- Dollar Light on Data, Heavy on QE3 and Downgrade Speculation
- Euro Traders Will Show Confidence in EU Stress Test, Financial Health
- British Pound: BoE Minutes will Provide Volatility Where the Decision Failed
- Canadian Dollar Faces CPI and Retail Sales as Rate Expectations Fade
- New Zealand Dollar Starts the Week off with Important CPI Figures
- Australian Dollar Tumbles into the Close but Where’s the Drive?
- Gold Closes a Record High and its Most Consistent Run in 31 Years
Dollar Light on Data, Heavy on QE3 and Downgrade Speculation
Some would consider this past week’s close a boon for the dollar because the selling pressure eased up into the close. In reality, the drop in volatility is neither beneficial nor detrimental to the currency. We have simply seen the market hit a saturation point for fundamental warnings. Headlines and forecasts for dire financial and economic conditions (in the US and the global economy) can only exact so much influence on price before market participants start to look for the actual impact. In the week ahead, the fundamental winds will almost certainly pick back up; but the threshold for market-moving news will likely be higher than we have seen in the recent past. So to gauge direction on the Dow Jones FXCM Dollar Index (ticker = USDollar), we should follow trends on risk appetite, European troubles, liquidity issues, the discussion of QE3 and the countdown on the budget impasse. However, to generate meaningful momentum – arguably the more important aspect to tradable markets – we will need to see tangible catalysts.
Whether we are looking at the S&P 500 for risk appetite trends, EURUSD for a gauge of liquidity conditions between the two largest economies or US Treasury yields as the barometer for monetary policy expectations; we are looking at broad congestion. Each facet of this dollar analysis has carved out at least a six-week range. This ‘big picture’ view helps us to look past the volatility that provided such splashy headlines and instead recognize the lack of conviction one way or the other for these markets. That said, we should still rank the catalysts by urgency and potential impact. With a final countdown to August 2nd and severe consequences should it not be fixed; the budget crisis creates more pressure on the US currency and financial markets every day. On Friday, the Treasury announced it was suspending its Exchange Stability Fund (the fourth and last fund it could tap to temporarily cover the gap). Up until now, fear has not really set for the possibility that the US temporarily defaults and thereby receives a downgrade from the credit rating agencies because the consensus is still that it is so remote. Doubt will and panic given the fallout will quickly overcome this blissful ignorance.
From there, we move on to the monetary policy question. Fed Chairman Ben Bernanke last week stirred the pot on speculation for QE3; but he quickly tried to squash the building fervor on his second day of testimony. Without something that advances or draws on easing, speculation on this point will languish. Alternatively, risk appetite may struggle for a strong move on 2Q earnings; but the timetable is clear as this week is fully stocked. And then, we get to event risk. Housing data tops a slow docket with a denser listing the following week (headed by 2Q GDP).
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: AUDUSD Taken Off for Profit; EURUSD, GBPUSD, AUDCHF Monday Setups
Euro Traders Will Show Confidence in EU Stress Test, Financial Health
Releasing the stress test results after the close of the trading day in Europe is a well thought out plan to curb volatility as market participants have a chance to digest the details. A sober reflection will do the euro little good. Of the 90 banks whose statistics were released (one German Landesbank refused to have its test results released because they disagreed with the means for measurement), only 8 banks failed to meet the 5 percent Tier 1 capital ratio. Furthermore, this created a shortfall of only 2.5 billion euros. This wasn’t much different from the 7 failures for 3.5 billion euros in 2010 – and the skepticism won’t be much different either. The most glaring problem with this review is the EBA’s refusal to consider a Greek default (what seems near-certain at this point) in the severe scenario. When the European markets are back online Monday we’ll see whether traders simply ignore it or selloff in belief the risks are undervalued. Meanwhile, bond yields will be our second concern.
British Pound: BoE Minutes will Provide Volatility Where the Decision Failed
It has become ritual to ignore the Bank of England’s rate decision and instead wait for the minutes to offer us some insight into the central bank’s expectations. Of particular interest in this upcoming statement is whether officials fortify their anti-tightening stance with inflation easing off and as growth cools. Other notable releases include retails, Nationwide confidence, lending figures and the Rightmove house price index.
Canadian Dollar Faces CPI and Retail Sales as Rate Expectations Fade
In an otherwise quiet week for scheduled data, the Canadian dollar will dominate. In the first half of the week, the top concern is the Bank of Canada rate decision and monetary policy report. There is no expectation for a hike this go around; but the market still holds high expectations for the future. In the second half of the period June CPI and May retail sales will a clear balance of consumer health.
New Zealand Dollar Starts the Week off with Important CPI Figures
With every opportunity that is presented to finally knock the kiwi dollar off its remarkable trajectory, the currency finds an unexpected booster. Most notable last week was the big jump in the 1Q GDP figures which offset rate watchers fears that slowing growth would curb the RBNZ forecast. Monday morning’s 1Q CPI figures are expected to offer the same catalyst with acceleration to a 5.1 percent annual pace.
Australian Dollar Tumbles into the Close but Where’s the Drive?
Through Friday, the Australian dollar was one of the biggest movers amongst the majors with a sharp decline across the board. What makes this move remarkable is that there wasn’t anything in particular on that day to draw the currency down. Instead, we have seen the crumbling foundation for high rates finally hit speculation. The 10-year bond yield marked its biggest weekly drop in 30 months through Friday.
Gold Closes a Record High and its Most Consistent Run in 31 Years
What a performance. Not only has gold close out Friday at a new record high; but it did so on a 10-day advance. This is the most consistent, bull run for the metal since 1980. There is little down that this move is well supported (European sovereign funding crisis, QE3 chatter, potential US downgrade). But, unless one of these particular hang ups sparks a shift in funds; a speculative correction will pull this market down.
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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 |
|
22:30 (Sun) |
NZD |
Performance Services Index (JUN) |
52.8 |
Index has been trending lower |
|
|
22:45 (Sun) |
NZD |
Consumer Prices Index (QoQ) (2Q) |
0.8% |
0.8% |
Consumer prices survey could indicate direction of CPI, may suggest RBNZ rate hike direction |
|
22:45 (Sun) |
NZD |
Consumer Prices Index (YoY) (2Q) |
5.1% |
4.5% |
|
|
23:01 (Sun) |
GBP |
Rightmove House Prices (MoM) (JUL) |
0.6% |
One of three major real estate indices used by the Bank of England to gauge state of health market |
|
|
23:01 (Sun) |
GBP |
Rightmove House Prices (YoY) (JUL) |
1.1% |
||
|
1:30 |
AUD |
New Motor Vehicle Sales (YoY) (JUN) |
-14.5% |
Vehicle sales could suggest strength of Australian manufacturing industry |
|
|
1:30 |
AUD |
New Motor Vehicle Sales (MoM) (JUN) |
-7.6% |
||
|
12:30 |
Intl Securities Transactions (CAD) (MAY) |
8.22B |
Transactions up on CAD purchases |
||
|
13:00 |
USD |
Total Net TIC Flows (MAY) |
$68.2B |
Foreign net transactions fluctuating between bond purchases and dollar denominated assets |
|
|
13:00 |
USD |
Net Long-term TIC Flows (MAY) |
$30.6B |
||
|
14:00 |
USD |
NAHB Housing Market Index (JUL) |
15 |
13 |
Market index expected to strengthen |
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 |
1.4138 |
1.6125 |
79.07 |
0.8136 |
0.9558 |
1.0630 |
0.8450 |
111.79 |
127.50 |
|
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 |
11.7415 |
1.6520 |
6.9096 |
7.7941 |
1.2189 |
Spot |
6.5036 |
5.2742 |
5.5616 |
|
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 |
1.4251 |
1.6226 |
79.47 |
0.8221 |
0.9671 |
1.0792 |
0.8517 |
112.82 |
128.43 |
|
Resist 1 |
1.4195 |
1.6176 |
79.27 |
0.8178 |
0.9614 |
1.0711 |
0.8483 |
112.31 |
127.97 |
|
Pivot |
1.4143 |
1.6126 |
79.08 |
0.8150 |
0.9568 |
1.0665 |
0.8432 |
111.83 |
127.57 |
|
Support 1 |
1.4087 |
1.6076 |
78.88 |
0.8107 |
0.9511 |
1.0584 |
0.8398 |
111.32 |
127.11 |
|
Support 2 |
1.4035 |
1.6026 |
78.69 |
0.8079 |
0.9465 |
1.0538 |
0.8347 |
110.84 |
126.72 |
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 |
1.6282 |
79.92 |
0.8239 |
0.9648 |
1.0771 |
0.8567 |
113.48 |
129.14 |
|
Resist. 2 |
1.4285 |
1.6242 |
79.71 |
0.8213 |
0.9626 |
1.0736 |
0.8538 |
113.05 |
128.73 |
|
Resist. 1 |
1.4236 |
1.6203 |
79.49 |
0.8187 |
0.9603 |
1.0701 |
0.8508 |
112.63 |
128.32 |
|
Spot |
1.4138 |
1.6125 |
79.07 |
0.8136 |
0.9558 |
1.0630 |
0.8450 |
111.79 |
127.50 |
|
Support 1 |
1.4040 |
1.6047 |
78.65 |
0.8085 |
0.9513 |
1.0559 |
0.8392 |
110.95 |
126.68 |
|
Support 2 |
1.3991 |
1.6008 |
78.43 |
0.8059 |
0.9490 |
1.0524 |
0.8362 |
110.53 |
126.27 |
|
Support 3 |
1.3942 |
1.5968 |
78.22 |
0.8033 |
0.9468 |
1.0489 |
0.8333 |
110.10 |
125.87 |
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
