Dollar Opens the Week in the Green as Investors’ Appetites Sate, Relative Growth Bolstered
The US dollar has begun the new week on stable footing as the trade-weighted index put in for its fourth consecutive daily advance. The consistency is encouraging; but the lack of drive behind the move suggests this is more habitual a move rather than one that is fundamentally sourced. What is the difference between the two? The former iteration can stall and reverse far more easily than a trend that is supported by the investors that build into the move. Rather than subsist on trend for trend’s sake, a truly bullish move in the greenback’s favor will require one of the primary pillars of currency demand to keep it on pace to restest the 16-month highs set in the beginning of June. And, since interest rates are not a factor here (and nor will they be for the foreseeable future); we are left to assess risk appetite trends and relative growth prospects.
For investor sentiment trends, we have picked up one of the larger fundamental themes (the outlook for health of the global economy); but this important driver has yet to catch traction. The importance in global output cannot be overstated. World-wide expansion is the basis for meaningful returns, the ability to afford stark austerity measures and avoiding a potential financial crisis based on the threat that an already stretched government sector won’t have the means to further stimulate a flimsy recovery. The outlook for global output over the second half of the year has already undergone a number of disappointing revisions; but this week’s round of data will offer a definable bearing for expectations. Of particular interest over the coming days are the second quarter GDP revisions from Germany, the UK and the US. It is more likely that investors will wait for these big ticket indicators before making their assessments; but we have second tier data that will contribute along the way. Today, timely European business activity data has curbed confidence in the Eurozone’s ability to perform (a big concern for investors that are concerned that this region will birth the next financial crisis). From the US, we were presented with an indicator that offers a good growth forecast for the coming three to six months: the Chicago Fed’s National Activity Index. Officially a gauge of activity above, below or in line with the average pace for growth, the indicator eked out a positive reading which was better than the contraction expected. The outcome from this indicator is weak enough that it discourages confidence in investing in growth-dependent assets; but at the same time strong enough to support a belief of relative performance whereby the US is stable enough to support the dollar’s safe haven status.
Looking ahead to tomorrow’s event risk, we will focus in on one of the most pained sectors in the American complex: the housing sector. The underperformance of this particular segment has ushered a number of the United States’ previous recessions. Also, on a long-term side note, we should call attention to the ruling that the Fed’s appeal to keep the names of banks that were bailed out after the Bear Stearns collapse was struck down. They have one more appeal at their disposal. They are hoping that markets are more stable when that final decision is made.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Building EURUSD Short, Near Confirmation on GBPUSD Breakout
Euro Slips Below Key Support as PMI Data Undermines Expectations of Economic Strength
With investor sentiment maintaining its bearish drift, unwanted attention was called to the euro and its recent losses. As investor pessimism spreads, the focus is naturally redirected to the shared currency as its economic health and financial stability are heavily dependent on the global investor sentiment. A catalyst that could severely undermine the euro’s ability to weather these global trends is the deterioration of economic health for the collective itself. Should output in the region stall, aggressive austerity measures in the worst performing member economies could very well push them into recessions that will create an uncontrollable spiral between debt and retracted growth or perhaps even social unrest. The viable solutions to either of these issues significantly threaten the future of the European Monetary Union. To put things on a bearish path right off the bat, we were met with the six month low in the German PMI manufacturing activity report. Factory activity (along with exports) is one of the keys to the largest member’s performance; so a cooling undermines the top end of the entire region. We will see if there is a case here in tomorrow’s revision to the German 2Q GDP figures. As for the 31-month high in consumer confidence – it doesn’t fit the primary concern.
British Pound Starts to Crack Under Persistent Fundamental Pressure
After the close of the New York session, GBPUSD started to make its way below 1.55. This is a critical technical levels for those that follow such things; and the realization of a fundamental bias for those that don’t. While there wasn’t much in the way of scheduled event risk today; there were two notable updates from the headlines. From the UK Institute for Economic Affairs, the assessment of debt with pension and state loans brought a figure of 4.8 trillion pounds. And, from YouGov, an August reading of consumer finances held well below the positive watermark.
Canadian Dollar Could Leverage its Own Volatility Through Upcoming Retail Sales Data
The Canadian dollar has been hammered over the past few days as faltering sentiment finds a particularly prone target for overvalued interest rate targets. Tuesday, the loonie will face data that will offer an objective assessment of whether expectations are too buoyant for the commodity currency or not. A forecast for growth from the lagging June reading could truly undermine any support the loonie has left if disappointing.
Australian Dollar: How Will the Stalemate Election Results Effect Capital Flows?
The margin that has developed in the Australian election is the smallest in approximately 70 years. What does this mean for the Aussie dollar, little it seems. The market has not really responded to the stalemate. However, the outcome to this development is important through the medium-term. One side of the isle is looking to tax vital exports; the other is looking to pay off debts to offset another financial shock.
New Zealand Dependent on Inflation to Carry Feeble Interest Rate Expectations
If the New Zealand dollar’s points of strength weren’t already flimsy enough, interest rate expectations seems to be slipping through traders’ fingers. The RBNZ’s two-year inflation forecast for the third quarter dropped to a 2.6 percent pace, justifying rate forecasts at a 13-month low.
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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 |
|
NZD |
3:00 |
RBNZ 2-Year Inflation Expectation (3Q) |
2.8% |
2Q reading was highest since 2008. |
|
|
EUR |
6:00 |
German GDP s.a. (QoQ) (2Q F) |
2.2% |
2.2% |
Germany’s economic growth accelerated in 2Q as exports surged on improved foreign demand. |
|
EUR |
6:00 |
German GDP w.d.a. (YoY) (2Q F) |
3.7% |
1.6% |
|
|
EUR |
6:00 |
German GDP n.s.a. (YoY) (2Q F) |
4.1% |
1.7% |
|
|
EUR |
6:00 |
German Private Consumption (2Q F) |
0.4% |
-0.8% |
Rose in 2Q following 3-quarter drop. |
|
EUR |
6:00 |
German Capital Investment (2Q F) |
3.8% |
-1.6% |
Rose in 2Q following 2-quarter drop. |
|
EUR |
6:00 |
German Construction Investment (2Q) |
7.3% |
-3.8% |
Rose in 2Q by most since 2006. |
|
EUR |
6:00 |
German Government Spending (2Q F) |
0.5% |
1.1% |
Increased in 6 of past 7 quarters. |
|
EUR |
6:00 |
German Domestic Demand (2Q F) |
1.5% |
1.4% |
Demand rose in 1Q and 2Q of 2010. |
|
EUR |
6:00 |
German Exports (2Q F) |
7.9% |
-10.5% |
Exports increased in 2Q by the largest amount in the past 20 years. |
|
EUR |
6:00 |
German Imports (2Q F) |
7.5% |
6.1% |
|
|
GBP |
8:30 |
BBA Loans for House Purchase (JUL) |
34.0K |
34.8K |
Likely fell for second month in July. |
|
EUR |
9:00 |
Euro-Zone Industrial New Orders s.a. (MoM) (JUN) |
1.5% |
3.8% |
Industrial orders unexpectedly rose in May, led by capital goods. |
|
EUR |
9:00 |
Euro-Zone Industrial New Orders (YoY) (JUN) |
24.0% |
23.0% |
|
|
12:30 |
Retail Sales (MoM) (JUN) |
0.4% |
-0.2% |
Canadian retail sales declined in May for a second straight month. |
|
|
CAD |
12:30 |
Retail Sales Less Autos (MoM) (JUN) |
0.1% |
-0.1% |
|
|
USD |
14:00 |
Existing Home Sales (MoM) (JUL) |
-12.9% |
-5.1% |
Existing home sales likely fell in July to lowest level since March ’09. |
|
USD |
14:00 |
Existing Home Sales (JUL) |
4.68M |
5.37M |
|
|
USD |
14:00 |
Richmond Fed Manufacturing Index (AUG) |
10 |
16 |
Likely declined for a fourth month. |
|
USD |
21:00 |
ABC Consumer Confidence (AUG 22) |
-46 |
-45 |
Confidence rose in the last 2 weeks. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
12:45 |
Fed’s Charles Evans Speaks in Indianapolis, Indiana |
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 |
1.2769 |
1.5668 |
86.02 |
1.0472 |
1.0573 |
0.9066 |
0.7173 |
109.40 |
133.93 |
0.8216 |
|
Resistance 1 |
1.2724 |
1.5600 |
85.65 |
1.0435 |
1.0542 |
0.8999 |
0.7125 |
108.76 |
133.19 |
0.8190 |
|
Spot |
1.2686 |
1.5550 |
85.37 |
1.0368 |
1.0493 |
0.8916 |
0.7077 |
108.24 |
132.61 |
0.8166 |
|
Support 1 |
1.2641 |
1.5482 |
85.00 |
1.0331 |
1.0462 |
0.8849 |
0.7029 |
107.60 |
131.87 |
0.8141 |
|
Support 2 |
1.2603 |
1.5432 |
84.72 |
1.0264 |
1.0413 |
0.8766 |
0.6981 |
107.08 |
131.29 |
0.8117 |
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 |
12.8743 |
1.5246 |
7.3550 |
7.7744 |
1.3558 |
Spot |
7.3898 |
5.8746 |
6.2272 |
|
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 |
1.3815 |
1.6375 |
95.05 |
1.0900 |
1.0922 |
0.9850 |
0.7635 |
127.60 |
146.05 |
0.8725 |
|
Resistance 1 |
1.3500 |
1.5965 |
89.00 |
1.0700 |
1.0750 |
0.9335 |
0.7440 |
120.00 |
140.00 |
0.8600 |
|
Pivot |
1.2680 |
1.5531 |
85.28 |
1.0397 |
1.0510 |
0.8932 |
0.7078 |
108.13 |
132.45 |
0.8165 |
|
Support 1 |
1.2500 |
1.5125 |
85.00 |
1.0350 |
0.9950 |
0.8100 |
0.6850 |
106.90 |
125.00 |
0.8065 |
|
Support 2 |
1.2150 |
1.5000 |
80.00 |
1.0135 |
0.9700 |
0.7835 |
0.6585 |
103.80 |
119.00 |
0.7780 |
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 |
1.2847 |
1.5715 |
86.31 |
1.0526 |
1.0638 |
0.9065 |
0.7189 |
109.82 |
134.55 |
0.8247 |
|
Resistance 2 |
1.2805 |
1.5669 |
86.05 |
1.0494 |
1.0606 |
0.9032 |
0.7161 |
109.40 |
134.03 |
0.8227 |
|
Resistance 1 |
1.2763 |
1.5623 |
85.80 |
1.0462 |
1.0574 |
0.8999 |
0.7134 |
108.98 |
133.50 |
0.8206 |
|
Spot |
1.2680 |
1.5531 |
85.28 |
1.0397 |
1.0510 |
0.8932 |
0.7078 |
108.13 |
132.45 |
0.8165 |
|
Support 1 |
1.2597 |
1.5439 |
84.76 |
1.0332 |
1.0446 |
0.8865 |
0.7022 |
107.28 |
131.40 |
0.8123 |
|
Support 2 |
1.2555 |
1.5393 |
84.51 |
1.0300 |
1.0414 |
0.8832 |
0.6995 |
106.86 |
130.87 |
0.8103 |
|
Support 3 |
1.2513 |
1.5347 |
84.25 |
1.0268 |
1.0382 |
0.8799 |
0.6967 |
106.44 |
130.35 |
0.8082 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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