- Dollar Gains Limited to European Pairs, Strength Still Lacking
- Euro: What to Expect from and How to Trade the ECB Decision
- British Pound Traders Expect Little Impact from BoE Meeting
- Australian Dollar Offers a Brief Rally after Jump in Jobs Reading
- Canadian Dollar Will Absorb Business Activity Reading before Jobs
- Gold Rallies a Third Day without Commodity, Risk or Inflation Trends
Dollar Gains Limited to European Pairs, Strength Still Lacking
The dollar put in for a third consecutive advance through Wednesday’s session; but we should remain skeptical of the conviction behind this move. If we look for the fundamental leverage behind this bullish move; we note that the days’ data disappointed, the approach of Friday’s NFPs release is progressively curbing speculative interest, the Fed made an effort to inflate stimulus and risk appetite trends were unmoved. What does this mean for the greenback? The abrupt gains for the benchmark against a few key counterparts will fall short of catalyzing a lasting and broad-based trend. In fact, looking at the Dow Jones FXCM Dollar Index (ticker = USDollar), we see the individual currency managed a 0.3 percent advance to close the session at 9,637. However, this performance showed greater concentration amongst the majors. The dollar’s run against the euro proved the most remarkable performance with a 0.8 percent tumble from EURUSD to deposit the pair directly in the middle of the past month’s range. The European-link would carry over to GBPUSD, though a retracement would limit the day’s decline to only 0.4 percent. From there, neither the safe haven neutral pairs (USDJPY and USDCHF) nor the carry-heavy crosses (AUDUSD and NZDUSD) would offer clear direction.
The high activity level for the market’s pairs (EURUSD and GBPUSD) without a qualifying drive for any of the other majors highlights an important fundamental consideration: risk appetite trends are either non-existent or impotent. Indeed, the benchmarks for speculative interest would confirm as much. The S&P 500 stock index was essentially unchanged for a third consecutive trading day (drawing a stark contrast to the remarkable rally through the previous week) while the impressive advance from the trader-favorite US oil similarly stalled. Risk aversion isn’t the only catalyst that can maintain a dollar run; but the alternatives were similarly coming up short. Of particular interest through Wednesday’s session was the shift in the money supply. The Treasury sold $28 billion in four-week Treasury bills at 0.0 percent yield – holding the greenback from an overdue rebound in yield that can supplement its safe haven appeal with some level of return. Further adding pressure to rates, the Fed would also purchase $2.91 billion in Treasury notes and bonds. While the QE2 program may be over, the central bank can still reinvest the principal repayments on its toxic debt holdings.
And, while we typically overlook the release of most economic indicators beyond their short-term volatility impact; it is worth reviewing the ISM service sector report. Accounting for the vast majority of business sector output and jobs; the disappointment from the headline indicator and employment component sets us up for Thursday’s ADP and Friday’s NFP numbers. Both are looking at relatively mute readings for June.
Euro: What to Expect from and How to Trade the ECB Decision
Though it is a balance that is heavily tipped towards appetite for yield, the risk/reward equilibrium tilted further out of the euro’s favor Wednesday as market participants looked for additional trouble to follow the Portuguese downgrade on. The most immediate connection to make was the possibility that Ireland is in line for a similar cut to junk grade by one or more of the largest rating agencies. That said news that Germany was putting its bond swap option back on the table as an alternative to the voluntary rollover (which is garnering little support from the ratings group) raises the tension surrounding Greece once again. All of this is secondary, however, when compared to the upcoming ECB rate decision.
Taking a look at the consensus amongst economists and short-term interest rate market, we see that a 25 basis point rate hike is fully priced in. For price action, that means a quarter-point hike alone will not offer meaningful price action. Instead, the responsibility for volatility and trend generation falls to the commentary that follows the decision itself. Taking a closer look at short-term rates; it is interesting to note that beyond the certainty of a quarter-percent hike, the market has further placed the chances of a 50 bps hike at 50 percent. Along with a 12-month rate forecast projecting 76 bps of tightening; this sets the bias to a bullish outcome. That means that a softer tone from President Trichet will carry the greatest influence over price. Yet, given the euro’s two-day stumble; the impact of a negative outcome will be tempered.
British Pound Traders Expect Little Impact from BoE Meeting
Nine months ago, the occasion of the Bank of England’s monetary policy meeting would be worth a certain degree of volatility for the sterling; but the potential for a change in policy has been fully neutralized. The market and economists are fully expecting a hold in policy and no comment from the central bank. Any deviation from this script will offer remarkable volatility. Watch for spillover effects from the ECB decision instead.
Australian Dollar Offers a Brief Rally after Jump in Jobs Reading
Where the softer tone from the RBA earlier this week was a weight on the Aussie dollar; the stronger-than-expected figures from the June employment report was a notable booster for the currency. The 23,400 net increase in jobs was backed by a large 59,000 jump in full time jobs (the biggest jump in nearly three years). The follow through on this data will be limited by the anchor on risk trends volatile history of the data.
Canadian Dollar Will Absorb Business Activity Reading before Jobs
We are heading into a heavy 48 hours of trading for the Canadian dollar in terms of event risk. The upcoming session will offer a look at the health of the business sector (the Ivey PMI report) and housing (new home price index). This is an important growth round up; but the impact may be better for rate forecasts. Limit expectations of strong follow through on this data mix though as employment data is due the following day.
Gold Rallies a Third Day without Commodity, Risk or Inflation Trends
Gold’s three-day rally through Wednesday’s officially marks the metal’s strongest run since its thrust to a record high through the end of April. This strength is not finding much support from (though neither is it being held back by) risk appetite trends. The dollar has held its own and inflation expectations have not seen a particular swell either. This metal’s strength likely links back to the credit squeeze in China and Europe.
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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 |
Part Time Employment Change (JUN) |
29.8K |
Stronger employment figures may restore confidence in Australian economy – although chances it may push rates higher is slightly lower. |
|
|
1:30 |
AUD |
Full Time Employment Change (JUN) |
-22.0K |
||
|
1:30 |
AUD |
Employment Change (JUN) |
15.0K |
7.8K |
|
|
1:30 |
AUD |
Participation Rate (JUN) |
65.6% |
65.6% |
|
|
1:30 |
AUD |
Unemployment Rate (JUN) |
4.9% |
4.9% |
|
|
2:00 |
JPY |
Tokyo Average Office Vacancies (JUN) |
8.88 |
Near all time high, indicates weakness |
|
|
6:30 |
AUD |
Foreign Reserves (Australian dollar) (JUN) |
A$40.3B |
Steadily dropping due to capital flows |
|
|
6:45 |
EUR |
French Trade Balance (euros) (MAY) |
-5700M |
-7144M |
Intra-zone trade exported to increase |
|
7:15 |
CHF |
Consumer Price Index (MoM) (JUN) |
-0.2% |
0.0% |
Although YoY figure expected higher, inflation not expected to drive SNB rate decisions a particular direction |
|
7:15 |
CHF |
Consumer Price Index (YoY) (JUN) |
0.7% |
0.4% |
|
|
7:15 |
CHF |
CPI – EU Harmonised (MoM) (JUN) |
-0.1% |
||
|
7:15 |
CHF |
CPI – EU Harmonised (YoY) (JUN) |
0.3% |
||
|
8:30 |
GBP |
Industrial Production (MoM) (MAY) |
1.1% |
-1.7% |
Recovery in production may indicate strengthening despite further austerity, British economic stability |
|
8:30 |
GBP |
Industrial Production (YoY) (MAY) |
-0.5% |
-1.2% |
|
|
8:30 |
GBP |
Manufacturing Production (MoM) (MAY) |
1.0% |
-1.5% |
|
|
8:30 |
GBP |
Manufacturing Production (YoY) (MAY) |
2.1% |
1.3% |
|
|
10:00 |
EUR |
German Industrial Production s.a. (MoM) (MAY) |
0.8% |
-0.6% |
YoY figure expected to fall, could put pressure on future rate hikes |
|
10:00 |
EUR |
German Indus Prod n.s.a. and w.d.a. (YoY) (MAY) |
7.0% |
9.6% |
|
|
11:00 |
GBP |
BOE Asset Purchase Target |
200B |
200B |
Bank of England central policies expected not to change |
|
11:00 |
GBP |
Bank of England Rate Decision |
0.5% |
0.5% |
|
|
11:45 |
EUR |
European Central Bank Rate Decision |
1.50% |
1.25% |
Widely expected increase – though commentary from Trichet about future movements will prove more important |
|
12:15 |
USD |
ADP Employment Change (JUN) |
70K |
38K |
Could predict direction of Friday’s NFPs |
|
12:30 |
New Housing Price Index (MoM) (MAY) |
0.2% |
0.3% |
Slower housing price growth could depress need for rate hikes |
|
|
12:30 |
CAD |
New Housing Price Index (YoY) (MAY) |
1.7% |
1.9% |
|
|
12:30 |
USD |
Initial Jobless Claims (JUL 2) |
420K |
428K |
Weekly numbers expected to show slight fall |
|
12:30 |
USD |
Continuing Claims (JUN 25) |
3700K |
3702K |
|
|
13:45 |
USD |
Bloomberg Consumer Comfort (JUL 3) |
-44.3 |
-43.9 |
Survey still decreases on uncertainty |
|
14:00 |
CAD |
Ivey Purchasing Managers Index (JUN) |
67.5 |
69.1 |
Overall PMI seeing downward pressure |
|
14:00 |
CAD |
Ivey Purchasing Managers Index s.a. (JUN) |
62 |
65.5 |
|
|
15:00 |
USD |
DOE U.S. Crude Oil Inventories (JUN 25) |
-2500K |
-4375K |
Energy levels expected to recover, may indicate higher industrial usage and could indicate recovery |
|
15:00 |
USD |
DOE Cushing OK Crude Inventory (JUN 25) |
-542K |
||
|
23:50 |
JPY |
Bank Lending Banks ex-Trust (MAY) (MAY) |
-0.8% |
Slight recovery in bank lending may indicate easier capital flows, recovery |
|
|
23:50 |
JPY |
Bank Lending incl Trusts (YoY) (MAY) |
-0.5% |
-0.7% |
|
|
23:50 |
JPY |
Current Account Total (Yen) (MAY) |
¥306.0B |
¥405.6B |
Trading and international transaction balances decrease as Japan keeps importing foreign raw materials to rebuild |
|
23:50 |
JPY |
Adjusted Current Account Total (Yen) (JUN) |
¥215.0B |
¥546.3B |
|
|
23:50 |
JPY |
Current Account Balance (YoY%) (JUN) |
-75.2% |
-69.5% |
|
|
23:50 |
JPY |
Trade Balance – BOP Basis (Yen) (JUN) |
-¥764.0B |
-¥417.5B |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
16:30 |
USD |
Fed’s Hoenig Speaks in Ada, Oklahoma |
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 |
89.00 |
0.9345 |
1.0275 |
1.1800 |
0.8400 |
122.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8300 |
118.00 |
140.00 |
|
Spot |
1.4303 |
1.5987 |
80.93 |
0.8401 |
0.9656 |
1.0681 |
0.8247 |
115.75 |
129.38 |
|
Support 1 |
1.4000 |
1.5935 |
80.00 |
0.8300 |
0.9500 |
1.0400 |
0.7745 |
113.80 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
75.00 |
0.8250 |
0.9055 |
1.0200 |
0.6850 |
105.50 |
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 |
1.6575 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.6300 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
11.6294 |
1.6336 |
6.7436 |
7.7820 |
1.2290 |
Spot |
6.3584 |
5.2150 |
5.4210 |
|
Support 1 |
11.5200 |
1.5040 |
6.5575 |
7.7490 |
1.2145 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.4725 |
6.4295 |
7.7450 |
1.2000 |
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 |
1.4533 |
1.6152 |
81.29 |
0.8482 |
0.9735 |
1.0769 |
0.8322 |
117.62 |
130.87 |
|
Resist 1 |
1.4418 |
1.6069 |
81.11 |
0.8441 |
0.9696 |
1.0725 |
0.8284 |
116.68 |
130.12 |
|
Pivot |
1.4352 |
1.6009 |
80.94 |
0.8403 |
0.9655 |
1.0690 |
0.8265 |
116.12 |
129.55 |
|
Support 1 |
1.4237 |
1.5926 |
80.76 |
0.8362 |
0.9616 |
1.0646 |
0.8227 |
115.18 |
128.80 |
|
Support 2 |
1.4171 |
1.5866 |
80.59 |
0.8324 |
0.9575 |
1.0611 |
0.8208 |
114.62 |
128.23 |
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 |
1.4486 |
1.6143 |
81.73 |
0.8500 |
0.9744 |
1.0819 |
0.8358 |
117.25 |
130.83 |
|
Resist. 2 |
1.4441 |
1.6104 |
81.53 |
0.8475 |
0.9722 |
1.0785 |
0.8330 |
116.88 |
130.47 |
|
Resist. 1 |
1.4395 |
1.6065 |
81.33 |
0.8450 |
0.9700 |
1.0750 |
0.8302 |
116.50 |
130.10 |
|
Spot |
1.4303 |
1.5987 |
80.93 |
0.8401 |
0.9656 |
1.0681 |
0.8247 |
115.75 |
129.38 |
|
Support 1 |
1.4211 |
1.5909 |
80.53 |
0.8352 |
0.9612 |
1.0612 |
0.8192 |
115.00 |
128.65 |
|
Support 2 |
1.4165 |
1.5870 |
80.33 |
0.8327 |
0.9590 |
1.0577 |
0.8164 |
114.62 |
128.29 |
|
Support 3 |
1.4120 |
1.5831 |
80.13 |
0.8302 |
0.9568 |
1.0543 |
0.8136 |
114.25 |
127.92 |
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.
