• Dollar Holds the Line through the Week’s End as Speculative Interests Mixed, Data Sits on the Horizon
  • Euro Encouraged by Empty Forecasts for a Financial Recovery and Robust Economic Expansion
  • Canadian Dollar Rallies after Strong Employment Reading but Stable Risk Trends Keep the Currency In Line
  • British Pound Slides into the Close as PPI Reading Sets Up a Tempered Reading from Consumer Figures
  • New Zealand Dollar May Actually Find Itself on the Chopping Block if the RBNZ Maintains its Position
  • Japanese Yen: Fear of Intervention Doesn’t Phase Speculators but Perhaps Financial Troubles Could

Dollar Holds the Line through the Week’s End as Speculative Interests Mixed, Data Sits on the Horizon

Through the very early hours of Friday’s Asia session, it looked like the dollar would establish another outlier event and post a breakout rally into the close of the week. A marked dollar bid had developed through the otherwise quiet session, leading many of the majors to pressure their respective greenback resistance levels. Taking stock of the move: we would see EURUSD tentatively slip below its two week rising trendline; USDCHF was pitched into its biggest intraday rally in a month; GBPUSD rushed to the bottom of its own congestion band near 1.53; and USDJPY would put up its eighth blatant tag of its mature, three-month descending wedge. All the technical components were there. The only thing that was missing was a fundamental catalyst to actually push the currency over the edge. Given the high level of correlation across the various asset classes and the considerable level of skepticism surrounding the future of the global economy and financial markets, the dollar requires a spark of considerable magnitude to put it into a meaningful trend. One of the few drivers that claim such an all-consuming influence is investor sentiment. However, as we can see through the congestion that the S&P 500 maintained through the end of the week, the speculatively-minded are not yet ready to express a level of conviction by unwinding or leveraging risky positions. So, what can jumpstart the dollar?

Despite the relaxed interest in risk appetite trends, the benchmark currency nonetheless maintains its roles as a safe haven currency. Therefore, when the next swell of fear or greed arises (and it will); the dollar will once again fall back into its normal routine. The few catalysts that can influence such an elemental catalyst can be counted one hand. One of those factors is the possibility that the global recovery will either stall or shift up to the next gear. The health of the US economy (a proxy for the rest of the rest of the globe considering it is the world’s largest) was only slightly teased through Friday’s session. The only event risk of note (scheduled or unscheduled) was the wholesale sales and inventory data for July. Sales to businesses rose at the fastest pace in three months (0.7 percent); but it was the inventory figures that were really interesting. A 1.3 percent increase in the value of stockpiles (the biggest jump in two-years) suggests the manufacturing will continue to play a positive role in the economic activity through the near future. That being said, an imbalance between sales and inventory stands as a long-term barrier to a robust expansion. Looking ahead to next week, the significance of scheduled data will increase substantially. For a look at consumers and their spending habits, we will see both retail sales and the University of Michigan’s sentiment survey. For the business sector’s contribution, industrial production and the NFIB Small Business Optimism survey (small companies represent the greatest potential for new job creation) will provide coverage. Then there is the second quarter current account balance and monthly budget statement to cover foreign capital’s contribution to the economy and fiscal stability respectively.

And, the US isn’t the only economy that could encourage or undermine growth. China reported strength in lending, retail sales, industrial production and fixed investment in August after Friday’s close. Then again, the threat of financial crisis will ultimately sway risk trends…

Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD Looks to Revive its Trend, Did I Jump in GBPCHF too Early?

Euro Encouraged by Empty Forecasts for a Financial Recovery and Robust Economic Expansion

If we are looking for the region with the greatest potential for a structural financial and economic trouble going forward, look no further than the Eurozone. It seems some level of confidence has returned to the region; but more likely the selling pressure has eased as fear has generally let up. Today, we are reminded of why we should be cautious about this region. The IMF approached the next 2.57 billion round of its loan to Greece after reviewing the nation’s fiscal efforts. The three-years of support for this precarious may not be enough as spending cuts will naturally lead to slower growth, which in turn decreases tax revenue and furthers the nation’s dependence on support. It’s a vicious cycle. Aside from Greece, Portugal’s Finance Minister saw fit to opine that he didn’t think his nation needed EU aid and Ireland said it was fully funded through June 2011 (if Anglo Irish bank doesn’t require more support). Then there is the Basel III capital ratio increase proposal expected next week.

Canadian Dollar Rallies after Strong Employment Reading but Stable Risk Trends Keep the Currency In Line

The Canadian dollar was one of the most volatile majors on the day; but the activity wouldn’t be good enough for a stand-alone breakout. Following up on the rate hike momentum, August employment reported a bigger-than-expected 35,800 increase. Helping to offset the positive sentiment, BoC Governor Carney noted uncertainty was still very high for the central bank and they needed to “chart a careful course.”

British Pound Slides into the Close as PPI Reading Sets Up a Tempered Reading from Consumer Figures

There wasn’t much in the way of top-tier event risk Friday for the sterling; but the factory-level inflation data would carry significant influence in its ability to proxy next week’s CPI data. The forecast that the benchmark inflation report will finally slip back beneath the central bank’s 3.0 percent tolerance cap is gaining support. If this indeed happens, what potential there is for a rate hike will be quickly deflated.

New Zealand Dollar May Actually Find Itself on the Chopping Block if the RBNZ Maintains its Position

After the RBA and BoC released their respective decisions on monetary policy this past week; the RBNZ is scheduled to announce its verdict on its strategy to support the economy while balancing inflation threats this coming Wednesday. No change is expected from Governor Bollard; but this can actually prove troublesome. With the Aussie maintaining a significant yield advantage and loonie just off a hike, can the kiwi compete?

Japanese Yen: Fear of Intervention Doesn’t Phase Speculators but Perhaps Financial Troubles Could

The Japanese government has done everything it can to threaten and posture the risk of currency manipulation to scare speculators into abandoning their long yen positions. However, with each warning, the lack of conviction grows more apparent. Perhaps all that is needed is a financial problem (beyond fiscal and deflation issues). Today, the first bank in seven years filed for bankruptcy. The first of a trend? Time will tell.

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

Currency

GMT

Release

Survey

Previous

Comments

NZD

22:45

Food Prices (MoM) (AUG)

1.6%

Prices increased in last 2 months.

EUR

6:45

French Current Account (euros) (JUL)

-2.7B

CA deficit in every month since ’04.

CHF

7:15

Producer & Import Prices (MoM) (AUG)

-0.1%

-0.5%

Swiss producer, import prices declined for second month in July.

CHF

7:15

Producer & Import Prices (YoY) (AUG)

0.3%

0.5%

EUR

9:00

Euro-Zone Industrial Production s.a. (MoM) (JUL)

0.1%

-0.1%

Industrial production increased annually in the last six months.

EUR

9:00

Euro-Zone Industrial Production w.d.a. (YoY) (JUL)

8.0%

8.3%

USD

18:00

Monthly Budget Statement (AUG)

-$98.0B

-$103.6B

July deficit was largest in 5 months.

Currency

GMT

Upcoming Events & Speeches

USD

16:30

Fed’s Dennis Lockhart Speaks in Atlanta, Georgia

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

0.9335

0.7440

120.00

140.00

0.8600

Spot

1.2682

1.5358

83.83

1.0114

1.0480

0.9106

0.7196

106.32

128.76

0.8258

Support 1

1.2500

1.5125

83.00

1.0100

0.9950

0.8100

0.6850

103.80

125.00

0.8065

Support 2

1.2150

1.5000

80.00

0.9960

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

13.0623

1.5175

7.2728

7.7673

1.3497

Spot

7.3367

5.8706

6.2223

Support 1

12.0500

1.4500

7.1615

7.7490

1.3440

Support 1

1.1650

5.3000

5.8000

Support 2

11.7200

1.3665

6.6950

7.7450

1.3000

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

1.2793

1.5511

84.61

1.0317

1.0466

0.9257

0.7315

107.76

130.33

0.8327

Resistance 1

1.2738

1.5435

84.22

1.0216

1.0473

0.9181

0.7256

107.04

129.54

0.8293

Pivot

1.2690

1.5389

83.98

1.0175

1.0380

0.9193

0.7240

106.64

129.27

0.8253

Support 1

1.2635

1.5313

83.59

1.0074

1.0387

0.9117

0.7181

105.92

128.48

0.8219

Support 2

1.2587

1.5267

83.35

1.0033

1.0294

0.9129

0.7165

105.52

128.21

0.8179

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

1.2836

1.5532

84.92

1.0234

1.0608

0.9230

0.7301

108.04

130.89

0.8340

Resistance 2

1.2797

1.5489

84.65

1.0204

1.0576

0.9199

0.7274

107.61

130.35

0.8320

Resistance 1

1.2759

1.5445

84.38

1.0174

1.0544

0.9168

0.7248

107.18

129.82

0.8299

Spot

1.2682

1.5358

83.83

1.0114

1.0480

0.9106

0.7196

106.32

128.76

0.8258

Support 1

1.2605

1.5271

83.28

1.0054

1.0416

0.9044

0.7144

105.46

127.70

0.8217

Support 2

1.2567

1.5227

83.01

1.0024

1.0384

0.9013

0.7118

105.03

127.17

0.8197

Support 3

1.2528

1.5184

82.74

0.9994

1.0352

0.8982

0.7091

104.60

126.63

0.8177

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

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