- Dollar Avoids the S&P 500 Guided Bullish Breakout as the Market Focuses on Tomorrow’s FOMC Decision
- Euro Fundamental Traders will have to Balance Dollar Flows with Outcome of Debt Auctions
- British Pound Tumbles after Poor Calendar Showing, Interest Turns to Fiscal Concerns
- Australian Dollar Rallies after RBA Governor Stevens Makes Hawkish Comments about the Future
- Canadian Dollar Let Down by Capital Flow Report, Inflation Figures Hold Potential for Tomorrow
- New Zealand Dollar Undermined by Deterioration in Growth Prospects
Dollar Avoids the S&P 500 Guided Bullish Breakout as the Market Focuses on Tomorrow’s FOMC Decision
Any hope that the essential, underlying correlations that have anchored the markets to capital flows and speculative influences would return this week was dashed at the very start Monday. On the one hand, we were confronted with an impressive advance by the S&P 500 through resistance to a fresh four-month high. Naturally, we would interpret this as a clear sign of rising risk appetite that would shift funds out of safe havens and into those assets that maintain a high yield or the promise for quick capital gains. Yet, when we look at the greenback’s performance – the currency market’s recently suspect harbor from rough financial seas – we see that the Dollar Index maintained its measured range above 81. We could simply write this off as a dollar-specific deviation from dominant fundamental trends; but that wouldn’t account for the modest bullish bearings of the Swiss franc and Japanese yen. Through the end of the day, we have found the greenback in different states of performance against its various pairs. At one end of the spectrum, AUDUSD rallied to close out a clean break of 0.94. From there, we have the pairs that are anchored to ranges awaiting guidance: EURSUD above 1.30 and USDJPY just below 86. Finally, we have GBPUSD, which has made significant progress with a bearish reversal. In the end, all these pairs were driven by different factors. Now, we wait for something to unify this dollar-based troop and broader speculative markets; and we may find just that with tomorrow’s FOMC rate decision.
It may come as a surprise to many fundamental traders that the market has built up considerable stock in Tuesday afternoon’s central bank announcement. To the novice, this would seem a non-event; because the group has shown very little inclination to change the benchmark lending rate. This is certainly true. Even the intermediate market participant would likely come to the same conclusion as there has been little guidance by the policy group to suggest they will expand their stimulus efforts. This too is a good point. However, the experienced fundamental trader knows not to use economic probabilities alone; but rather, you align the likely outcome with the prevailing convictions of the crowd. This past Tuesday, we marked a sharp drop in the US dollar that was unaccompanied by a concurrent rally in investor sentiment (not a month ago, we would have fully expected the two to develop parallel to each other). Needing an explanation for this move (the greenback playing catch up to the positive bias capital markets had developed the previous two weeks was not sufficient apparently), the financial media jumped on the building speculation amongst analysts and market participants that the Fed would expand its stimulus program beyond its current $2 trillion cap. The need for such a policy expansion is questionable at this point in time. The outlook for the remainder of the year has certainly deteriorated and unemployment is expected to be a lasting ailment for the economy; but an increase in liquidity aimed at purchasing mortgage-backed securities, other agency debt, Treasuries and/or toxic securities wouldn’t necessarily help the deep-rooted problems. This is especially true when we reflect on the disconnect between the liquidity available to financial institutions and the accessibility of loans to consumers and businesses. A change is policy is unlikely; but developments that occur against expectations typically have the greatest market-moving potential. Aside from this specific event, we shouldn’t overlook the update by the NBER that called an end to the worst recession since the Great Depression by July 2009 (after an 18 month slump) nor tomorrow’s housing starts data for August – the housing sector could further drag the economy down.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD presents an enticing reversal depending on the FOMC
Euro Fundamental Traders will have to Balance Dollar Flows with Outcome of Debt Auctions
It was hard to establish a clear bias on the euro Monday because so many of its counterparts were following their own agenda (namely the US dollar, Swiss franc, British pound, Japanese yen and Aussie dollar). That being said, the developments that we would see through the session weren’t very encouraging. On the one hand, we would see Fitch affirm Germany’s top rating and France lowered its deficit/GDP modestly to 7.8 percent. However, it is far more concerning to see the Bundesbank warning that Germany’s banks’ earnings outlook was deteriorating and the ECB had to buy another 323 billion euros of government debt last week. The euro could take control of its own future tomorrow (before the FOMC at least) with Spain, Greece and Ireland set to auction bonds. Don’t expect the full subscription not to be met; rather watch yields.
British Pound Tumbles after Poor Calendar Showing, Interest Turns to Fiscal Concerns
The UK housing sector deteriorated and the money supply contracted according to macro data released on Monday. Notably, mortgage approvals for August dropped to a 16-month low and the Rightmove House Prices indicator contracted for a third consecutive month; but this aren’t top concerns. Tomorrow’s public finance numbers on the other hand are. Just today, Moody’s said austerity had saved the UK’s top rating.
Australian Dollar Rallies after RBA Governor Stevens Makes Hawkish Comments about the Future
The RBA’s minutes were expected to carry considerable weight early Tuesday morning; but the Aussie dollar had already found its pace from comments issued by Governor Glenn Stevens on the previous day. With a defacto hawkish bias; the group’s statement was already put into perspective. Suggestions of slightly stronger domestic conditions and higher resource sector potential clearly paved the way for future hikes.
Canadian Dollar Let Down by Capital Flow Report, Inflation Figures Hold Potential for Tomorrow
Following a record inflow of investment capital two months ago, the balance of international transactions with Canada has notably cooled. The July gap measured C$5.48 billion while wholesale sales held negative for a fourth consecutive month. This data aside though, the real driver is tomorrow’s CPI data. The potential for BoC rate hikes has all but disappeared. All we have left is consumer inflation pressure to build a defense.
New Zealand Dollar Undermined by Deterioration in Growth Prospects
The New Zealand Institute of Economic Research (NZIER) lowered its expectations for economic activity early Tuesday morning. From a forecast three months ago of fiscal 2010 growth (through March 31, 2010) running at a 3.1 percent clip; the projection cooled to 2.8 percent. The evidence for RBNZ Governor Alan Bollard to hold rates for an extended period seems be developing before our eyes.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
22:45 |
New Zealand Net Migration s.a. (AUG) |
970 |
July migration highest in 5 months. |
|
|
NZD |
3:00 |
Credit Card Spending s.a. (MoM) (AUG) |
-1.2% |
New Zealand credit card spending rose in July for a ninth month. |
|
|
NZD |
3:00 |
Credit Card Spending (YoY) (AUG) |
2.7% |
||
|
JPY |
5:00 |
Coincident Index (JUL F) |
101.8 |
Japan’s leading index dipped in July to the lowest level since February. |
|
|
JPY |
5:00 |
Leading Index (JUL F) |
98.2 |
||
|
JPY |
6:00 |
Machine Tool Orders (YoY) (AUG F) |
170.0% |
Increased YoY in last 9 months. |
|
|
CHF |
6:15 |
Trade Balance (Swiss franc) (AUG) |
2.84B |
Swiss trade surplus rose to a record in July as companies imported less oil and power due to energy prices. |
|
|
CHF |
6:15 |
Exports (MoM) (AUG) |
1.9% |
||
|
CHF |
6:15 |
Imports (MoM) (AUG) |
-4.0% |
||
|
CHF |
7:00 |
Money Supply M3 (YoY) (AUG) |
6.5% |
Quickened to fastest in 7 months. |
|
|
GBP |
8:30 |
Public Finances (PSNCR) (Pounds) (AUG) |
8.1B |
-4.1B |
U.K. posted smaller July budget deficit than forecast. |
|
GBP |
8:30 |
Public Sector Net Borrowing (Pounds) (AUG) |
12.5B |
3.2B |
|
|
11:00 |
Consumer Price Index (MoM) (AUG) |
0.0% |
0.5% |
Canada’s CPI rose in July from the prior month after declining in June. |
|
|
CAD |
11:00 |
Consumer Price Index (YoY) (AUG) |
1.9% |
1.8% |
|
|
CAD |
11:00 |
Bank Canada CPI Core (MoM) (AUG) |
0.1% |
-0.1% |
Annual core CPI increased dipped in July from 1.7% June reading. |
|
CAD |
11:00 |
Bank Canada CPI Core (YoY) (AUG) |
1.6% |
1.6% |
|
|
USD |
12:30 |
Housing Starts (MoM) (AUG) |
0.7% |
1.7% |
Housing likely increased for a second month in August. |
|
USD |
12:30 |
Housing Starts (AUG) |
550K |
546K |
|
|
USD |
12:30 |
Building Permits (MoM) (AUG) |
0.2% |
-4.1% |
Building permits fell 4.1% in July for a third time in four months. |
|
USD |
12:30 |
Building Permits (AUG) |
560K |
559K |
|
|
USD |
18:15 |
Federal Open Market Committee Interest Rate Decision |
0.25% |
0.25% |
Market implies no chance of hike. |
|
USD |
21:00 |
ABC Consumer Confidence (SEP 19) |
-43 |
Held at -43 in the last two weeks. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
AUD |
1:30 |
Reserve Bank of Australia Meeting Minutes |
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 |
EUR/GBP |
|
Resistance 2 |
1.3815 |
1.6375 |
95.05 |
1.0600 |
1.0922 |
0.9850 |
0.7635 |
127.60 |
146.05 |
0.8725 |
|
Resistance 1 |
1.3500 |
1.5965 |
89.00 |
1.0460 |
1.0750 |
0.9665 |
0.7440 |
120.00 |
140.00 |
0.8600 |
|
Spot |
1.3061 |
1.5546 |
85.69 |
1.0048 |
1.0282 |
0.9472 |
0.7307 |
111.93 |
133.22 |
0.8402 |
|
Support 1 |
1.2500 |
1.5300 |
83.00 |
0.9900 |
0.9950 |
0.8100 |
0.6850 |
103.80 |
125.00 |
0.8065 |
|
Support 2 |
1.2150 |
1.5125 |
80.00 |
0.9650 |
0.9700 |
0.7835 |
0.6585 |
100.00 |
119.00 |
0.7780 |
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 |
|
Resistance 2 |
14.4500 |
1.8025 |
8.7915 |
7.8165 |
1.4945 |
Resistance 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resistance 1 |
13.8500 |
1.6755 |
8.3675 |
7.8075 |
1.4655 |
Resistance 1 |
7.5800 |
5.5400 |
6.1150 |
|
Spot |
12.7739 |
1.4940 |
7.1363 |
7.7642 |
1.3337 |
Spot |
7.0034 |
5.7017 |
6.0480 |
|
Support 1 |
12.0500 |
1.4500 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
1.1650 |
5.3000 |
5.8000 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
7.0000 |
5.1000 |
5.6000 |
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 |
EUR/GBP |
|
Resistance 2 |
1.3162 |
1.5738 |
86.00 |
1.0155 |
1.0383 |
0.9575 |
0.7362 |
112.66 |
134.88 |
0.8461 |
|
Resistance 1 |
1.3112 |
1.5642 |
85.84 |
1.0101 |
1.0333 |
0.9523 |
0.7335 |
112.29 |
134.05 |
0.8431 |
|
Pivot |
1.3070 |
1.5590 |
85.68 |
1.0066 |
1.0297 |
0.9443 |
0.7293 |
112.00 |
133.63 |
0.8382 |
|
Support 1 |
1.3020 |
1.5494 |
85.52 |
1.0012 |
1.0247 |
0.9391 |
0.7266 |
111.63 |
132.80 |
0.8353 |
|
Support 2 |
1.2978 |
1.5442 |
85.36 |
0.9977 |
1.0211 |
0.9311 |
0.7224 |
111.34 |
132.38 |
0.8303 |
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 |
EUR/GBP |
|
Resistance 3 |
1.3218 |
1.5719 |
86.70 |
1.0167 |
1.0407 |
0.9607 |
0.7418 |
113.62 |
135.28 |
0.8488 |
|
Resistance 2 |
1.3179 |
1.5676 |
86.45 |
1.0137 |
1.0375 |
0.9573 |
0.7390 |
113.20 |
134.76 |
0.8466 |
|
Resistance 1 |
1.3139 |
1.5632 |
86.20 |
1.0108 |
1.0344 |
0.9539 |
0.7363 |
112.78 |
134.25 |
0.8445 |
|
Spot |
1.3061 |
1.5546 |
85.69 |
1.0048 |
1.0282 |
0.9472 |
0.7307 |
111.93 |
133.22 |
0.8402 |
|
Support 1 |
1.2983 |
1.5460 |
85.18 |
0.9988 |
1.0220 |
0.9405 |
0.7251 |
111.08 |
132.19 |
0.8359 |
|
Support 2 |
1.2943 |
1.5416 |
84.93 |
0.9959 |
1.0189 |
0.9371 |
0.7224 |
110.66 |
131.68 |
0.8338 |
|
Support 3 |
1.2904 |
1.5373 |
84.68 |
0.9929 |
1.0157 |
0.9337 |
0.7196 |
110.24 |
131.16 |
0.8317 |
v
Written by: John Kicklighter, 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
