• Dollar Posts a Hesitant Advance as Data Weighs Growth and Risk Aversion at the Same Time
  • British Pound Rallies following a Surprise Drop in Public Deficit, Jump in First Time Home Purchases
  • Euro Traders Skeptical of EC’s Confidence in Greece, Germany’s GDP Upgrade
  • Canadian Dollar Suffers for Growth but will Inflation Data do the Same for Interest Rate Speculation?
  • Japanese Yen Tumbles as Rumors of BoJ Stimulus Expansion Impending
  • New Zealand Dollar Stumbles after RBNZ Governor Bollard Voices a Tolerance for High Inflation

Dollar Posts a Hesitant Advance as Data Weighs Growth and Risk Aversion at the Same Time

On a day when the market would put in for a significant swing in favor of risk aversion, the US dollar would tally an otherwise staid performance. The trade-weighted Dollar Index closed Thursday’s session with its second consecutive advance to split the week between gains and losses. What we should take from this split personality is the lack of general progress. All told, the single currency has maintained a one-percent range since last Thursday. This congestion puts not only the currency into perspective; but can be applied to other risk-sensitive markets that have perhaps exhibited a little more volatility. Representing the equities market, the S&P 500 has held to 30 points while the benchmark 10-year Treasury note has stabilized around a 17-month high of126. Intraday volatility often draws those desperate for trades into a market that has in reality stalled simply because the activity level around this jump encourages breakout or trend-regeneration speculation.

Looking for the source of today’s relative elevation in volatility, we see a few second tier indicators at work. However, these particular data points would have greater influence as catalysts for risk appetite than economic forecasting; and in that capacity, they would ultimately produce greater moves in the market than otherwise possible. The indicator with the greatest surprise quotient Thursday was the initial jobless claims figures. According to the government, the number of American’s filing for first time jobless benefits grew to 500,000 on an annual basis. This happens to be the highest level since November. The source of this deterioration in the labor market shouldn’t be hard to trace back. The job market is already strained; and the natural end of temporary government census jobs would naturally contribute. From a fundamental perspective, the discouraging pace of NFPs and other labor trends have already highlighted this path for the American market; so this data is better for feeding short-term uncertainty and dollar bids through risk aversion. The same can be said about the Leading Indicators composite for July. The 0.1 percent increase from the measure used to gauge growth over the coming three to six months confirms what the masses are already coming to expect: the US economy is heading towards a tepid period of expansion (perhaps even a mild recession) through the second half of the year. For risk purveyors, the fact that the consumer expectations, building permits and other important factors dropped only dims the future of return.

Outside the normal channels of scheduled event risk, speculators would find additional global concerns to direct their capital towards the shelter of the greenback. Both Chinese and European officials made a half-hearted attempt to calm concerns over their respective region’s financial health. The Chinese Finance Ministry said the hundreds of billions of potential local government bad loans was “manageable” and the European Commission said Greece was ahead of schedule on debt reduction efforts. Skepticism is understandable. The dollar has its own long-term issues as well. The CBO raised its 2011 deficit outlook to $1.066 trillion and the Fed bought up $3.609 billion in Treasuries to hold up stimulus.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD, USDJPY, GBPUSD

British Pound Rallies following a Surprise Drop in Public Deficit, Jump in First Time Home Purchases

Though GPBUSD would ultimately end Thursday little changed (and balancing on the edge of a very prominent, medium-term reversal), the sterling itself enjoyed an aggressive intraday rally. This rally was fully data based; and is a good reflection of what kind of impact certain fundamental trends can have on the currency. For fundamental pound traders, there are three primary concerns for gauging the future of their favorite currency: growth potential; interest rate expectations and fiscal stability. The big ticket data would cater to the last of these worries. Though the threat of a sovereign credit rating cut is distant and has dissipated recently; the risk associated with it is so greater that meaningful changes still have a considerable impact on confidence. That being said, according to the Office for National Statistics, government borrowing was a smaller than expected 3.2 billion pounds and net public finances actually dropped 4.1 billion. With this positive boost, the 1.1 percent increase in retail sales would look even more promising as a growth catalyst. Yet as good as these statistics seem, the fact that bank lending dropped a ninth month through July and broad money growth slowed to a pace not seen since 1983 wouldn’t be ignored.

Euro Traders Skeptical of EC’s Confidence in Greece, Germany’s GDP Upgrade

The euro docket was light for scheduled economic indicators; but the headlines for the day more than made up for it. The two top stories for the day was the fact that the Bundesbank raised its 2010 GDP forecast from 1.9 to 3.0 percent; and remarks from the European Commission hat Greece would likely receive the next 9 billion euro tranche of its bailout loan on September 9th. These may seem unabashedly positive outcomes; but pessimism is too engrained in euro traders’ minds. The outlook for second half growth is anemic and it will bring Europe down.

Canadian Dollar Suffers for Growth but will Inflation Data do the Same for Interest Rate Speculation?

The Canadian dollar took another fundamental step down from its once-high perch Thursday. The Conference Board’s Leading Indicators index printed a weaker than expected 0.4 percent projection of growth and revised the previous month down to a 0.7 percent reading. Tomorrow we will see if interest rate expectations will follow the same tumble. Headline CPI is at 1.0 percent and will not encourage rate hikes at that level.

Japanese Yen Tumbles as Rumors of BoJ Stimulus Expansion Impending

Perhaps if officials aren’t willing to directly intervene in the FX market on behalf of their currency; they can focus on growth and relative currency value by expanding stimulus. This was the rumor began by a Sankei article early Thursday morning. According to the report, an expansion of the BoJ’s lending facility is the most likely tool. The reason this speculation isn’t simply written off: it is highly probable as options are running thin.

New Zealand Dollar Stumbles after RBNZ Governor Bollard Voices a Tolerance for High Inflation

The New Zealand dollar lost its strong bullish convictions when RBNZ Governor Bollard commented that he expected tax hikes to perhaps push inflation to 5 percent. Suggesting he is willing to tolerate this level leaves him far too much room to ignore rates through a rough second half.

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ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

NZD

3:00

Credit Card Spending s.a. (MoM) (JUL)

1.0%

A measure of both credit and consumer health, card spending has held up pretty well in recent month.

NZD

3:00

Credit Card Spending (YoY) (JUL)

4.5%

JPY

7:00

Convenience Store Sales (YoY) (JUL)

-1.5%

Domestic spending has contributed little to economic activity in Japan recently

CAD

11:00

Consumer Price Index (MoM) (JUL)

-0.1%

Will a lack of inflation pressures add to the Canadian dollar’s troubles? Rates are far from the BoC’s 2 percent target.

CAD

11:00

Consumer Price Index (YoY) (JUL)

1.0%

CAD

11:00

Bank Canada CPI Core (MoM) (JUL)

-0.1%

CAD

11:00

Bank Canada CPI Core (YoY) (JUL)

1.7%

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

1.0900

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

Spot

1.2864

1.5606

85.42

1.0418

1.0280

0.8993

0.7151

109.88

133.28

0.8243

Support 1

1.2500

1.5125

85.00

1.0350

0.9950

0.8100

0.6850

106.90

125.00

0.8165

Support 2

1.2150

1.5000

80.00

1.0135

0.9700

0.7835

0.6585

103.80

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

12.6248

1.4987

7.2613

7.7696

1.3506

Spot

7.3349

5.7918

6.1550

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

1.2969

1.5787

85.93

1.0486

1.0369

0.9094

0.7239

110.69

134.46

0.8309

Resistance 1

1.2917

1.5696

85.68

1.0452

1.0324

0.9044

0.7195

110.28

133.87

0.8276

Pivot

1.2870

1.5598

85.43

1.0419

1.0298

0.9008

0.7149

109.94

133.16

0.8249

Support 1

1.2818

1.5507

85.18

1.0385

1.0253

0.8958

0.7105

109.53

132.57

0.8216

Support 2

1.2771

1.5409

84.93

1.0352

1.0227

0.8922

0.7059

109.19

131.86

0.8189

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

1.3026

1.5793

86.46

1.0539

1.0402

0.9123

0.7261

111.61

135.41

0.8326

Resistance 2

1.2985

1.5746

86.20

1.0509

1.0372

0.9090

0.7233

111.18

134.88

0.8306

Resistance 1

1.2945

1.5700

85.94

1.0479

1.0341

0.9058

0.7206

110.75

134.35

0.8285

Spot

1.2864

1.5606

85.42

1.0418

1.0280

0.8993

0.7151

109.88

133.28

0.8243

Support 1

1.2783

1.5512

84.90

1.0357

1.0219

0.8928

0.7096

109.01

132.21

0.8201

Support 2

1.2743

1.5466

84.64

1.0327

1.0188

0.8896

0.7069

108.58

131.68

0.8181

Support 3

1.2702

1.5419

84.38

1.0297

1.0158

0.8863

0.7041

108.15

131.15

0.8160

v

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

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