• Dollar Little Moved Above Key Support as the Market Awaits the Return of US Speculators
  • Euro Becomes the Focus of Media and Trader Uncertainty as Financial Reality Starts to Seep In
  • British Pound Little Impressed by Improvement in Manufacturing and Retail Sales Data
  • Australian Dollar Traders May not Find Much Direction from the RBA Decision
  • Japanese Yen: Would it be Seen as a Sign of Desperation for the BoJ to Further Boost Stimulus this Week
  • Canadian Dollar Enjoys Strength in Low Speculative Liquidity, Markets Transition to Rate Expectations

Dollar Little Moved Above Key Support as the Market Awaits the Return of US Speculators

The lack of activity from the dollar today shouldn’t surprise anyone. With US capital markets and banks closed for the Labor Day holiday, there was a natural dampener on volatility and any overzealous attempts to jump start a trend. Typically, we say this is due to a lack of volatility; but that is not technically true. In reality, the Forex market is still sufficiently deep in the absence of one or even two major financial centers to execute large trades without a significant impact on exchange rates. However, for those looking to trade in such a market, the absence of the American speculator has a significant impact on conviction and price development. Often times, new sentiment-based trends that develop across the different asset classes are generated during the active US session. What’s more, trend continuation is often fed (or reversed) by the collective will of US-based traders and their capital. Without a significant bias in the backdrop in risk appetite heading into last week, a light economic docket this week and an uncertainty surrounding the investment prejudice of the US trader when they come back online; there is little motive to have built a significant and therefore risky position Monday. How things develop tomorrow is a very different matter altogether.

When American traders come online Tuesday, they will likely be following the bearing that Asian and European traders will have established for the global markets beforehand. Looking for scheduled event risk, we won’t see a significant macroeconomic release until Wednesday when the Fed’s Beige Book and consumer credit figures are due. That shouldn’t be too troublesome for those looking for a trend anyways considering the single currency has proven itself more sensitive to the market’s taste for risk appetite than any specific economic updates (that is probably because we haven’t seen a definitive and lasting fundamental shift from standard data sources in some weeks). That being said, the announcement of a new proposed $50 billion spending program to update the United States transportation infrastructure will have its own impact on price action. If we recall, the first round of stimulus from the government bolstered investor confidence by entertaining hopes of a quick economic recovery and more importantly by increasing the available capital in the system while offering savvy traders an opportunity to get in front of a government investment. At first blush, this would fulfill the same requirements; but there are a number of shortfalls this go around. Among the technical troubles, this policy will face an uphill battle to be passed in Congress and it is also much smaller than the first stimulus injection. More importantly, there is the sticky situation where the market recognizes that the first round effort has fallen short of sparking a lasting a recovery. At this point, a second effort further leverages the government’s liabilities and is an admission that conditions are still deteriorating. Whether the market as a whole recognizes this to be the case, however, will be determined tomorrow on the New York open.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Long-Term Trades (EURUSD, USDJPY) Require Short-Term Contrast

Euro Becomes the Focus of Media and Trader Uncertainty as Financial Reality Starts to Seep In

The euro was coming under late-session pressure Monday evening as the market started to take up some an activity level more appropriate of speculative conviction. For event risk earlier in the active European session, the only piece of scheduled data on tap was the Sentix measure of regional investor sentiment for the current month. The confidence of this particular component of economic functioning is already an important element of price development; but it is especially important for the Eurozone under current conditions. Recently, European banks have experienced significant trouble in raising funds from the market and have had to tap the ECB for assistance. The same can be said of the EU governments who have had to pay much higher yields on balance and are still struggling to spark the level of demand that would pressure yields lower. Without robust investor demand, these two groups will be forced to rely on stimulus which will further undermine the general assessment of health and undermine financial conditions in the region – a recipe for long-term trouble. Along the same track, we note today that the Bank of Greece reported consumer and business deposits at the nation’s banks dropped by 4.2 billion euros (to 212.3 billion); and Bloomberg assessed that the EU governments will have to raise 80 billion euros this month compared to the 43 billion in August. Tension is building. As this broad concern matures, our attention turns to the Basel meeting tomorrow. Higher reserve ratio requirements could further squeeze investment.

British Pound Little Impressed by Improvement in Manufacturing and Retail Sales Data

There were two notable and bullish macro updates today from the UK docket; and neither would support the pound. Why would a reported record pace of growth in manufacturing through the 3Q (from the Engineering Employment Federation) and significant improvement in the BRC’s retail figure not spark buying? Because there is a preoccupation with the outlook for more stimulus and a cooling in broader economic activity.

Australian Dollar Traders May not Find Much Direction from the RBA Decision

Perhaps the most interesting piece of scheduled event risk from the global docket over the coming 24 hours will also likely disappoint when it comes to price action. Economists see little chance of a move from the benchmark’s current 4.50 percent standing; and markets agree. That being said, there is a faction of the market that is expecting a more hawkish lean. This will ultimately disappoint some segment of the market.

Japanese Yen: Would it be Seen as a Sign of Desperation for the BoJ to Further Boost Stimulus this Week

The Bank of Japan’s rate decisions have become something more akin to a necessary custom rather than an actual event. However, we won’t be focusing on the interest rate this time around. The interest is once again growth forecasts and unorthodox policy efforts. Yet, considering the group just recently increased its lending facility to 30 trillion yen; is it reasonable to expect further expansion at this meeting? No.

Canadian Dollar Enjoys Strength in Low Speculative Liquidity, Markets Transition to Rate Expectations

It may still be more than 36 hours away; but the Bank of Canada’s rate decision is still one of the most heavily anticipated scheduled events going forward. Though the economist consensus is calling for a 25 bps hike to the benchmark lending rate to 1.00 percent; the market is pricing in only a 56 percent probability. More importantly, the outlook beyond this particular event is at stake. Will they join the Fed in a long pause?

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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

Currency

GMT

Release

Survey

Previous

Comments

JPY

23:50

Official Reserve Assets (AUG)

$1063.5B

Rose in July to highest since 2009.

JPY

Bank of Japan Interest Rate Decision

0.10%

0.10%

Market implies no chance of hike.

AUD

4:30

Reserve Bank of Australia Interest Rate Decision

4.50%

4.50%

Market implies no chance of hike.

JPY

5:00

Leading Index (JUL P)

98.2

99

Japan’s leading index held below 100 for a second month in June.

JPY

5:00

Coincident Index (JUL P)

101.8

101.3

CHF

5:45

Unemployment Rate s.a. (AUG)

3.7%

3.8%

Swiss jobless rate fell to the lowest in more than a year in July.

CHF

5:45

Unemployment Rate (AUG)

3.6%

3.6%

EUR

10:00

German Factory Orders s.a. (MoM) (JUL)

0.5%

3.2%

Factory orders increased in June for a fifth time in the past 6 months.

EUR

10:00

German Factory Orders n.s.a. (YoY) (JUL)

20.6%

24.6%

USD

21:00

ABC Consumer Confidence (SEP 5)

-44

-45

Confidence fell slightly last week.

Currency

GMT

Upcoming Events & Speeches

EUR

-:-

Basel Committee on Banking Supervision to Meet

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

1.2874

1.5393

84.21

1.0124

1.0354

0.9176

0.7233

108.42

129.62

0.8365

Support 1

1.2500

1.5125

83.00

1.0130

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

12.9386

1.5000

7.2324

7.7656

1.3453

Spot

7.2211

5.7828

6.1146

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

1.2939

1.5554

84.70

1.0214

1.0446

0.9208

0.7299

109.23

131.25

0.8422

Resistance 1

1.2906

1.5473

84.46

1.0169

1.0400

0.9192

0.7266

108.83

130.44

0.8393

Pivot

1.2887

1.5410

84.25

1.0139

1.0370

0.9165

0.7224

108.55

129.85

0.8361

Support 1

1.2854

1.5329

84.01

1.0094

1.0324

0.9149

0.7191

108.15

129.04

0.8332

Support 2

1.2835

1.5266

83.80

1.0064

1.0294

0.9122

0.7149

107.87

128.45

0.8300

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

1.3040

1.5580

85.32

1.0253

1.0484

0.9309

0.7344

110.22

131.81

0.8454

Resistance 2

1.2998

1.5533

85.04

1.0221

1.0451

0.9276

0.7316

109.77

131.26

0.8432

Resistance 1

1.2957

1.5486

84.77

1.0189

1.0419

0.9243

0.7288

109.32

130.72

0.8409

Spot

1.2874

1.5393

84.21

1.0124

1.0354

0.9176

0.7233

108.42

129.62

0.8365

Support 1

1.2791

1.5300

83.65

1.0059

1.0289

0.9109

0.7178

107.52

128.52

0.8320

Support 2

1.2750

1.5253

83.38

1.0027

1.0257

0.9076

0.7150

107.07

127.98

0.8297

Support 3

1.2708

1.5206

83.10

0.9995

1.0224

0.9043

0.7122

106.62

127.43

0.8275

v

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

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