- Dollar and S&P 500 Head Into the Fed Gravitational Pull
- Euro Hit First by Lack of Greece Rescue, Then Italian Downgrade
- British Pound Drops as BoE Quarterly Bulletin Praises Past Bond Purchases
- Australian Dollar Jumps after Minutes, Will this Rebound Grow Legs?
- Japanese Yen Skimming Record Highs Against the Dollar
- New Zealand Dollar Traders Await Trade Data for Growth, Rate Bearings
- Gold Drops Sharply Despite Renewed European Troubles, Dollar Doubts
Dollar and S&P 500 Head Into the Fed Gravitational Pull
The Fed rate decision is less than 48 hours away; and speculation surrounding the various outcomes for this event will go to work on the dollar and broader capital markets. What kind of influence can a looming event like a FOMC policy announcement have prior to its release? That depends on how much impact we can reasonably expect in its aftermath. And, when we consider the implications that additional stimulus from the world’s largest central bank can have on faltering global sentiment; we can reasonable assume that the masses will be fully preoccupied by this particular event. We can already see this anxiety playing out now. For the Dow Jones FXCM Dollar Index (ticker = USDollar), we find the greenback holding to the congestion it carved out over the past week (at the very top of its five-month range). Alternatively, our favored benchmark for investor sentiment (the S&P 500) has retreated after a week-long rally from the top of a five-week long range. Both of these developments are a sign of a critical lack of conviction – typically ahead of major event risk.
Through the opening 24 hours of the new trading week, the markets were looking to ‘settle’. For risk-based capital markets, that translates into the natural correction after last week’s consistent advance. With the dollar, the lack of conviction was already apparent as the currency floundered. Over the next 36 hours, we will see the conditions further distort for the greenback. That translates into increasingly volatile swings for the currency and risk trends along with an inability to maintain any jump start and maintain any meaningful trends. Naturally, that also suggests the market will overlook most other lesser, fundamental catalysts. That said, the NAHB Housing Market Index released this previous session and new home starts due in the upcoming session will carry little weight. The same holds true for President Obama’s proposal for $1.5 trillion tax increase program to help work down the deficit (the likelihood that this passes Congress is very low).
However, there is one ‘theme’ that can compete with the possibility of further stimulus from the Fed for the dollar’s attention: strong swings in risk appetite trends. There are two reasons that the possibility of further stimulus is influential: it naturally boosts the money supply and it could theoretically boost risk appetite trends. Therefore, sentiment itself is an ultimate consideration. That said, trouble in Europe and the pullback in capital markets is a key reason why pairs like EURUSD and GBPUSD are at or near multi-month lows currently.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video:Euro Faces a Revived Greek Crisis, Dollar a Renewed Bank Crisis
Euro Hit First by Lack of Greece Rescue, Then Italian Downgrade
The euro was hit by a wave of disappointing news over the past 24 hours. Negative headlines began over the weekend when it became clear that the EU / IMF meeting over Greece’s first and second rescue programs wouldn’t gain any meaningful traction. With the Monday call coming to a close without any definable progress, investors are starting to worry that the sixth tranche of aid is beyond Greece’s reach (much less the viability of the second bailout program agreed to back in July). Greece is a consistent pain for the euro; but something with a little more shock value for the euro is Standard & Poor’s downgrade of Italy’s sovereign rating (from A+ to A) after the European session close Monday. This will certainly have carry over implications. Remember, if Italian 10-year bond yields surpass 7 percent, it signals to the market a bailout is coming. Then there is the newest issue: news that a major Chinese bank is no longer excepting FX forwards and swaps from European banks.
British Pound Drops as BoE Quarterly Bulletin Praises Past Bond Purchases
Though the Bank of England didn’t come out and say it was considering further stimulus actions in the near future; their reflections on the effectiveness of the existing 200 billion pounds in bond purchases suggests they are justifying a possible future move. According to the central bank’s assumptions, the stimulus program increased GDP by 1.5 to 2.0 percent and added 0.75 to 1.50 percent to inflation. If growth is seen tipping negative in the near future (which seems likely), this could be a signal that they are seriously considering this option.
Australian Dollar Jumps after Minutes, Will this Rebound Grow Legs?
We have discussed the over-blown speculation surrounding Australian rate expectations (the market is pricing in approximately 145 bps worth of cuts over the coming 12 months); but the market doesn’t necessarily run on realistic projections. However, when the people setting rates are saying they are over-extended; it adds a little more legitimacy to the notion. And, that is exactly what the RBA minutes telegraphed this morning.
Japanese Yen Skimming Record Highs Against the Dollar
USDJPY has sunk back to the well-worn 76.35 level through this past session. We are bouncing along what has been a record low for this pair since March. Considering that we had to fight several rounds of stimulus, many iterations of one-off interventions and a consistent G7 threat for coordinated action on the yen to return to this level; we see the power of natural capital flow. So what will Japan / the BoJ do to step up the fight?
New Zealand Dollar Traders Await Trade Data for Growth, Rate Bearings
Interest rate expectations are the New Zealand dollar’s saving grace. Yet, the modest approximate 50 bps worth of hikes seen over the coming year hardly poses a good offset for growing global risk. That puts the kiwi in a precarious position. Bad headlines could finally shake the market to reality. That is why we’ll keep an eye on the upcoming release of the 2Q trade figures.
Gold Drops Sharply Despite Renewed European Troubles, Dollar Doubts
The US dollar is facing serious headwinds as the Fed speculation ramps up while the European crisis is deepening. Between the currencies, it is difficult to establish who is worse off. However, if we are looking at this as a reflection of the overall appeal of currencies; then there is little doubt that their strength is waxing. Then why was gold off through Monday’s session? Just like FX and capital markets, the metal was settling.
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**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 |
|
1:30 |
AUD |
Reserve Bank’s Board September Minutes |
RBA’s newest minutes may reveal bank’s view of a slowing global recovery |
||
|
5:00 |
JPY |
Coincident Index (JUL F) |
109 |
Japanese indices seen to taper after a few months of recovery after March’s earthquake |
|
|
5:00 |
JPY |
Leading Index (JUL F) |
106 |
||
|
5:45 |
CHF |
SECO September 2011 Economic Forecasts |
May take into account of EURCHF peg |
||
|
6:00 |
EUR |
German Producer Prices (MoM) (AUG) |
0.0% |
0.7% |
Moderating prices could shift ECB’s focus onto peripheral stability rather than price stability |
|
6:00 |
EUR |
German Producer Prices (YoY) (AUG) |
5.8% |
5.8% |
|
|
6:00 |
CHF |
Trade Balance (Swiss franc) (AUG) |
2.81B |
August figures may be the last decline for exports on SNB peg |
|
|
6:00 |
CHF |
Exports (MoM) (AUG) |
-3.0% |
||
|
6:00 |
CHF |
Imports (MoM) (AUG) |
0.1% |
||
|
7:00 |
JPY |
Convenience Store Sales (YoY) (AUG) |
9.5% |
Advanced gauge of Japanese spending |
|
|
8:00 |
EUR |
Italian Industrial Orders s.a. (MoM) (JUL) |
-1.5% |
4.1% |
July figures unlikely to move European markets as focus returns to Greece |
|
8:00 |
EUR |
Italian Industrial Orders n.s.a. (YoY) (JUL) |
8.3% |
13.6% |
|
|
8:00 |
EUR |
Italian Industrial Sales s.a. (MoM) (JUL) |
-1.7% |
||
|
8:00 |
EUR |
Italian Industrial Sales n.s.a. (YoY) (JUL) |
10.8% |
||
|
9:00 |
EUR |
EU17 ZEW Survey (Economic Sentiment) (SEP) |
-40 |
ZEW expectations expected to taper on peripheral troubles |
|
|
9:00 |
EUR |
German ZEW Survey (Current Situation) (SEP) |
45 |
53.5 |
|
|
9:00 |
EUR |
German ZEW Survey (Economic Sentiment) (SEP) |
-45 |
-37.6 |
|
|
12:30 |
Leading Indicators (MoM) (AUG) |
0.2% |
0.2% |
Growth bucking the trend as Canadian economy and domestic demand resilient |
|
|
12:30 |
CAD |
Wholesale Sales (MoM) (JUL) |
0.9% |
0.2% |
|
|
12:30 |
USD |
Housing Starts (AUG) (AUG) |
590K |
604K |
Weaker construction adds concern of slowing economy, may prompt additional fed support |
|
12:30 |
USD |
Housing Starts (MoM) (AUG) |
-2.3% |
-1.5% |
|
|
12:30 |
USD |
Building Permits (AUG) |
590K |
601K |
|
|
12:30 |
USD |
Building Permits (MoM) (AUG) |
-1.8% |
-3.2% |
|
|
22:45 |
NZD |
Current Account Balance (Q2) |
-0.671B |
-0.097B |
New Zealand deficit gap closing slowly as new government targets surplus |
|
22:45 |
NZD |
Current Account Deficit-GDP Ratio (Q2) |
-4.0% |
-4.3% |
|
|
22:45 |
NZD |
Net Migration s.a. (AUG) |
-220 |
||
|
23:00 |
GBP |
Nationwide Consumer Confidence (AUG) |
47 |
49 |
Reaching new post-recession low |
|
23:50 |
JPY |
Merchandise Trade Balance Total (Yen) (AUG) |
-300.0B |
70.0B |
Merchandise trade expected to fall sharply due to record yen, slower demand for Japanese goods |
|
23:50 |
JPY |
Adjusted Merchandise Trade Balance (Yen) (AUG) |
-22.1B |
-30.5B |
|
|
23:50 |
JPY |
Merchandise Trade Exports (YoY) (AUG) |
8.0 |
-3.4 |
|
|
23:50 |
JPY |
Merchandise Trade Imports (YoY) (AUG) |
14.3 |
9.9 |
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 |
1.4500 |
1.6745 |
86.00 |
0.9050 |
1.0275 |
1.0750 |
0.9020 |
113.50 |
146.05 |
|
Resist 1 |
1.4000 |
1.6600 |
81.50 |
0.8840 |
1.0000 |
1.0800 |
0.8750 |
110.00 |
140.00 |
|
Spot |
1.3701 |
1.5718 |
76.52 |
0.8809 |
0.9890 |
1.0237 |
0.8279 |
104.84 |
120.28 |
|
Support 1 |
1.3500 |
1.5700 |
76.35 |
0.7800 |
0.9425 |
1.0200 |
0.7745 |
104.00 |
121.00 |
|
Support 2 |
1.2900 |
1.5350 |
75.50 |
0.7500 |
0.9055 |
0.9925 |
0.6850 |
100.00 |
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 |
8.5800 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
13.2500 |
1.8000 |
8.1025 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
13.1162 |
1.8045 |
7.6632 |
7.7941 |
1.2597 |
Spot |
6.6806 |
5.4364 |
5.6749 |
|
Support 1 |
12.6000 |
1.6500 |
6.5575 |
7.7490 |
1.2000 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.5200 |
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 |
1.3892 |
1.5837 |
77.29 |
0.8934 |
1.0017 |
1.0461 |
0.8409 |
106.97 |
122.33 |
|
Resist 1 |
1.3796 |
1.5778 |
76.90 |
0.8872 |
0.9953 |
1.0349 |
0.8344 |
105.91 |
121.30 |
|
Pivot |
1.3692 |
1.5705 |
76.62 |
0.8812 |
0.9860 |
1.0258 |
0.8258 |
104.93 |
120.39 |
|
Support 1 |
1.3596 |
1.5646 |
76.23 |
0.8750 |
0.9796 |
1.0146 |
0.8193 |
103.87 |
119.36 |
|
Support 2 |
1.3492 |
1.5573 |
75.95 |
0.8690 |
0.9703 |
1.0055 |
0.8107 |
102.89 |
118.45 |
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 |
1.4393 |
1.6392 |
77.65 |
0.8030 |
0.9949 |
1.0814 |
0.8613 |
110.70 |
126.19 |
|
Resist. 2 |
1.4343 |
1.6348 |
77.43 |
0.7994 |
0.9922 |
1.0773 |
0.8578 |
110.27 |
125.77 |
|
Resist. 1 |
1.4293 |
1.6304 |
77.22 |
0.7959 |
0.9894 |
1.0732 |
0.8543 |
109.83 |
125.34 |
|
Spot |
1.4193 |
1.6215 |
76.78 |
0.7888 |
0.9839 |
1.0650 |
0.8473 |
108.97 |
124.49 |
|
Support 1 |
1.4093 |
1.6126 |
76.34 |
0.7817 |
0.9784 |
1.0568 |
0.8403 |
108.11 |
123.64 |
|
Support 2 |
1.4043 |
1.6082 |
76.13 |
0.7782 |
0.9756 |
1.0527 |
0.8368 |
107.67 |
123.22 |
|
Support 3 |
1.3993 |
1.6038 |
75.91 |
0.7746 |
0.9729 |
1.0486 |
0.8333 |
107.24 |
122.79 |
v
Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
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