- Dollar Takes Another Temporary Hit as S&P Rallies, Treasury Yield Turns Negative
- Euro: Can the French Proposal on Greece Private Debt Sustain the Rally?
- British Pound Traders Overlook Slowdown in Housing Market, Same for GDP
- New Zealand Dollar Tumbles as Rate, Growth Outlook Undermined by Christchurch
- Japanese Yen: BoJ Report Shows Substantial Central Bank Buying through 2010
- Australian Dollar Looking Heavier as Forward Rates Pricing in Rate Cut Potential
- Gold Plunge Eases, Metal Gaps Higher Against Euro
Dollar Takes Another Temporary Hit as S&P Rallies, Treasury Yield Turns Negative
Looking at the dollar’s day-to-day performance is liable to make one motion sick. Correcting much of the gains the single currency posted against the euro and British pound on the previous trading day (Friday), the greenback has kept up its general habit of dramatic but ultimately momentum-free swings. That said, this lack of conviction in either rally or plunge is not unique to the dollar (ticker = USDollar). In fact, it is an accurate reflection of the lack of underlying conviction through risk appetite trends. Referring to our favored gauge for investor sentiment, the S&P 500 rallied back from a brief, early-morning dip to close 0.9 percent higher through the close Monday. Had this move shown any consistency whatsoever, it would have been an impressive performance. Instead, we have sharp swings back and forth on this index for three weeks (between 1,300 and 1,260) – effectively curbing any chance at a meaningful run.
The absence of a strong shift in sentiment short circuits one of the few fundamental catalysts the dollar has to work with. Looking across the headlines, it isn’t a stretch to assign much of the day’s performance to the slight improvement in the European financial situation. That said, improvements to Greece’s sovereign debt situation can only offer temporary relief – not a genuine rally in confidence; so the drive for such a move should ultimately come with little ambiguity to its trend. That said, we have a number of important events to watch over the coming weeks that can potential overcome the hurdles to a recovery in risk appetite or, more likely, feed risk aversion. Aside from the Euro Zone situation (which we will speak more about below); this week also brings the official end of the QE2 program. That does not mean that the $600 billion that was pumped into the system through Treasury purchases since November will be immediately reversed. Rather, the Fed will stop building its balance sheet and keep its net holdings steady. That means the central bank’s announcement that it could continue to purchase government debt going forward is a reinvestment of repaid principal for mortgage-backed securities holdings rather than outright purchases that add fresh capital to the system. This shift does not carry the same moral hazard for speculators nor impose the same weight on the dollar’s value.
Another sentiment-based trigger that we should keep an eye out for in the not-so-distant future is the performance of 2Q earnings. Companies have been able to take advantage of the cheap dollar, notable global rebound, cost cutting measures and government support (not to mention clever account) to boost returns. This trend will not continue for much longer. Earnings season begins in a few weeks. In the meantime, personal income and spending both disappointed. Domestic consumption (the foundation for the US economy) was unchanged through May (the worst performance since June 2010); while disposable income (after taxes) marked its slowest year-over-year growth since May of the same year.
Euro: Can the French Proposal on Greece Private Debt Sustain the Rally?
Greece is walking a fine line where nearly every step it takes must be perfect or the euro could face a financial crisis. At the beginning of the week, the shared currency rallied on the belief that a significant step was taken towards relieving the burden of Greece’s sovereign debt crisis and the contagion it has spread across the region. French President Nicolas Sarkozy seemed to offer the possibility of another stop gap when he announced working agreement with French banks that could see a 70 percent rollover on Greek debt (50 percent rolled out to 30 year bonds and 20 percent in a special fund backed by high quality assets). Of course, this would still need to be widely adopted to gather traction and ratings agencies could still deem it a default. In the meantime, Moody’s warned that Greece’s banks may soon face a “severe” cash shortage.
British Pound Traders Overlook Slowdown in Housing Market, Same for GDP
The Hometrack Housing sector activity survey for June offered a disappointing look at a troubled market. The 0.1 percent drop for the month was the second consecutive monthly contraction; and the annual contraction (3.9 percent) was the largest since October of 2009. That said, this data carries little influence. The same can be said of the final reading on 1Q GDP figures due in the upcoming session; but watch current account.
New Zealand Dollar Tumbles as Rate, Growth Outlook Undermined by Christchurch
Would a modest disappointment from New Zealand’s trade balance catalyze a sharp drop from the New Zealand dollar? The NZ$605 million surplus was a notable pullback from the previous month’s recordhigh NZ$1.148 billion positive gap; but this reading doesn’t significantly alter the yield prospects for the currency. That said, reports that the Christchurch rebuild is being pushed back dampens growth and rate forecasts.
Japanese Yen: BoJ Report Shows Substantial Central Bank Buying through 2010
In the early trading hours of Tuesday’s session, the Japanese docket printed a larger jump in May retail trade (2.4 percent) than was expected; but the 2.4 percent drop in large retailers’ activity offset the good tidings. Far more interesting was Bloomberg’s report of a BoJ release that said foreign central banks increased their yen-based asset holdings 24.6 percent through 2010. Diversification is keeping this currency propped up.
Australian Dollar Looking Heavier as Forward Rates Pricing in Rate Cut Potential
Though Australian Prime Minister Gillard called her nation’s economy the envy of the world, speculators seem to be growing less enamored with its prospects. According to interest rate forecasts, the benchmark rate is expected to be reduced 18 bps in a year’s time. This is not so far-fetched when we consider the country’s ties to China – who is itself attempting to fend off an asset collapse as lending troubles surface.
Gold Plunge Eases, Metal Gaps Lower Against Euro
As an alternative store of value, gold tends to outperform when both of the FX market’s most liquid currencies are stumbling (dollar and euro). So, the drop from the greenback in the second half of Monday’s session would help the metal curb its most aggressive decline against the benchmark in a month-and-a-half. At the same time, the nascent bounce for the euro would further redirect capital away from the commodity.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
6:00 |
EUR |
German Import Price Index (MoM) (MAY) |
-0.3% |
0.3% |
Expected to drop slightly on stronger Euro |
|
6:00 |
EUR |
German Import Price Index (YoY) (MAY) |
8.6% |
9.4% |
|
|
6:00 |
EUR |
German GfK Consumer Confidence Survey (JUL) |
5.3 |
5.5 |
Consumption may fall due to uncertainty |
|
6:00 |
CHF |
UBS Consumption Indicator (MAY) |
1.58 |
Has trended down from August 2010 |
|
|
8:00 |
EUR |
Italian Producer Price Index (MoM) (MAY) |
0.1% |
0.6% |
Falling prices in 4th largest economy may reduce ammunition for ECB hikes |
|
8:00 |
EUR |
Italian Producer Price Index (YoY) (MAY) |
4.9% |
5.5% |
|
|
8:30 |
GBP |
Total Business Investment (QoQ) (1Q F) |
-7.1% |
-7.1% |
Investment spending expected to fall further, |
|
8:30 |
GBP |
Total Business Investment (YoY) (1Q F) |
-3.2% |
-3.2% |
|
|
8:30 |
GBP |
Current Account (Pounds) (1Q) |
-4.7B |
-10.5B |
Shrink viewed to be effect of gov’t cuts |
|
8:30 |
GBP |
Gross Domestic Product (QoQ) (1Q F) |
0.5% |
0.5% |
GDP expected in-line with previous, still growing slowly as British economy stagnates |
|
8:30 |
GBP |
Gross Domestic Product (YoY) (1Q F) |
1.8% |
1.8% |
|
|
9:00 |
EUR |
Italian Business Confidence (JUN) |
101 |
101.3 |
Peripheral problems plague investing |
|
13:00 |
USD |
S&P/Case-Shiller Home Price Index (APR) |
138.16 |
Home prices still expected to decline, shedding more light on current health of real estate sector, still lagging behind recovery |
|
|
13:00 |
USD |
S&P/Case-Shiller 20 City s.a. (MoM) (APR) |
-0.2% |
-0.23% |
|
|
13:00 |
USD |
S&P/Case-Shiller Composite-20 (YoY) (APR) |
-3.95% |
-3.6% |
|
|
14:00 |
USD |
Consumer Confidence (JUN) |
61 |
60.8 |
Moderate improvement expected |
|
14:00 |
USD |
Richmond Fed Manufacturing Index (JUN) |
-3 |
-6 |
Eastern industries helped by exports |
|
16:00 |
EUR |
French Total Jobseekers Change (MAY) |
-10 |
-10.9 |
French unemployment slowly recovers despite fall in exports, domestic demand |
|
16:00 |
EUR |
French Total Jobseekers (MAY) |
2669.1 |
||
|
23:50 |
JPY |
Industrial Production (MoM) (MAY P) |
5.5% |
1.6% |
Rapid month-to-month growth expected, though lower data may lead to additional recovery stimulus |
|
23:50 |
JPY |
Industrial Production (YoY) (MAY P) |
-6.3% |
-13.6% |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
13:00 |
USD |
U.S.-India Economic Dialogue in Washington |
|
16:00 |
USD |
Fed’s Fisher Speaks in Round Rock |
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 |
89.00 |
0.9345 |
1.0275 |
1.1800 |
0.8400 |
122.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8215 |
118.00 |
140.00 |
|
Spot |
1.4274 |
1.5981 |
80.87 |
0.8360 |
0.9864 |
1.0436 |
0.8055 |
115.45 |
129.25 |
|
Support 1 |
1.4000 |
1.5935 |
80.00 |
0.8300 |
0.9500 |
1.0400 |
0.7745 |
113.80 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
75.00 |
0.8250 |
0.9055 |
1.0200 |
0.6850 |
105.50 |
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 |
1.6575 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.6300 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
11.8983 |
1.6381 |
6.8698 |
7.7880 |
1.2424 |
Spot |
6.4382 |
5.2247 |
5.4673 |
|
Support 1 |
11.5200 |
1.5040 |
6.5575 |
7.7490 |
1.2145 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.4725 |
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 |
1.4415 |
1.6067 |
81.40 |
0.8421 |
0.9943 |
1.0554 |
0.8170 |
116.74 |
130.38 |
|
Resist 1 |
1.4344 |
1.6024 |
81.14 |
0.8391 |
0.9903 |
1.0495 |
0.8112 |
116.10 |
129.81 |
|
Pivot |
1.4224 |
1.5969 |
80.71 |
0.8354 |
0.9874 |
1.0443 |
0.8061 |
114.97 |
128.99 |
|
Support 1 |
1.4153 |
1.5926 |
80.45 |
0.8324 |
0.9834 |
1.0384 |
0.8003 |
114.33 |
128.43 |
|
Support 2 |
1.4033 |
1.5871 |
80.02 |
0.8287 |
0.9805 |
1.0332 |
0.7952 |
113.20 |
127.60 |
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 |
1.4477 |
1.6148 |
81.70 |
0.8468 |
0.9963 |
1.0583 |
0.8173 |
117.13 |
130.88 |
|
Resist. 2 |
1.4426 |
1.6106 |
81.49 |
0.8441 |
0.9939 |
1.0546 |
0.8143 |
116.71 |
130.47 |
|
Resist. 1 |
1.4375 |
1.6064 |
81.28 |
0.8414 |
0.9914 |
1.0509 |
0.8114 |
116.29 |
130.06 |
|
Spot |
1.4274 |
1.5981 |
80.87 |
0.8360 |
0.9864 |
1.0436 |
0.8055 |
115.45 |
129.25 |
|
Support 1 |
1.4173 |
1.5898 |
80.46 |
0.8306 |
0.9814 |
1.0363 |
0.7996 |
114.61 |
128.44 |
|
Support 2 |
1.4122 |
1.5856 |
80.25 |
0.8279 |
0.9789 |
1.0326 |
0.7967 |
114.19 |
128.03 |
|
Support 3 |
1.4071 |
1.5814 |
80.04 |
0.8252 |
0.9765 |
1.0289 |
0.7937 |
113.77 |
127.62 |
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.
