- Dollar and Risk Appetite Don’t Rally on Last Minute Deficit Resolution
- Euro Surprisingly Holds its Line as Sentiment Falters, CDS Hit Fresh Records
- Australian Dollar Takes a Hit after Doves Find Comfort in RBA Statement
- British Pound Faces Another Possible Economic Hit in Service Sector Data
- New Zealand Dollar Finally Coming Under Real Pressure as Risk Aversion Kicks In
- Swiss Franc: Did the SNB Turn USDCHF Around?
- Gold Rallies Through 1,650 as US Fiscal Crisis Traded for Global Growth Fears
Dollar and Risk Appetite Don’t Rally on Last Minute Deficit Resolution
It came down to the wire; but the US government pushed through an acceptable budget solution just before the country found itself in a technical default. Basic market reasoning would suggest that removing this immediate threat should have spurred translated into a rebound in risk appetite and allowed for a significant rally for the greenback. In fact, the opposite happened in both cases. Rather than seeing the relief in risk trends through a rebound in capital markets, the S&P 500 accelerated its two week tumble to break the rising trendline that has defined the bull market that began way back in the first quarter of 2009. In fact, Tuesday’s plunge was the worst since August 11th of last year and the last time we’ve seen seven consecutive days of selling on this particular benchmark was the run through October 10th, 2008 – during the worst of the financial crisis. As for the US dollar, the risk aversion effort led the greenback to notable gains against the commodity / high yield group (especially the Australian dollar which was already under pressure); but the core majors showed little appreciation. Yet, with pairs like EURUSD little moved and AUDUSD experiencing heavy selling, the Dow Jones FXCM Dollar Index (ticker = USDollar) managed a rally to clear its weak-long congestion.
While traders should certainly ‘go with the flow’ on dominant market moves; it is still important to understand why the prevailing currents develop – especially if you want to identify when conditions are changing going forward. It may seem contradictory that risk trends fell off and the dollar held back from a broad rally after Congress and President Obama approved the negotiated budget; but a closer reflection tells us this isn’t far off the mark. Though the countdown to a US budget crisis was dangerously close; there were was little traction behind speculation that the world’s largest economy would allow a technical default. Therefore, there was little positioning behind such a scenario. Furthermore, the market has shown a greater sensitivity to the economic implications this change would carry (not encouraging under any scenario). With the government reining in its spending, a significant source of output has been curbed at the worst possible time in the economic cycle – as US and global growth slows. And, just to remind us of the trouble the economy still faces, the personal spending data for June reported the first contraction in over two years. The slowdown in economic activity (and the slip in capital markets that entails) will find further update in the upcoming session with the release of the ISM service sector report (this segment of the business component of growth accounts for approximately 70 percent of output); but the real concern will be Friday’s NFPs. Through the past two years of recovery, the missing component has been new jobs.
And, back to the deficit situation’s influence over the dollar. This deal seems to have put Fitch and Moody’s off the war path to immediately cut the United States’ credit rating; but there seems to be universal agreement that this isn’t enough of a long-term solution to sustain the AAA rating. Expect this concern to return to the headlines – and if global financial markets are strained, it will come back sooner rather than later.
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: GBPUSD and EURUSD Hold Steady while AUDUSD and NZDUSD Correct
Euro Surprisingly Holds its Line as Sentiment Falters, CDS Hit Fresh Records
With a tumble in risk appetite, we would expect the most fundamentally exposed currencies to drop more quickly than those counterparts that have a higher yield (and therefore greater incentive for speculators to stick it out). Yet, the euro’s slide through the previous session was relatively restrained – while credit default swap rates on France, Italy and Spain (EU members very close to the core) actually hit new record highs. With a Portuguese bill auction scheduled for the upcoming session and Spain penciled in for the following day; the focus will remain on financial health. Yet, with the ECB rate decision on deck for Thursday, there may be a distraction to sideline larger euro-based moves.
Australian Dollar Takes a Hit after Doves Find Comfort in RBA Statement
Was the RBA that dovish with its monetary policy decision? According to Governor Glenn Stevens, even though the central bank held its benchmark lending rate; they did consider raising it to curb exceptional inflation. That notion was rebuffed by uncertainty in the global markets; and the markets took it as a purely dovish turn. The market is now pricing in 81 bps worth of rate cuts over 12 months.
British Pound Faces Another Possible Economic Hit in Service Sector Data
Given the lack of interest rate interest behind the sterling; the shift in risk trends has held little influence over the currency. However, the economic implications that have hit the capital markets so hard could certainly amplify the UK government’s austerity approach. Should the service sector activity gauge for July print well below expectations; murmurs of a double dip will start to make it to financial headlines.
New Zealand Dollar Finally Coming Under Real Pressure as Risk Aversion Kicks In
Where the kiwi dollar has been able to weather tempered rate expectations, a drop in expectations surrounding Chinese growth and isolated capital market hits; the currency won’t be able to avoid a genuine, market-wide risk aversion move. This is what we are beginning to see through the open to Wednesday’s session: a move away from even the high return assets as risk is eating away at confidence.
Swiss Franc: Did the SNB Turn USDCHF Around?
There was a brief surge in volatility for USDCHF shortly after the pair hit the tentative low through the transition period between the New York and Tokyo trading sessions. Some have taken this as a sign of SNB intervention; but that is unlikely. Not long ago, the Economy Minister said intervention has not and will not work. Even if this was an active effort by the central bank, another market run will easily overwhelm it.
Gold Rallies Through 1,650 as US Fiscal Crisis Traded for Global Growth Fears
Since we have dispelled the immediate belief that the US deficit agreement would lead to a broad-based appetite for dollars and risk appetite; it should be difficult to connect the dots to gold’s impressive surge to fresh record highs. As the global economy slows and the threat of an eventual US downgrade remains; the need for a dollar (and ultimately currency) alternative is as persistent as ever.
For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:00 |
CNY |
China Non-manufacturing PMI (JUL) |
57 |
May increase with manufacturing PMI |
|
|
1:30 |
AUD |
Trade Balance (Australian dollar) (JUN) |
2200M |
2333M |
Exports may be cut by strong AUD |
|
1:30 |
AUD |
Retail Sales s.a. (MoM) (JUN) |
0.4% |
-0.6% |
Domestic retail sales expected to increase due to seasons, but may budge RBA rate outlook, decisions |
|
1:30 |
AUD |
Retail Sales ex Inflation (QoQ) (Q2) |
0.4% |
0.0% |
|
|
2:30 |
CNY |
China HSBC Services PMI (JUL) |
54.1 |
HSBC survey expected to follow official |
|
|
6:00 |
CHF |
UBS Real Estate Bubble Index (Q2) |
0.63 |
Index reaching record highs |
|
|
6:30 |
AUD |
Foreign Reserves (Australian dollar) (JUL) |
A$41.1B |
Trending lower as major counterparts risky |
|
|
7:15 |
EUR |
French PMI Services (JUL F) |
54.2 |
54.2 |
Service indices in the Eurozone expected moderate, unchanged as global slowdown stall small recovery efforts in the region |
|
7:45 |
EUR |
Italian PMI Services (JUL) |
47.4 |
||
|
7:55 |
EUR |
German PMI Services (JUL F) |
52.9 |
52.9 |
|
|
8:00 |
EUR |
Euro-Zone PMI Composite (JUL F) |
50.8 |
50.8 |
|
|
8:00 |
EUR |
Euro-Zone PMI Services (JUL F) |
51.4 |
51.4 |
|
|
8:30 |
GBP |
PMI Services (JUL) |
53.2 |
53.9 |
British austerity seen damaging sector |
|
8:30 |
GBP |
Official Reserves (Changes) (JUL) |
-$148M |
May also decrease on EUR, USD risk |
|
|
9:00 |
EUR |
Euro-Zone Retail Sales (MoM) (JUN) |
0.5% |
-1.0% |
Slightly better reading on both sales may do little to change rate increase forecasts for the ECB as recovery slows |
|
9:00 |
EUR |
Euro-Zone Retail Sales (YoY) (JUN) |
-1.0% |
-1.8% |
|
|
11:00 |
USD |
MBA Mortgage Applications (JUL 29) |
-5.0% |
Improvement may point to better housing |
|
|
11:30 |
USD |
Challenger Job Cuts (YoY) (JUL) |
5.3% |
Preliminary data before Friday’s NFPs could suggest direction, may cause renewed risk aversion |
|
|
12:15 |
USD |
ADP Employment Change(JUL) |
100K |
157K |
|
|
14:00 |
USD |
ISM Non-Manufacturing Composite (JUL) |
53.5 |
53.3 |
Major data of the US session – expected slightly higher as services industry first to recovery after a recession |
|
14:00 |
USD |
Factory Orders (JUN) |
-0.8% |
0.8% |
Global slowdown dragging on demand |
|
14:30 |
USD |
DOE U.S. Gasoline Inventories (JUL 29) |
250K |
1022K |
Energy inventory drop suggests a slight pickup in activity during the last week, although increased demand may also be due to a decrease in prices |
|
14:30 |
USD |
DOE U.S. Refinery Utilization (JUL 29) |
0.0% |
-2.0% |
|
|
14:30 |
USD |
DOE U.S. Crude Oil Inventories (JUL 29) |
1500K |
2296K |
|
|
14:30 |
USD |
DOE Cushing OK Crude Inventory (JUL 29) |
430K |
||
|
14:30 |
USD |
DOE U.S. Distillate Inventory (JUL 29) |
1500K |
3385K |
|
|
22:45 |
NZD |
Participation Rate (QoQ) (Q2) |
68.4% |
68.7% |
Longer term New Zealand employment figures show slight improvement, though recovery may be due to increased demand for reconstruction |
|
22:45 |
NZD |
Unemployment Rate (Q2) |
6.5% |
6.6% |
|
|
22:45 |
NZD |
Employment Change (YoY) (Q2) |
2.0% |
1.8% |
|
|
22:45 |
NZD |
Employment Change (QoQ) (Q2) |
0.0% |
1.4% |
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 |
1.4201 |
1.6298 |
77.24 |
0.7678 |
0.9586 |
1.0819 |
0.8696 |
109.69 |
125.90 |
|
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 |
11.7861 |
1.7075 |
6.7846 |
7.7941 |
1.2054 |
Spot |
6.4105 |
5.2451 |
5.4194 |
|
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 |
1.4344 |
1.6389 |
78.20 |
0.7940 |
0.9655 |
1.1084 |
0.8822 |
111.70 |
127.71 |
|
Resist 1 |
1.4272 |
1.6343 |
77.72 |
0.7809 |
0.9621 |
1.0952 |
0.8759 |
110.70 |
126.80 |
|
Pivot |
1.4212 |
1.6284 |
77.34 |
0.7726 |
0.9584 |
1.0874 |
0.8721 |
109.95 |
126.06 |
|
Support 1 |
1.4140 |
1.6238 |
76.86 |
0.7595 |
0.9550 |
1.0742 |
0.8658 |
108.95 |
125.16 |
|
Support 2 |
1.4080 |
1.6179 |
76.48 |
0.7512 |
0.9513 |
1.0664 |
0.8620 |
108.20 |
124.42 |
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 |
1.4398 |
1.6457 |
78.11 |
0.7789 |
0.9686 |
1.0967 |
0.8821 |
111.37 |
127.49 |
|
Resist. 2 |
1.4349 |
1.6417 |
77.90 |
0.7762 |
0.9661 |
1.0930 |
0.8789 |
110.95 |
127.09 |
|
Resist. 1 |
1.4300 |
1.6377 |
77.68 |
0.7734 |
0.9636 |
1.0893 |
0.8758 |
110.53 |
126.69 |
|
Spot |
1.4201 |
1.6298 |
77.24 |
0.7678 |
0.9586 |
1.0819 |
0.8696 |
109.69 |
125.90 |
|
Support 1 |
1.4102 |
1.6219 |
76.80 |
0.7622 |
0.9536 |
1.0745 |
0.8634 |
108.85 |
125.10 |
|
Support 2 |
1.4053 |
1.6179 |
76.58 |
0.7594 |
0.9511 |
1.0708 |
0.8603 |
108.43 |
124.70 |
|
Support 3 |
1.4004 |
1.6139 |
76.37 |
0.7567 |
0.9486 |
1.0671 |
0.8571 |
108.01 |
124.30 |
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.
