- Dollar as Volatile as Equities as Market Indulges in Crises
- Euro Finds New Life in Crisis Fears on French Bank Rumors
- British Pound Collapses as BoE Warms Up to Further Stimulus
- Australian Dollar Surprisingly Restrained after Employment Hit
- Swiss Franc Bulls Show Little Regard for Desperate SNB Moves
- Japanese Yen: Is 76 the Intervention Level or Perhaps 75?
- Gold Surpasses $1,800 Despite Futures Margin Hike
Dollar as Volatile as Equities as Market Indulges in Crises
Volatility is still the primary mark for the world’s capital markets and the US dollar this week. Direction, in contrast, has certainly wavered. This combination of excessive activity and lack of a clear bearing translates into trading conditions that are exceptionally sensitive to bombastic headlines and fickle sentiment. In other words, these are dangerous trading conditions that merit caution. From our favored sentiment indicator, the S&P 500, we have seen excessive volatility against a series of three extraordinary daily swings. To give a sense of activity, the VIX – the popular ‘Fear’ index – is currently holding at levels that match highs we haven’t seen since March of 2009. Naturally, this uncertainty spills over to FX market and the market’s most liquid currency. The US Dollar (ticker = USDollar) has carved out an ever-expanding range over the past week while the currency-based volatility index (now at 13.7 percent) is currently standing at its highest level since July 1st, 2010. What does this mean for traders? Congestion is highly susceptible to breakout; but trends are just as easily sidelined by unexpected headlines.
For the dollar, our focus is still on the currency’s unique value as a safe haven. Carry unwinding is more appropriately assigned to the Japanese yen and orderly capital flows from troubled regions (like the Euro Zone or developing Asia) are more likely to funnel into Switzerland. Therefore, our focus remains on the absolute need for liquidity. Rumblings that a major French bank was on the verge of a funding crisis (more on that below) effectively furthered fears that a bank-level funding crisis is developing against the back drop of an economic slowdown, stimulus withdrawal and sovereign debt troubles. Like the Bank of America and Morgan Stanley rumors before it, this headline wouldn’t gain much traction; but the consistent impact this gossip has tells us that a true development would have a serious impact on these fragile markets.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: Why Did the Dollar Drop When the Fed Passed Over QE3?
Euro Finds New Life in Crisis Fears on French Bank Rumors
Over the past week, the United States’ financial troubles have stolen the global headlines that were previously dominated by the sovereign debt crisis in the Euro Zone. Yet, despite the distraction, troubles in the Euro-area didn’t subsequently improve. In fact, they actually worsened with as conditions in the globe’s other largest economies deteriorated. Through this past session, we have seen the slide into financial crisis take its next natural step: trouble in funding at the bank level. Though it may have only been a rumor; headlines that French bank Societe Generale was facing liquidity troubles was enough to play on euro traders’ fears. Considering SocGen was one of lower funded French banks in the EU’s second stress test this year; and there were concurrent rumors that France’s top credit rating was at risk of downgrade; it was particularly exposed to negative speculation. Of course, it is general pessimism over current conditions and skepticism that bailout efforts are generally falling short of their objectives that is keeping the market on the hunt for any whiff of trouble in this troubled region.
Ultimately, a stern rejection of liquidity rumors from SocGen brass and a reaffirmation of France’s AAA status by all three credit agencies smothered Wednesday’s euro crisis fears. That said, neither the currency nor the region’s equity benchmarks recovered much ground after the air was cleared. This tells us that these markets will be just as sensitive to negative headlines and rumors alike going forward. In the meantime, it is also worth noting that Greece reported its budget deficit from January to July jumped 24 percent from the same period a year ago to 15.5 billion euros. Promises to rein in the nation’s deficit are clearly hitting resistance – not due to a lack of effort but rather to fading growth.
British Pound Collapses as BoE Warms Up to Further Stimulus
Over the past few months, the British pound has played the role of perfect counterpart to more fundamentally active currencies. However, we may soon see the sterling soon turn into a more active participant in the FX market. In the Bank of England’s Quarterly Inflation Report, the policy authority reiterated its belief that inflation would settle after peaking sometime this year; but observant traders were more interested in their propensity to turn to further stimulus should conditions warrant it. And, given their reflection on building troubles, that seems more likely.
Australian Dollar Surprisingly Restrained after Employment Hit
It doesn’t look like the Australian dollar needs much coaxing to tumble with risk aversion overriding the currency’s bearings; but the reaction to today’s employment data shows us that a fundamental focus can act as an anchor to positive and negative developments. From the wires, we saw that full-time payrolls dropped by 22,200 and the jobless rate unexpectedly jumped to 5.1 percent; but AUDUSD actually advanced.
Swiss Franc Bulls Show Little Regard for Desperate SNB Moves
The Swiss National Bank is looking increasingly desperate – and more importantly impotent. Realizing its recent effort to flood the market with francs and lower its effective lending rate to near zero has failed to dissuade the market’s interest in the Swiss currency; the group stepped it up by vowing a “significant increase” in liquidity along with a revival of FX swaps. The franc barely budged from record highs.
Japanese Yen: Is 76 the Intervention Level or Perhaps 75?
At what level will the Japanese government or central bank will intervene again? Is it 76, 75? This is a common question for market participants; but the tradability of such an event is limited. Since it is essentially impossible to tell when they will act and their presence has barely stirred the market recently; there isn’t enough there to place a timely, meaningful trade. Instead, the focus should remain on larger risk trends.
Gold Surpasses $1,800 Despite Futures Margin Hike
We have just entered Thursday and gold is already looking at its best weekly performance since 1980. The anti-currency is exactly what the market is looking for now. The bind of financial troubles, burgeoning debts, troubles stimulus schemes and excessive volatility leaves few outlets for safety. It is this painful combination that has led the precious metal to surpass $1,800 for the first time and momentum is still there.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:00 |
NZD |
ANZ Consumer Confidence (MoM) (AUG) |
-2.8% |
Consumer confidence may be hit by meltdown in markets |
|
|
1:00 |
NZD |
ANZ Consumer Confidence Index (AUG) |
109.4 |
||
|
1:00 |
AUD |
Consumer Inflation Expectation (AUG) |
3.4% |
Could decrease due to slowdown |
|
|
1:30 |
AUD |
Unemployment Rate (JUL) |
4.9% |
4.9% |
Slower pace of employment will indicate Australian economy is slowing, pay hurt AUD due to sentiment, but also less pressure on rate hikes |
|
1:30 |
AUD |
Participation Rate (JUL) |
65.6% |
65.6% |
|
|
1:30 |
AUD |
Employment Change (JUL) |
10.0K |
23.4K |
|
|
1:30 |
AUD |
Full Time Employment Change (JUL) |
59K |
||
|
1:30 |
AUD |
Part Time Employment Change (JUL) |
-35.6K |
||
|
2:00 |
JPY |
Tokyo Average Office Vacancies (JUL) |
8.81 |
Increasing vacancies indicates slowness |
|
|
6:00 |
EUR |
German Wholesale Price Index (MoM) (JUL) |
-0.6% |
Wholesale prices correlated, but may not indicate cost passed down to consumers |
|
|
6:00 |
EUR |
German Wholesale Price Index (YoY) (JUL) |
8.5% |
||
|
12:30 |
New Housing Price Index (YoY) (JUN) |
2.1% |
1.9% |
Long-term increase in housing points to stronger construction sector |
|
|
12:30 |
CAD |
New Housing Price Index (MoM) (JUN) |
0.3% |
0.4% |
|
|
12:30 |
CAD |
International Merchandise Trade (CAD) (JUN) |
-0.8B |
-0.8B |
Expected deficit again as US demand falls |
|
12:30 |
USD |
Trade Balance (JUN) (JUN) |
-$48.0B |
-$50.2B |
Deficit may shrink due to less imports |
|
12:30 |
USD |
Initial Jobless Claims (AUG 5) |
405K |
400K |
Weekly job claims could show current snapshot of the US labor market |
|
12:30 |
USD |
Continuing Claims (JUL 30) |
3725K |
3730K |
|
|
13:45 |
USD |
Bloomberg Consumer Comfort (AUG 7) |
-48.7 |
-47.6 |
Index may fall due to uncertainty |
|
14:30 |
USD |
EIA Natural Gas Storage Change (AUG 5) |
34 |
44 |
Less storage points to increased demand |
|
CNY |
Actual FDI (YoY) (JUL) |
2.8% |
Foreign investment may slow as China puts restrictions on investment; increased money supply may indicate more tightening by the PBoC, government restrictions |
||
|
CNY |
New Yuan Loans (JUL) |
550.0B |
633.9B |
||
|
CNY |
Money Supply – M0 (YoY) (JUL) |
14.4% |
|||
|
CNY |
Money Supply – M1 (YoY) (JUL) |
13.5% |
13.1% |
||
|
CNY |
Money Supply – M2 (YoY) (JUL) |
15.8% |
15.9% |
||
|
GBP |
Nationwide Consumer Confidence (JUL) |
51 |
Has been in downward trajectory |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
8:00 |
EUR |
ECB Publishes Aug. Monthly Report |
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 |
0.8275 |
1.0275 |
1.0800 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6475 |
81.50 |
0.8000 |
1.0000 |
1.0400 |
0.8750 |
113.50 |
140.00 |
|
Spot |
1.4209 |
1.6158 |
76.82 |
0.7295 |
0.9906 |
1.0259 |
0.8147 |
109.16 |
124.13 |
|
Support 1 |
1.4000 |
1.5935 |
77.00 |
0.7000 |
0.9425 |
0.9925 |
0.7745 |
109.00 |
124.00 |
|
Support 2 |
1.3700 |
1.5750 |
76.25 |
0.6800 |
0.9055 |
0.9700 |
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 |
12.3200 |
1.7738 |
7.2359 |
7.8051 |
1.2189 |
Spot |
6.5520 |
5.2434 |
5.5368 |
|
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 |
1.4496 |
1.6419 |
77.79 |
0.7419 |
1.0052 |
1.0528 |
0.8548 |
112.51 |
127.51 |
|
Resist 1 |
1.4353 |
1.6288 |
77.30 |
0.7357 |
0.9979 |
1.0393 |
0.8347 |
110.84 |
125.82 |
|
Pivot |
1.4257 |
1.6206 |
76.83 |
0.7269 |
0.9873 |
1.0281 |
0.8215 |
109.57 |
124.56 |
|
Support 1 |
1.4114 |
1.6075 |
76.34 |
0.7207 |
0.9800 |
1.0146 |
0.8014 |
107.90 |
122.87 |
|
Support 2 |
1.4018 |
1.5993 |
75.87 |
0.7119 |
0.9694 |
1.0034 |
0.7882 |
106.63 |
121.62 |
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 |
1.4428 |
1.6342 |
77.88 |
0.7440 |
1.0036 |
1.0438 |
0.8297 |
111.17 |
126.07 |
|
Resist. 2 |
1.4373 |
1.6296 |
77.62 |
0.7404 |
1.0004 |
1.0394 |
0.8259 |
110.67 |
125.58 |
|
Resist. 1 |
1.4318 |
1.6250 |
77.35 |
0.7368 |
0.9971 |
1.0349 |
0.8222 |
110.16 |
125.10 |
|
Spot |
1.4209 |
1.6158 |
76.82 |
0.7295 |
0.9906 |
1.0259 |
0.8147 |
109.16 |
124.13 |
|
Support 1 |
1.4100 |
1.6066 |
76.29 |
0.7222 |
0.9841 |
1.0169 |
0.8072 |
108.16 |
123.16 |
|
Support 2 |
1.4045 |
1.6020 |
76.02 |
0.7186 |
0.9808 |
1.0124 |
0.8035 |
107.65 |
122.68 |
|
Support 3 |
1.3990 |
1.5974 |
75.76 |
0.7150 |
0.9776 |
1.0080 |
0.7997 |
107.15 |
122.19 |
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.
