- Dollar Ignores Budget Headway, Earnings and Suffers for Risk Rally
- Euro Surprisingly Steady Despite Portugal Surprise Gap, Rising Greece Uncertainty
- British Pound: Will the BoE Minutes Stir Volatility Like the Last Statement?
- Canadian Dollar Rallies after BoC Rouses Interest Rate Hikes
- Australian Dollar Torn Between a Rally in Capital Markets, Dovish Turn from RBA
- Swiss Franc Marks a Sharp Correction but was it Risk or the Euro’s Doing?
- Gold Rally Ends with Record Highs but Not Record Consistency
Dollar Ignores Budget Headway, Earnings and Suffers for Risk Rally
Looking at the mix of performance against its most prominent counterparts, it was clear that the currency was following its traditional risk appetite lines. This in itself is rather remarkable because we have seen this particular driver drop off as an immediate catalyst in recent days because of the uncertainties surrounding the countdown for the US to surpass its legal budget ceiling. Gauging the convictions behind investor sentiment Tuesday, we can defer to the benchmark S&P 500 Index which rallied a remarkable 1.7 percent – the biggest single-day rally since March 3rd and a sound rejection of a major boundary to bearish progression (the 1,300 level). We can assess this particular catalysts’ influence over the greenback by the severity of the Australian, New Zealand and Canadian dollar’s rallies against the common benchmark. Offering further confirmation of just how pervasive risk trends were, we would further see the greenback actually gain traction against the Japanese yen and Swiss franc – a more convincing funding currency and safe haven respectively.
This rally in risk appetite is somewhat suspicious given the fundamentals that were on tap through Tuesday; but it makes more sense when we reflect on the underlying market conditions we are dealing with. Volatility is a stubborn hold over from the previous two weeks when headlines were stirring capital turnover; but the masses are still refusing to generate a consistent direction (bullish or bearish) due to the big-ticket threats that are loom just over the horizon. The investor sentiment influence is certainly showing through in the Dow Jones FXCM Dollar Index’s (ticker = USDollar) bearings; but EURUSD is a better guide for the currency’s views beyond the volatility of risk appetite. The benchmark pair gained on the day; but ultimately it is deeply mired in congestion. For this cross specifically we isolate two major, conflicting fundamental drivers. On the euro’s side, the uncertainty surrounding the sovereign debt crisis is providing consistent pressure (more on that below). That is directly contrasted by the fear that we will reach August 2nd without a fix for the US debt ceiling. Through this past session, President Obama voiced support for the ‘Gang of Six’ proposal that would reduce the deficit by $3.7 billion. And, though Speaker of the House Boehner remarked that it didn’t go far enough, it seems that the government is working towards an agreeable compromise.
The other important driver for the day (the housing data offered little in the way of lasting influence over the dollar) was the round of 2Q earnings. At the top of our watch list were the bank reports: Bank of America, Goldman Sachs, Wells Fargo and Bank of New York Mellon. The health of these financial sector giants represents a strong driver for investor optimism, offer a valuable reflection to the health of the financial sector and presents its own reflection of underlying growth. The BoA $9.1 billion loss is a good reflection of the troubles with the mortgage market as well as the increased regulation; while the $0.33 earnings-per-share speaks to the leveraged use of accounting to maintain fragile market confidence.
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: GBPUSD and AUDUSD Play to Range Conditions, NZDJPY a Higher Risk
Euro Surprisingly Steady Despite Portugal Surprise Gap, Rising Greece Uncertainty
While we haven’t seen another critical step towards the total spread of the Euro Zone sovereign debt crisis; the headlines continue to undermine any positive arguments that are made in support for the euro. The heavy headline flows from the region Tuesday were topped by Portugal Prime Minister Coelho’s announcement that a previously unreported 2 billion euro budget gap was uncovered. Perhaps just as notable though, Spain and Greece auctioned off debt to dubious yields and bidders; ECB member Nowotny seemed to open the door to allowing a temporary default for Greece; and German Chancellor Angela Merkel attempted to curb expectations of a solution for the crisis by the close of Thursday’s summit.
British Pound: Will the BoE Minutes Stir Volatility Like the Last Statement?
The Bank of England rate decision has been a non-event for the sterling for a number of months now. On the other hand, the minutes that reflect the policy authority’s discussions, reasoning for their hold and forecast for the future can certainly catch the markets off guard. Considering inflation and economic activity futures have eased while European financial stability is under pressure, a bearish shift is possible.
Canadian Dollar Rallies after BoC Rouses Interest Rate Hikes
No change was expected from the Bank of Canada’s rate decision this past trading session; and indeed, the central bank wouldn’t disappoint. That said, the statement that followed the decision offered a little more illumination than was expected. The market focused on the missing word ‘eventually’ in reference to when rates would rise. With a forecast for the economy to hit full potential by mid-2012, this is a good hawkish mix.
Australian Dollar Torn Between a Rally in Capital Markets, Dovish Turn from RBA
Like its monetary policy regime, the Australian dollar is not untouchable. After the RBA minutes reported that it could hold on rates for an extended period of time to assess the financial market feedback from Europe’s troubles and inflation pressures, the currency started to pullback. It is difficult to see exactly how much influence this has on a pair like AUDUSD; but AUDCAD offers a better contrast to policy expectations.
Swiss Franc Marks a Sharp Correction but was it Risk or the Euro’s Doing?
Monday’s pullback could have been written off as volatility; but the stumble from the franc Tuesday cannot be brushed off so quickly. The tumble against high-yielding currencies like the Aussie and kiwi dollar’s can be attributed to the risk appetite run; but USDCHF and EURCHF reversals are more intrinsic to the franc’s fundamentals. The currency comes under the magnifying glass when the market doesn’t blindly sell euros.
Gold Rally Ends with Record Highs but Not Record Consistency
We were so close to hitting that unprecedented 12-day run; but ultimately, gold wouldn’t make it. After 11 consecutive days of advance; the precious metal would finally fall back on suggestions that the US president and Congress were coming closer to a palatable compromise on the ever-problematic debt fears. That said, issues in the US and Europe are far from resolved; so don’t build a large short just yet.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
0:30 |
AUD |
Westpac Leading Index (MoM) (MAY) |
0.2% |
Leading index growth declined since April |
|
|
1:00 |
AUD |
Consumer Inflation Expectation (JUL) |
3.3% |
Expectations may point to actual CPI |
|
|
5:00 |
JPY |
Coincident Index (MAY F) |
106 |
Japanese economic measures have recovered after March, though still not at pre-quake levels |
|
|
5:00 |
JPY |
Leading Index (MAY F) |
99.8 |
||
|
6:00 |
EUR |
German Producer Prices (MoM) (JUN) |
0.0% |
0.0% |
An expected fall in long term price change may result in dovish ECB decisions |
|
6:00 |
EUR |
German Producer Prices (YoY) (JUN) |
5.5% |
6.1% |
|
|
7:00 |
JPY |
Convenience Store Sales (YoY) (JUN) |
5.7% |
Broader tracking of Japanese retail |
|
|
8:00 |
EUR |
Italian Industrial Orders s.a. (MoM) (MAY) |
2.3% |
-6.4% |
Italian orders expected to increase, led by exports though not likely to have major effects on country’s own debt problems |
|
8:00 |
EUR |
Italian Industrial Orders n.s.a. (YoY) (MAY) |
10.2% |
5.8% |
|
|
8:00 |
EUR |
Italian Industrial Sales s.a. (MoM) (MAY) |
1.5% |
||
|
8:00 |
EUR |
Italian Industrial Sales n.s.a. (YoY) (MAY) |
14.2% |
||
|
9:00 |
EUR |
Italian Current Account (euros) (MAY) |
-5604M |
Payments balance recovered last month |
|
|
11:00 |
USD |
MBA Mortgage Applications (JUL 15) |
-5.1% |
Could improve on housing starts |
|
|
12:30 |
CAD |
Wholesale Sales (MoM) (MAY) |
0.1% |
-0.1% |
Same level sales could have some push behind future rate hikes |
|
14:00 |
EUR |
Euro-Zone Consumer Confidence (JUL A) |
-10.2 |
-9.8 |
Advance data shows softer confidence |
|
14:00 |
USD |
Existing Home Sales (MoM) (JUN) |
1.9% |
-3.8% |
Sales expected to recover following today’s better home starts |
|
14:00 |
USD |
Existing Home Sales (JUN) |
4.90M |
4.81M |
|
|
14:30 |
USD |
DOE U.S. Crude Oil Inventories (JUL 15) |
-1500K |
-3124K |
Reduction in crude inventories again could mean pickup in demand, though moderately weaker than previous |
|
14:30 |
USD |
DOE U.S. Distillate Inventory (JUL 15) |
1500K |
2967K |
|
|
14:30 |
USD |
DOE Cushing OK Crude Inventory (JUL 15) |
615K |
||
|
14:30 |
USD |
DOE U.S. Gasoline Inventories (JUL 15) |
-100K |
-840K |
|
|
14:30 |
USD |
DOE U.S. Refinery Utilization (JUL 15) |
0.0% |
-0.4% |
|
|
22:45 |
NZD |
Net Migration s.a. (JUN) |
-360 |
Further outmigration could point to weaker domestic economy |
|
|
23:01 |
GBP |
UK Nationwide Consumer Confidence (JUN) |
49 |
55 |
EU troubles expected to drag |
|
23:50 |
JPY |
Adjusted Merchandise Trade Balance (Yen) (JUN) |
-¥250.4B |
-¥474.6B |
Trade balance expected to moderately recover as large manufacturing industries and companies recover after earthquake |
|
23:50 |
JPY |
Merchandise Trade Exports (YoY) (JUN) |
-4.1 |
-10.3 |
|
|
23:50 |
JPY |
Merchandise Trade Imports (YoY) (JUN) |
11 |
12.3 |
|
|
23:50 |
JPY |
Merchandise Trade Balance Total (Yen) (JUN) |
-¥149.0B |
-¥855.8B |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
1:30 |
JPY |
BOJ Deputy Governor Yamaguchi to Speak in Matsumoto City |
|
2:00 |
CNY |
Conference Board China July Leading Economic Index |
|
8:30 |
GBP |
Bank of England Minutes |
|
14:30 |
CAD |
Monetary Policy Report |
|
22:15 |
USD |
Fed’s Sack to Speak to Money Marketeers in New York |
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 |
0.8900 |
1.0275 |
1.1800 |
0.8620 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
81.50 |
0.8550 |
1.0000 |
1.1000 |
0.8520 |
113.50 |
140.00 |
|
Spot |
1.4133 |
1.6121 |
79.19 |
0.8248 |
0.9500 |
1.0731 |
0.8557 |
111.92 |
127.67 |
|
Support 1 |
1.4000 |
1.5935 |
78.50 |
0.8075 |
0.9500 |
1.0400 |
0.7745 |
109.00 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
76.25 |
0.7900 |
0.9055 |
1.0200 |
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 |
1.7425 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.6730 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
11.6639 |
1.6586 |
6.9301 |
7.7950 |
1.2154 |
Spot |
6.5124 |
5.2758 |
5.5280 |
|
Support 1 |
11.5200 |
1.5725 |
6.5575 |
7.7490 |
1.2145 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.5040 |
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 |
1.4288 |
1.6250 |
79.50 |
0.8315 |
0.9647 |
1.0833 |
0.8660 |
112.95 |
128.28 |
|
Resist 1 |
1.4210 |
1.6186 |
79.35 |
0.8281 |
0.9574 |
1.0782 |
0.8609 |
112.43 |
127.98 |
|
Pivot |
1.4140 |
1.6113 |
79.08 |
0.8217 |
0.9528 |
1.0690 |
0.8521 |
111.81 |
127.40 |
|
Support 1 |
1.4062 |
1.6049 |
78.93 |
0.8183 |
0.9455 |
1.0639 |
0.8470 |
111.29 |
127.09 |
|
Support 2 |
1.3992 |
1.5976 |
78.66 |
0.8119 |
0.9409 |
1.0547 |
0.8382 |
110.67 |
126.51 |
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 |
1.4334 |
1.6280 |
80.02 |
0.8356 |
0.9591 |
1.0873 |
0.8676 |
113.65 |
129.34 |
|
Resist. 2 |
1.4284 |
1.6240 |
79.81 |
0.8329 |
0.9568 |
1.0838 |
0.8646 |
113.22 |
128.92 |
|
Resist. 1 |
1.4234 |
1.6200 |
79.60 |
0.8302 |
0.9546 |
1.0802 |
0.8616 |
112.78 |
128.50 |
|
Spot |
1.4133 |
1.6121 |
79.19 |
0.8248 |
0.9500 |
1.0731 |
0.8557 |
111.92 |
127.67 |
|
Support 1 |
1.4032 |
1.6042 |
78.78 |
0.8194 |
0.9454 |
1.0660 |
0.8498 |
111.06 |
126.84 |
|
Support 2 |
1.3982 |
1.6002 |
78.57 |
0.8167 |
0.9432 |
1.0624 |
0.8468 |
110.62 |
126.42 |
|
Support 3 |
1.3932 |
1.5962 |
78.36 |
0.8140 |
0.9409 |
1.0589 |
0.8438 |
110.19 |
126.00 |
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
