and risk appetite falter as stimulus recedes – both dollar positives.
For a little more structure, we have a much better sense of timing for the event risk on the US docket. Durable goods, consumer confidence and housing data is significant; but the influence of all that data pales in comparison to the 2Q GDP numbers due on Friday. For influence over risk appetite and speculation of further quantitative easing; this round of data is unmatched. And yet, it will still yield to trouble on the deficit front…
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: Questions over the EU Bailout and US Deficit Debate will Warp Trading
Euro Finds No Momentum in EU’s Colossal Crisis Resolution Effort
The day after the European Union announced a second, massive bailout package for Greece and essentially removed the restrictions on emergency lending programs, you’d expect the euro to rally. Yet, that certainly wasn’t the outcome we were presented with. One consideration here that has not be covered extensively in the financial media is that this unbounded stimulus effort is being equated to the active debasement of the US dollar following QE versions 1 and 2. And, given the euro retraced little through its recent crisis period; that is a consideration worth mulling over. The more popular explanation is that there are too many holes in the program. If that is the case, unwinding should soon follow.
British Pound May Finally Take Control Over its Own Activity…At Least Temporarily
The Bank of England completely washed out any hawkish hold outs with the further dovish lean in the minutes. Now, the focus will shift back to the concern that austerity will come at the price of economic health. The 2Q GDP readings are due Tuesday at 8:30 GMT; and the official consensus calls for a halving of the year-over-year pace of growth. If that is case, expect recession worries to catch fire.
New Zealand Dollar: What Should We Expect from the RBNZ Decision?
Despite the pace or direction of underlying risk appetite trends; the kiwi dollar manages to keep its advance alive. At the moment, this strength can be traced back to interesting rate expectations which recently climbed to nine-month highs (pricing in 94 bps of hikes in 12 months). We will see whether this hawkishness can maintain its trajectory when RBNZ Governor Bollard speaks after a likely hold on rates Wednesday.
Australian Dollar Wavering on Rate Expectations as CPI Readings Approach
In direct contrast to its lower yielding New Zealand counterpart, the Aussie dollar is suffering for its lack of potential going forward. It may seem unusual that a currency with such a significant yield advantage over its counterparts can lose ground; but it is the change in rates that leads to shifts in value. That said, we have 2Q CPI (which the RBA said it was monitoring) due and 38bps of cuts currently priced in over 12 months.
Canadian Dollar Takes a Hit as the Yield Outlook Fades
As an investment alternative to the troubled and seemingly unstable US, Canada seemed to have found its bullish place in the world. Yet the loonie is still exposed to changes in its own fundamental bearings as seen with the sharp tumble after the unexpected drop in headline and core inflation this past Friday. Price pressures seem to confirm the BoC’s hesitance. If this week’s GDP confirms the same, the currency is exposed.
Gold Consolidates but Can Easily Regain Traction on US, EU Troubles
It is hardly a bearish sign that gold has spent the past week consolidating after a record breaking run to record highs. In fact, the metal’s ability to maintain the levels in the face of recent developments only bolsters its appeal. Whether it is skepticism over effectiveness or a reflection of devaluation, the euro bolsters gold’s appeal. The US deficit uncertainty offers additional leverage; but what would a resolution do?
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
23:01 (Sun) |
GBP |
Hometrack Housing Survey (MoM) (JUL) |
-0.1% |
Housing prices have been declining, may point to further construction weakness |
|
|
23:01 (Sun) |
GBP |
Hometrack Housing Survey YoY (JUL) |
-3.9% |
||
|
1:30 |
AUD |
Producer Price Index YoY (Q2) |
2.9% |
Producer prices may indicate direction of CPI; RBA said they will focus on Q2 data on future rate decisions |
|
|
1:30 |
AUD |
Producer Price Index QoQ (Q2) |
1.2% |
||
|
6:45 |
EUR |
French Business Survey Overall Demand (JUL) |
21 |
Surveys have both relatively flattened at the top of post-recovery |
|
|
8:00 |
EUR |
Italian Consumer Confidence Index s.a.(JUL) |
105.8 |
||
|
8:30 |
GBP |
BBA Loans for House Purchase (JUN) |
31000 |
30509 |
More loans may indicate housing recovery |
|
12:30 |
USD |
Chicago Fed Nat Activity Index (JUN) |
-0.37 |
Manufacturing indices expected to slightly improve |
|
|
14:30 |
USD |
Dallas Fed Manufacturing Activity (JUL) |
-7.2 |
-17.5 |
|
|
22:45 |
NZD |
Trade Balance (New Zealand dollars) (JUN) |
400M |
605M |
Imports expected to rise as record NZD fuel purchases of foreign goods, Australian trade |
|
22:45 |
NZD |
Balance (YTD) (New Zealand dollars) (JUN) |
1289 |
1067 |
|
|
22:45 |
NZD |
Exports (New Zealand dollars) (JUN) |
4300M |
4626M |
|
|
22:45 |
NZD |
Imports (New Zealand dollars) (JUN) |
3800M |
4021M |
|
|
23:50 |
JPY |
Corporate Service Price (YoY) (JUN) |
-0.8% |
-0.9% |
Slower decline may mean recovery |
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 |
1.6300 |
81.50 |
0.8550 |
1.0000 |
1.1000 |
0.8620 |
113.50 |
140.00 |
|
Spot |
1.4360 |
1.6298 |
78.51 |
0.8189 |
0.9480 |
1.0854 |
0.8639 |
112.74 |
127.95 |
|
Support 1 |
1.4000 |
1.5935 |
78.50 |
0.8075 |
0.9450 |
1.0400 |
0.7745 |
109.00 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
76.25 |
0.7900 |
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 |
1.7425 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.6730 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
11.6363 |
1.6981 |
6.7723 |
7.7911 |
1.2086 |
Spot |
6.3328 |
5.1903 |
5.4196 |
|
Support 1 |
11.5200 |
1.5725 |
6.5575 |
7.7490 |
1.2145 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.5040 |
6.4295 |
7.7450 |
1.2000 |
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 |
1.4489 |
1.6377 |
79.00 |
0.8298 |
0.9583 |
1.0905 |
0.8724 |
114.17 |
128.89 |
|
Resist 1 |
1.4425 |
1.6338 |
78.75 |
0.8244 |
0.9532 |
1.0879 |
0.8682 |
113.45 |
128.42 |
|
Pivot |
1.4374 |
1.6301 |
78.49 |
0.8193 |
0.9479 |
1.0850 |
0.8632 |
112.86 |
127.95 |
|
Support 1 |
1.4310 |
1.6262 |
78.24 |
0.8139 |
0.9428 |
1.0824 |
0.8590 |
112.14 |
127.48 |
|
Support 2 |
1.4259 |
1.6225 |
77.98 |
0.8088 |
0.9375 |
1.0795 |
0.8540 |
111.55 |
127.01 |
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 |
1.4544 |
1.6453 |
79.32 |
0.8287 |
0.9570 |
1.0987 |
0.8751 |
114.34 |
129.45 |
|
Resist. 2 |
1.4498 |
1.6414 |
79.12 |
0.8263 |
0.9548 |
1.0954 |
0.8723 |
113.94 |
129.08 |
|
Resist. 1 |
1.4452 |
1.6375 |
78.91 |
0.8238 |
0.9525 |
1.0921 |
0.8695 |
113.54 |
128.70 |
|
Spot |
1.4360 |
1.6298 |
78.51 |
0.8189 |
0.9480 |
1.0854 |
0.8639 |
112.74 |
127.95 |
|
Support 1 |
1.4268 |
1.6221 |
78.11 |
0.8140 |
0.9435 |
1.0787 |
0.8583 |
111.94 |
127.20 |
|
Support 2 |
1.4222 |
1.6182 |
77.90 |
0.8115 |
0.9412 |
1.0754 |
0.8555 |
111.54 |
126.82 |
|
Support 3 |
1.4176 |
1.6143 |
77.70 |
0.8091 |
0.9390 |
1.0721 |
0.8527 |
111.14 |
126.45 |
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
