- Dollar Nears Trend-Worthy Breakdown as Basel III Terms and Chinese Data Rouse Investor Confidence
- Euro Advances Against its High-Yield Counterparts as Regulation, Growth Forecasts Support Outlook
- British Pound Sees Limited Run on Risk Appetite ahead of Meaningful Inflation Data
- Japanese Yen: Would Intervention Reverse the Yen Regardless of Who is in Power?
- Australian Dollar Follows Capital Flows Rather than Notable Event Risk
- New Zealand Dollar’s Risk-Based Run Stalled by Disappointing Economic Data
Dollar Nears Trend-Worthy Breakdown as Basel III Terms and Chinese Data Rouse Investor Confidence
There was an unmistakable taste for yield and the risk such an appetite brings through the weeks opening day. A marked buying effort developed immediately on the Asian session open Monday morning. Naturally, this would bolster growth and return-sensitive asset classes like equities, commodities and high-yield currencies. However, it is worth noting that this pressure was not evenly distributed. If we look at the intraday price action on the benchmark equities indexes for the Asian, European and US sessions through the day; we would we see the same pattern. After an initial bullish gap on the open, the markets would simply drift for the remainder of the day. This is a unique progress that suggests that there was strong weekend-based event risk that the markets would have to adjust for; but the lack of significant follow through momentum as the sessions’ developed suggests that risk appetite itself was not actually stoked. So, then why did EURUSD and a number of the other liquid pairs show more consistency in their positive risk reaction? The timing of the bursts of strength syncing up to the opening of the various sessions isn’t a coincidence. Nonetheless, after this series of pushes, EURUSD found itself in its biggest single-day advance in two months and within reach of range resistance at 1.2925. On a trade-weighted basis, the greenback seems to have actually pushed support.
Regardless of the timing behind Monday’s fundamental drivers, the outcome was still the same. What were these fabled catalysts? Considering the source can be traced back to the weekend, it could have been a few drivers; but given the headlines it would be rather obvious was market participants were reacting too. A big component of speculative positioning is the attention that media and ultimately the broader market pays to a development. After China moved forward its economic data, the mass’s attention was already roused. With a Saturday release of remarkable (especially when compared to its developed counterparts) retail sale, industrial production and new lending data; global traders were left with the impression that the world’s fastest growing behemoth could carry the world’s economy with it. Yet, doubt creeps in with the expectations that a tempering of economic activity around the rest of the globe will inevitably bleed over to this Asian powerhouse and the knowledge that the government is attempting to pump the brakes on lending to cool the overheated markets. Perhaps the more applicable driver for all market participants, however, was the confirmation of the Basel III capital requirements. In an effort to implement regulation and avoid another financial crisis, policy makers have agreed to increase their reserve ratios so that banks have a greater buffer should they encounter funding issues or come into a wave of defaulting loans. For the speculator, the increase of reserve ratios means less capital floating around, less payout in the form of dividends, and thereby weaker returns. However, traders that knew these changes were coming were comforted by the fact that the fact that the banks have until 2019 to fully comply with the rules.
Given the day’s catalysts and the market’s general response to their release, it seems that the advance is not yet self-sustaining. Perhaps tomorrow’s event risk can overcome that hurdle. The retail sales and NFIB small business sentiment readings tap directly into growth.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: A Risk Appetite Rally Offers an AUDJPY Trade, Pains EURUSD Short
Euro Advances Against its High-Yield Counterparts as Regulation, Growth Forecasts Support Outlook
It is easy to simply label the euro’s strength Monday to the general rise in risk appetite. It is true that, being one of the most financially unstable region’s in the world, the euro is especially sensitive to the strength and weakness of investor sentiment. That being said, the long implementation period for the Basel III rules bodes especially well for European banks that are generally well below the future requirement level. So this is essentially a deferred concern. Further encouraging this shared currency’s performance through the day was the European Commission’s semiannual review of economic activity. From the May forecast for 0.9 percent growth in the region through 2010, the group upped their projection to 1.7 percent. This headline fodder aside, we should also note that the ECB had to buy another 237 million euros in government debt last week. Let’s see what happens with tomorrow’s ZEW sentiment surveys and Greece’s planned debt auction.
British Pound Sees Limited Run on Risk Appetite ahead of Meaningful Inflation Data
The sterling’s gains were unstable Monday. Investor sentiment alone cannot keep the pound in a bullish trajectory. For scheduled event risk today, the RICS House Price Balance plunged to its lowest level in 15 months, offsetting the modest uptick in the Nationwide sentiment index Tomorrow’s CPI data is far more important though. If this headline reading slips below 3.0 percent, there is no argument for hikes.
Japanese Yen: Would Intervention Reverse the Yen Regardless of Who is in Power?
With a power struggle emerging once again in Japan, Prime Minister Kan’s primary opposition, Ozawa, is upping his intervention threats. Some believe he will follow through despite the international ramifications; but would his manipulation actually turn the overwhelming trend? The central bank has significant reserves; but FX liquidity is vast. Perhaps if they played a technical break and sentiment shift, they would succeed.
Australian Dollar Follows Capital Flows Rather than Notable Event Risk
With risk appetite climbing, the market’s favored investment current would find its pace. And, with an eye towards 0.94, AUDUSD would supply abundant cross-market liquidity for the Aussie dollar. However, the rally would notable fall short of hitting its big-ticket mark. This was particularly surprising considering the late session release of the NAB confidence survey offer a sharp jump for an interest-rate and growth sensitive group.
New Zealand Dollar’s Risk-Based Run Stalled by Disappointing Economic Data
There was plenty for the New Zealand dollar to respond to Monday. With risk appetite rallying through the session, traders were initially able to overlook the Treasury’s concerns that the 3Q GDP numbers would suffer for the nation’s worst earthquake in 80 years. However, after the REINZ home sales data and retail sales figures disappointed with sharper than expected declines, the real-world data started to kick in.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
22:45 |
Retail Sales (MoM) (JUL) |
0.0% |
0.9% |
Retail sales rose four times economists’ estimates in 2Q. |
|
NZD |
22:45 |
Retail Sales Ex-Auto (MoM) (JUL) |
0.1% |
1.5% |
|
|
NZD |
22:45 |
NZ Card Spending (MoM) (AUG) |
-0.1 |
Fell in July for fourth time this year. |
|
|
GBP |
23:01 |
RICS House Price Balance (AUG) |
-12% |
-8% |
Fell in July for first time since 2009. |
|
GBP |
23:01 |
Nationwide Consumer Confidence (AUG) |
60 |
56.0 |
Fell to lowest in 15 months in July. |
|
AUD |
1:30 |
NAB Business Confidence (AUG) |
2 |
Australian business confidence fell in July to lowest level in a year. |
|
|
AUD |
1:30 |
NAB Business Conditions (AUG) |
5 |
||
|
NZD |
3:00 |
Non Resident Bond Holdings (AUG) |
62.8% |
July holdings lowest since 2004. |
|
|
JPY |
4:00 |
Tokyo Condominium Sales (YoY) (AUG) |
27.8% |
Annual sales rose in last 6 months. |
|
|
JPY |
4:30 |
Industrial Production (MoM) (JUL F) |
0.3% |
Industrial production increased in July for a fourth time in five months. |
|
|
JPY |
4:30 |
Industrial Production (YoY) (JUL F) |
14.8% |
||
|
JPY |
4:30 |
Capacity Utilization (MoM) (JUL F) |
-2.1% |
||
|
EUR |
6:00 |
German Wholesale Price Index (MoM) (AUG) |
0.3% |
-0.3% |
Upstream inflation report holds little influence over ECB |
|
EUR |
6:00 |
German Wholesale Price Index (YoY) (AUG) |
4.9% |
5.3% |
|
|
GBP |
8:30 |
DCLG UK House Prices (YoY) (JUL) |
8.4% |
9.9% |
Lagging home price indicator expecting a sharp cooling. |
|
GBP |
8:30 |
Consumer Price Index (MoM) (AUG) |
0.3% |
-0.2% |
YoY CPI expected to keep slowing, but remain notably above the BOE’s 2% target rate |
|
GBP |
8:30 |
Consumer Price Index (YoY) (AUG) |
3.0% |
3.1% |
|
|
GBP |
8:30 |
Core Consumer Price Index (YoY) (AUG) |
2.5% |
2.6% |
|
|
GBP |
8:30 |
Retail Price Index (AUG) |
224.3 |
223.6 |
Retail sales are back on the upswing after a midyear slowdown, expected to rise for the second month in a row |
|
GBP |
8:30 |
Retail Price Index (MoM) (AUG) |
0.3% |
-0.2% |
|
|
GBP |
8:30 |
Retail Price Index (YoY) (AUG) |
4.6% |
4.8% |
|
|
GBP |
8:30 |
RPI Ex Mort Int.Payments (YoY) (AUG) |
4.6% |
4.8% |
|
|
EUR |
9:00 |
German ZEW Survey (Economic Sentiment) (SEP) |
10.0 |
14.0 |
Would be lowest level for sentiment since March 2009 |
|
EUR |
9:00 |
German ZEW Survey (Current Situation) (SEP) |
50.0 |
44.3 |
|
|
EUR |
9:00 |
EZ ZEW Survey (Economic Sentiment) (SEP) |
14.5 |
15.8 |
|
|
EUR |
9:00 |
Euro-Zone Labor Costs (YoY) (2Q) |
2.1% |
Still recovering from its lowest reading on record. |
|
|
EUR |
9:00 |
Euro-Zone Industrial Production wda (YoY) |
8.0% |
8.3% |
Growth expected to resume after falling for the first time in four months in June |
|
EUR |
9:00 |
Euro-Zone Industrial Production sa (MoM) (JUL) |
0.1% |
-0.2% |
|
|
USD |
11:30 |
NFIB Small Business Optimism (AUG) |
88.7 |
88.1 |
Small businesses account for the greatest new job potential |
|
12:30 |
Labor Productivity (QoQ) (2Q) |
-0.5% |
0.8% |
Drop in productivity and rise in capacity conflicting signals |
|
|
CAD |
12:30 |
Capacity Utilization Rate (2Q) |
75.5% |
74.2% |
|
|
CAD |
12:30 |
New Motor Vehicle Sales (MoM) (JUL) |
1.0% |
2.5% |
A good sign of large expenditures for Canadian consumers |
|
USD |
12:30 |
Advance Retail Sales (AUG) |
0.3% |
0.4% |
Retail sales back on the upswing after a midyear slowdown; expected to rise for the second month in a row |
|
USD |
12:30 |
Retail Sales Less Autos (AUG) |
0.3% |
0.2% |
|
|
USD |
12:30 |
Retail Sales Ex Auto & Gas (AUG) |
0.3% |
-0.1% |
|
|
USD |
14:00 |
Business Inventories (JUL) |
0.7% |
0.3% |
Would be fastest increase since 2008 |
|
USD |
14:00 |
IBD/TIPP Economic Optimism (SEP) |
44 |
43.6 |
Timely sentiment indicator will benchmark Friday’s U of M. |
|
USD |
21:00 |
ABC Consumer Confidence (SEP 12) |
-43 |
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 |
0.9385 |
0.7440 |
120.00 |
140.00 |
0.8600 |
|
Spot |
1.2866 |
1.5415 |
83.65 |
1.0082 |
1.0276 |
0.9348 |
0.7337 |
107.62 |
128.95 |
0.8347 |
|
Support 1 |
1.2500 |
1.5125 |
83.00 |
1.0060 |
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 |
12.8573 |
1.4953 |
7.1388 |
7.7673 |
1.3364 |
Spot |
7.1496 |
5.7873 |
6.1102 |
|
Support 1 |
12.0500 |
1.4500 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
1.1650 |
5.3000 |
5.8000 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
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 |
1.3031 |
1.5554 |
84.78 |
1.0265 |
1.0387 |
0.9418 |
0.7380 |
108.72 |
130.63 |
0.8427 |
|
Resistance 1 |
1.2948 |
1.5484 |
84.22 |
1.0173 |
1.0331 |
0.9383 |
0.7359 |
108.17 |
129.79 |
0.8387 |
|
Pivot |
1.2811 |
1.5419 |
83.86 |
1.0123 |
1.0299 |
0.9327 |
0.7321 |
107.39 |
129.29 |
0.8319 |
|
Support 1 |
1.2728 |
1.5349 |
83.30 |
1.0031 |
1.0243 |
0.9292 |
0.7300 |
106.84 |
128.45 |
0.8279 |
|
Support 2 |
1.2591 |
1.5284 |
82.94 |
0.9981 |
1.0211 |
0.9236 |
0.7262 |
106.06 |
127.95 |
0.8212 |
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 |
1.3021 |
1.5589 |
84.73 |
1.0199 |
1.0400 |
0.9474 |
0.7444 |
109.34 |
131.05 |
0.8430 |
|
Resistance 2 |
1.2983 |
1.5545 |
84.46 |
1.0170 |
1.0369 |
0.9443 |
0.7417 |
108.91 |
130.52 |
0.8409 |
|
Resistance 1 |
1.2944 |
1.5502 |
84.19 |
1.0141 |
1.0338 |
0.9411 |
0.7390 |
108.48 |
130.00 |
0.8388 |
|
Spot |
1.2866 |
1.5415 |
83.65 |
1.0082 |
1.0276 |
0.9348 |
0.7337 |
107.62 |
128.95 |
0.8347 |
|
Support 1 |
1.2788 |
1.5328 |
83.11 |
1.0023 |
1.0214 |
0.9285 |
0.7284 |
106.76 |
127.90 |
0.8305 |
|
Support 2 |
1.2749 |
1.5285 |
82.84 |
0.9994 |
1.0183 |
0.9253 |
0.7257 |
106.33 |
127.38 |
0.8284 |
|
Support 3 |
1.2711 |
1.5241 |
82.57 |
0.9965 |
1.0152 |
0.9222 |
0.7230 |
105.90 |
126.85 |
0.8263 |
v
Written by: John Kicklighter, 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
