- Dollar Pressure Greater after Bernanke’s Avoidance of QE3
- Euro’s Financial Troubles May Come to the Foreground Next Week
- Japanese Yen Advances Against Dollar Despite QE3, Kan and Carry
- Gold Quietly Posts its Second Biggest Rally in 9 Months Amid Confusion
- British Pound Won’t Find Much Support in Steady 2Q GDP Readings
- Swiss Franc Tumbles on Rumors Bank Charging for Franc Deposits
- Canadian Dollar Watches US, Oil and Financial Concerns
Dollar Pressure Greater after Bernanke’s Avoidance of QE3
Fed Chairman Bernanke let traders down. From a policymaker standpoint, the strategic wording in his Jackson Hole conference speech worked well to confuse market participants sufficiently to avoid a ‘no QE3’-selloff. However, traders aren’t interested in stability. They want volatility and trends. In fighting the market’s natural inclination towards greater activity with a deleveraging of risky positions (what most would call a capital market decline); we are facing the threat of a greater reaction later down the line when the world’s financial caretakers are closer to exhausting their ability to offer support. For now, the dollar has been robbed the chance at a meaningful rally after the fed chairman ran through his entire speech without offering up an explicit or even general suggestion that further stimulus could be in the works.
Heading into the speech that Chairman Bernanke gave, the more unabashed speculators were looking for distinct terminology that could be interpreted as another effort of support from the central bank in the guise of quantitative easing (Treasury purchases, asset changes in the balance sheet or perhaps an increase in maturity for holdings). The absence of this moral hazard led to a quick selloff; but the move wouldn’t last. Borrowing a page from the ECB’s book, the policy navigator kept his message ambiguous thereby fostering the one thing short of government / Fed money that can keep selling pressure at bay: hope. In his statement, Bernanke gave a hollow remark that the central bank has a “range of tools” that it could still access to stimulate the economy; but what really drew the market’s interest was the suggestion that the September policy meeting would be extended a day (September 20th and 21st). This is supposedly to allow for a “fuller discussion” about the economy and means for support. Does this mean that the stimulus options that capital market bulls (dollar bears) were looking for this past week on deck next month? For now, traders believe it is probable enough to stay their hand.
Yet, we shouldn’t expect the markets to keep quietly to congestion for the next month until the Fed comes around. Volatility (as we saw Friday) is still exceptionally high. And, just as important, doubt has a permanent hold over sentiment. Moving forward, there is still a high risk for the dollar to rally. Pure risk aversion isn’t the primary concern here (as the greenback is not an ideal safe haven). The real catalyst is through deteriorating financial health and the dollar / treasury’s market depth. Hurricane Irene could pose a short-term hit to steady markets; but it is the trouble surrounding the European funding situation and domestic banking troubles (with players like bank of America) that can really hurt.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video:EURUSD and S&P 500 Still Face High Risk of Breakout Next Week
Euro’s Financial Troubles May Come to the Foreground Next Week
The euro is the most at-risk currency in the coming week. Through the past week, we took in headlines that should disturb perceptive traders. On one level, the trouble related to refuted headlines over individual bank troubles is certainly a portion of hype but fear alone can cause irreparable harm (as we saw with Lehman Brothers). Should tangible problems develop for a bank or banks in the EU’s more stalwart member nations, we can see the lingering suggestion of a crisis turn into a full-fledged outbreak at the market level. The more familiar concern is another wave of crisis for the region’s most troubled member: Greece. We have seen recently that Finland is still posturing to withdrawal support of the second bailout effort if it can’t have a collateral deal while EU/ECB/IMF officials are due to judge if the country met targets to receive its sixth tranche of aid. It is believed they have not. Additionally, Greece is threatening to scrap its bond swap if private participation is below 90 percent.
Japanese Yen Advances Against Dollar Despite QE3, Kan and Carry
Recently, we have seen risk appetite rebound (boosting carry appeal), Prime Minister Naoto Kan offer his resignation and Bernanke hold off on additional quantitative easing. And yet, the Japanese yen managed to advance against the US dollar. This is an unusual outcome given the mix; but we should remember the long-term outlook for the Japanese currency. What’s more, we should remember officials’ FX desperation.
Gold Quietly Posts its Second Biggest Rally in 9 Months Amid Confusion
The focus Friday was on the possibility of QE3; and the questionable statement offered by Bernanke further distracted traders. Yet, for those watching, gold’s reaction was very interesting. A steady advance through most of the session looks much like what would be expected if stimulus was on the way. The 3.0 percent rally perhaps shows the speculation in gold traders’ stimulus forecasts – or maybe their fear…
British Pound Won’t Find Much Support in Steady 2Q GDP Readings
Swallowed up by larger event risk and a temperate outcome, the second UK GDP reading was certainly worth absorbing. It may seem a non-event that the QoQ figure held 0.2 percent and the YoY 0.7 percent growth; but we need to remember these were disappointing in their initial appearance. BoE member Weale’s recent warning that further easing could prompt additional stimulus is fortified by this outcome.
Swiss Franc Tumbles on Rumors Bank Charging for Franc Deposits
Manipulation has many negative repercussions. In Switzerland, after the SNB announced its efforts to flood the market with francs and increase foreign exchange swaps; we saw short-term market rates turn negative. This is a pain for Swiss banks who are receiving greater capital inflows. In turn, the rumor that banking giant UBS will start to charge for franc deposits has a clear foundation in reality.
Canadian Dollar Watches US, Oil and Financial Concerns
The Canadian dollar plays a unique role amongst the majors. First and foremost, the currency is a proximate substitute to its US counterpart (a significant role with the QE3 question still holding over us). However, perhaps more pressing this next week, the oil production for the country could find a catalyst in Hurricane Irene; while trouble with Societe Generale or Bank of America could leverage Canada’s stability.
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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 |
|
(28-30) |
CNY |
Leading Index (JUL) |
101.76 |
Chinese equities recently surged on expectations of greater fiscal spending, will growth show support? |
|
|
(29-30) |
JPY |
Small Business Confidence (AUG) |
47.1 |
Industrials and exporters are hurt by the yen; but what about small businesses? |
|
|
(1-2) |
GBP |
Halifax House Prices s.a. (MoM) (AUG) |
0.3% |
The housing market is still unnaturally propped by the London market, but activity is slowing over time |
|
|
(1-2) |
GBP |
Halifax House Prices (3MoY) (AUG) |
-2.6% |
||
|
23:01 (Sun) |
GBP |
Hometrack Housing Survey (MoM) (AUG) |
-0.1% |
||
|
23:01 (Sun) |
GBP |
Hometrack Housing Survey (YoY) (AUG) |
-3.9% |
||
|
EUR |
German Consumer Price Index (MoM) (AUG P) |
-0.1% |
0.4% |
Headline inflation is expected to contract for the first time since January. Interest rate speculation is no longer present to keep the euro buoyant. |
|
|
EUR |
German Consumer Price Index (YoY) (AUG P) |
2.3% |
2.4% |
||
|
EUR |
German CPI – EU Harmonised (MoM) (AUG P) |
0.0% |
0.5% |
||
|
EUR |
German CPI – EU Harmonised (YoY) (AUG P) |
2.5% |
2.6% |
||
|
1:00 |
AUD |
HIA New Home Sales (MoM) (JUL) |
-8.7% |
The June reading reported the biggest drop since May of 2006 |
|
|
8:00 |
EUR |
Italian Consumer Confidence Index s.a. (AUG) |
101.8 |
103.7 |
Financial and EU regional problems seen diminishing consumer sentiment |
|
12:30 |
USD |
Personal Income (JUL) |
0.3% |
0.1% |
Personal consumption is vital to the United States’ growth; and it has been consistently absent. A hearty July boost to income and spending as is forecast would help growth expectations significantly |
|
12:30 |
USD |
Personal Spending (JUL) |
0.5% |
-0.2% |
|
|
12:30 |
USD |
PCE Deflator (YoY) (JUL) |
2.7% |
2.6% |
|
|
12:30 |
USD |
PCE Core (MoM) (JUL) |
0.2% |
0.1% |
|
|
12:30 |
USD |
PCE Core (YoY) (JUL) |
1.4% |
1.3% |
|
|
14:00 |
USD |
Pending Home Sales (MoM) (JUL) |
-0.5% |
2.4% |
The most laggard of the housing reports, this series is still reflecting volatile federal programs |
|
14:00 |
USD |
Pending Home Sales (YoY) (JUL) |
17.3% |
||
|
14:30 |
USD |
Dallas Fed Manufacturing Activity (AUG) |
-8.5 |
-2.0 |
Another regional manufacturing report that will receive additional scrutiny after the Philly Fed implosion |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
16:25 (Sat) |
EUR |
ECB President Trichet Speaks at Jackson Hole Conference |
|
13:00 |
EUR |
ECB President Jean-Claude Trichet Speaks on Debt Crisis |
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 |
1.6745 |
86.00 |
0.8275 |
1.0275 |
1.0800 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6600 |
81.50 |
0.8000 |
1.0000 |
1.0645 |
0.8750 |
113.50 |
140.00 |
|
Spot |
1.4486 |
1.6340 |
76.71 |
0.8078 |
0.9850 |
1.0560 |
0.8390 |
111.12 |
125.34 |
|
Support 1 |
1.4000 |
1.5935 |
76.35 |
0.7000 |
0.9425 |
1.0400 |
0.7745 |
109.00 |
124.00 |
|
Support 2 |
1.3700 |
1.5750 |
75.50 |
0.6800 |
0.9055 |
0.9925 |
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 |
1.8235 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.8000 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
12.4835 |
1.7499 |
7.1560 |
7.7957 |
1.2032 |
Spot |
6.2995 |
5.1433 |
5.3737 |
|
Support 1 |
11.5200 |
1.6500 |
6.5575 |
7.7490 |
1.2000 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.5725 |
6.4295 |
7.7450 |
1.1800 |
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 |
1.4612 |
1.6459 |
77.92 |
0.8308 |
0.9964 |
1.0698 |
0.8507 |
112.42 |
127.11 |
|
Resist 1 |
1.4549 |
1.6399 |
77.32 |
0.8193 |
0.9907 |
1.0629 |
0.8448 |
111.77 |
126.23 |
|
Pivot |
1.4439 |
1.6304 |
76.91 |
0.8043 |
0.9867 |
1.0524 |
0.8360 |
110.94 |
125.36 |
|
Support 1 |
1.4376 |
1.6244 |
76.31 |
0.7928 |
0.9810 |
1.0455 |
0.8301 |
110.29 |
124.48 |
|
Support 2 |
1.4266 |
1.6149 |
75.90 |
0.7778 |
0.9770 |
1.0350 |
0.8213 |
109.46 |
123.61 |
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 |
1.4686 |
1.6521 |
77.62 |
0.8205 |
0.9962 |
1.0731 |
0.8535 |
112.91 |
127.10 |
|
Resist. 2 |
1.4636 |
1.6475 |
77.39 |
0.8173 |
0.9934 |
1.0688 |
0.8499 |
112.47 |
126.66 |
|
Resist. 1 |
1.4586 |
1.6430 |
77.16 |
0.8142 |
0.9906 |
1.0645 |
0.8462 |
112.02 |
126.22 |
|
Spot |
1.4486 |
1.6340 |
76.71 |
0.8078 |
0.9850 |
1.0560 |
0.8390 |
111.12 |
125.34 |
|
Support 1 |
1.4386 |
1.6250 |
76.26 |
0.8014 |
0.9794 |
1.0475 |
0.8318 |
110.22 |
124.46 |
|
Support 2 |
1.4336 |
1.6205 |
76.03 |
0.7983 |
0.9766 |
1.0432 |
0.8281 |
109.77 |
124.02 |
|
Support 3 |
1.4286 |
1.6159 |
75.80 |
0.7951 |
0.9738 |
1.0389 |
0.8245 |
109.33 |
123.58 |
v
Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
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