- Dollar Advances First Time in 6 Days as Euro Crisis Fears Spread
- Euro Slides as the US Attempts to Pinch Off a Liquidity Reserve
- Swiss Franc Slow to Respond to Europe’s Financial Woes
- British Pound Fades on Disappointing Retail Sales, BoE Outlook
- Canadian Dollar Faces Inflation Report in an Unfavorable Yield Market
- Japanese Yen Doesn’t Hold onto Gains, A Carry and Risk Divergence?
- Gold: Financial Uncertainty, Slowing Growth and FX Manipulation
Dollar Advances First Time in 6 Days as Euro Crisis Fears Spread
Risk appetite collapses and the dollar puts in for its first advance in six active trading sessions. A coincidence? Absolutely not. There is really only one serious attribute the greenback posses that can attract capital: liquidity. In deeper markets, investors can find reduced volatility (smaller swings), the ability to access capital when it’s needed, potential gains as a long-standing habit accelerates inflows, and – for this particular asset – a currency that can be used as direct margin. So, what would send market participants that are typically preoccupied with generating returns above and beyond benchmarks like the S&P 500? Fear.
Though it may be a little early to say the broader financial markets are starting to panic, it is reasonable to postulate that concerns over stability are steadily growing. Optimists could argue that Thursday’s risk aversion move followed approximately a week of market stability and optimism and thereby may only be a one-off situation. However, the conditions that prevailed during this period actually do more to undermine any argument for improved sentiment and financial conditions than they do to support it. Since the dramatic selling effort of two weeks ago and the extreme volatility of last week passed, we have seen volume drop off the map and any speculative rebound completely fizzle out. If sentiment was indeed bullish, we would expect a rebound in speculative benchmarks like the S&P 500 to be backed by rising levels of volume to denote convictions. In the meantime, measures of funds availability, economic health and market participation continue to fall apart.
Knowing that the dollar’s focus is on the extreme end of the risk spectrum, the masses have kept their focus on the headlines – and blurbs from the previous session certainly delivered the kind trouble we have been watching for. On the newswires was the report that officials at the New York Fed have stepped up their monitoring of the US branches of European banks. The concern is that bank level financial troubles could lead to funding problems that encourage European banks to pull capital from their US arms in order to fortify liquidity. That would essentially drain a substantial amount of capital out of the US markets and thereby officially spread the contagion to the world’s largest financial center. To know why that would be a big deal we only need to refer to the 2008 financial crisis where the situation really deteriorated when it crossed regional economic borders. Moving forward, we need to see how much traction this particular concern really gains. As for the economic docket, disappointing developments will only exacerbate fear and capital retrenchment. In the previous session, we saw the biggest drop in the Philly Fed manufacturing indicator since October 2008 (we know what was going on back then). We shouldn’t necessarily take this as the definitive death knell to GDP; but it does reflect a key growth contributor (manufacturing) and capital availability.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: Dollar, Euro, Swiss Franc Show their Colors as Risk Explodes
Euro Slides as the US Attempts to Pinch Off a Liquidity Reserve
A fundamental weight loses its intensity the longer it is around and the more time the market has to acclimate. If that is the case, why were European shares and the euro currency tumbling through the past session on now-familiar financial trouble? Because, we had another development to amplify the danger and accelerate the timeframe for a serious deterioration in market conditions. The New York Fed’s efforts to prevent a capital flight from the US branches of European banks shows greater probability of a deeper crisis but it also pinches off a potential source of liquidity. Looking at European liquidity measures, the risk is there; but it still has a long way to go to reach 2008 levels.
Swiss Franc Slow to Respond to Europe’s Financial Woes
There is no doubt as to the move towards risk aversion through the past 24 hours; but in this move the safe haven franc wouldn’t show much in the way of sustained gains. Should we take this to mean that the currency is no longer the safe haven that it once was after the SNB flooded the market with francs and is now threatening to peg? To answer that, we have to consider what liquidity and a peg really do. They attempt to prevent further Swissie appreciation; but capital gains aren’t the concern of market participants simply looking for safety from a global storm.
British Pound Fades on Disappointing Retail Sales, BoE Outlook
The sterling may not play the role of the isolated, neutral currency that it has enjoyed these past months for much longer. The July retail sales report is another nagging reminder of slowing growth in the UK. Where this really becomes problematic though is the additional pressure on the BoE to offset the government’s austerity efforts. With the MPC’s Posen the only one with an active call, further stimulus may be on the agenda.
Canadian Dollar Faces Inflation Report in an Unfavorable Yield Market
Looking out over the final 24 hours of the trading week, the Canadian dollar stands as the top, scheduled event risk. While other currencies are open to the tumultuous shifts in unscheduled event risk, the Loonie has the top docket spot with CPI data. This is not an indicator to ignore. With global interest rate expectations dropping off, we could see this laggard suffer the most with the market’s hawkish temperament drop off.
Japanese Yen Doesn’t Hold onto Gains, A Carry and Risk Divergence?
With the strong risk aversion move forcing the worst selloff in European markets in years and pushing the US markets back into a panic, we would expect carry unwinding to take over. The yen certainly did gain ground on the risk aversion move; but the move didn’t carry much in the way of follow through. Is this not a real risk aversion move? Have we reached the end of the carry exposure? We are just early in the move.
Gold: Financial Uncertainty, Slowing Growth and FX Manipulation
Another disastrous combination of market conditions would leverage the safe haven, anti-currency gold market. With liquidity in danger, currencies being heavily manipulated and a global slowdown in economic activity; there are very few places investors can place their capital where it doesn’t continue to degrade. That said, be careful of liquidity troubles which could lead to gold selling to raise margin funds.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:35 |
CNY |
MNI August Flash Business Sentiment Survey (JUN) |
PBoC tightening could cause decline |
||
|
3:00 |
NZD |
Credit Card Spending s.a. (MoM) (JUL) |
0.4% |
Credit card spending data would be leading indicator of consumption |
|
|
3:00 |
NZD |
Credit Card Spending (YoY) (JUL) |
4.5% |
||
|
4:30 |
JPY |
All Industry Activity Index (MoM) (JUL) |
2.2% |
2.0% |
Industries expected to moderately recover |
|
6:00 |
EUR |
German Producer Prices (MoM) (JUL) |
0.1% |
0.1% |
Producer prices expected to fall, relieving inflation pressures |
|
6:00 |
EUR |
German Producer Prices (YoY) (JUL) |
5.3% |
5.6% |
|
|
8:30 |
GBP |
Public Finances (PSNCR) (Pounds) (JUL) |
-8.0B |
21.0B |
Government finance decline could be due to additional tightening, but lower tax revenues as UK slows |
|
8:30 |
GBP |
PSNB ex Interventions (JUL) |
2.4B |
14.0B |
|
|
8:30 |
GBP |
Public Sector Net Borrowing (Pounds) (JUL) |
0.2B |
12.0B |
|
|
11:00 |
CPI (MoM) (JUL) |
0.2% |
-0.7% |
Canadian inflation expected to calm as recovery slows, relaxing need |
|
|
11:00 |
CAD |
CPI (YoY) (JUL) |
2.8% |
3.1% |
|
|
11:00 |
CAD |
Bank Canada CPI Core (MoM) (JUL) |
0.2% |
-0.6% |
|
|
11:00 |
CAD |
Bank Canada CPI Core (YoY) (JUL) |
1.6% |
1.3% |
|
|
11:00 |
CAD |
CPI Index (JUL) |
119.8 |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
4:00 |
USD |
Fed’s Dudley to Speak in Newark |
|
17:45 |
USD |
Fed’s Pianalto speaks on economy in Columbus |
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 |
0.8275 |
1.0275 |
1.0800 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6600 |
81.50 |
0.8000 |
1.0000 |
1.0645 |
0.8750 |
113.50 |
140.00 |
|
Spot |
1.4447 |
1.6562 |
76.51 |
0.7892 |
0.9805 |
1.0559 |
0.8380 |
110.53 |
126.71 |
|
Support 1 |
1.4000 |
1.5935 |
76.35 |
0.7000 |
0.9425 |
1.0400 |
0.7745 |
109.00 |
124.00 |
|
Support 2 |
1.3700 |
1.5750 |
75.50 |
0.6800 |
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 |
1.7425 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
12.1712 |
1.7682 |
7.0908 |
7.7892 |
1.2004 |
Spot |
6.3266 |
5.1572 |
5.3873 |
|
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 |
1.4623 |
1.6744 |
77.02 |
0.8103 |
0.9880 |
1.0700 |
0.8486 |
111.62 |
128.03 |
|
Resist 1 |
1.4535 |
1.6653 |
76.76 |
0.7998 |
0.9842 |
1.0630 |
0.8433 |
111.07 |
127.37 |
|
Pivot |
1.4430 |
1.6501 |
76.59 |
0.7911 |
0.9809 |
1.0531 |
0.8373 |
110.44 |
126.32 |
|
Support 1 |
1.4342 |
1.6410 |
76.33 |
0.7806 |
0.9771 |
1.0461 |
0.8320 |
109.89 |
125.66 |
|
Support 2 |
1.4237 |
1.6258 |
76.16 |
0.7719 |
0.9738 |
1.0362 |
0.8260 |
109.26 |
124.61 |
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 |
1.4427 |
1.6522 |
78.67 |
0.7697 |
1.0019 |
1.0412 |
0.8411 |
112.31 |
128.88 |
|
Resist. 2 |
1.4373 |
1.6479 |
78.43 |
0.7663 |
0.9988 |
1.0370 |
0.8375 |
111.84 |
128.42 |
|
Resist. 1 |
1.4319 |
1.6436 |
78.19 |
0.7629 |
0.9957 |
1.0328 |
0.8340 |
111.37 |
127.96 |
|
Spot |
1.4211 |
1.6350 |
77.71 |
0.7562 |
0.9895 |
1.0244 |
0.8269 |
110.43 |
127.05 |
|
Support 1 |
1.4103 |
1.6264 |
77.23 |
0.7495 |
0.9833 |
1.0160 |
0.8198 |
109.49 |
126.13 |
|
Support 2 |
1.4049 |
1.6221 |
76.99 |
0.7461 |
0.9802 |
1.0118 |
0.8163 |
109.02 |
125.68 |
|
Support 3 |
1.3995 |
1.6178 |
76.75 |
0.7427 |
0.9771 |
1.0076 |
0.8127 |
108.55 |
125.22 |
v
Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
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