Dollar Puts in for its First Loss in Six Days as Tempered Risk Trends Ease Safety Demand

• Dollar Puts in for its First Loss in Six Days as Tempered Risk Trends Ease Safety Demand
• Euro Struggles for Ground Despite Improved Sentiment, Higher Inflation Reading
• Japanese Yen Climbs Despite a Clear Disappointment in GDP Figures
• British Pound Maintains Significant Technical Boundary as Housing Trends Fade, Growth Dims
• Australian Dollar Traders Garner Little Guidance from RBA Minutes
• Swiss Franc Rallies as Safe Haven Capital Diverted from the Japanese Yen

Dollar Puts in for its First Loss in Six Days as Tempered Risk Trends Ease Safety Demand

Just as surely as the dollar’s consistent decline over the past two months was prone to a correction so too was the greenback’s five-day rally this past week ready for a break. This inevitability could have been deferred if there were enough fundamental momentum to bolster conviction in the risk aversion effort or if there was a specific catalyst for dollar buying. Alas, the economic docket would not provide remarkable event risk and sentiment-based weather patterns were ultimately calm. We can see the evidence of this stability in the lack of momentum and volume for the market’s more speculative-sensitive asset classes. From the equities market, the S&P 500 would end the day virtually unchanged and overall volume on the New York Stock Exchange barely registered. For commodities, crude eased down for its fifth consecutive bearish close on futures turnover that was less than half the activity level noted on Thursday. For the currency market, EURUSD represents a good proxy for the greenback and the entire FX class. The benchmark pair advanced for the first time in six trading sessions to alleviate the pressure in a steady bear trend. At the same time, the climb wouldn’t break Friday’s high, precluding volatility in a reversal.

While the scheduled and unscheduled event risk crossing the wires Monday was far weaker in terms of influence compared with last week’s listings (a fact that would prevent a unified stance on directing investment flows), the fodder was certainly worthy of mention. Looking outside the purview of the US economic calendar first, risk surrounding the stability of the Chinese markets was inflated by the PBoC’s report that overdue payments on short-term commercial bills (generally a source of liquidity) had risen 10.1 percent through the quarter. This is no doubt a reflection of both tempered economic trends and efforts made by the government to throw the breaks on lending. On another docket, Japan stirred investor concern with a 2Q GDP reading that was best described as ‘anemic.’ With the world’s (now) third largest economy nearly stalling, the outlook for global activity is fading quickly – but speculators typically respond to consequences rather than the early evidence of trouble. Bringing the focus back on the US, the Empire manufacturing survey and net capital flows report are second tier at best. Those keeping score of long-term concerns though should note that China is selling US Treasuries and foreigners are unloading agency debt in general. The top event risk for the day was the Federal Reserve’s Senior Loan Officer Survey for the second quarter. The report assessed that banks had eased lending standards though demand was little changed. The lack of demand for loans is discouraging for an economy trying to climb out of the wake of a past recession; but loosening requirements is an important first step.

Tomorrow, the US economic docket will hit its peak activity level for the week. The three notable economic indicators on deck are industrial production, housing starts and factory-level inflation numbers for July. There is little threat of a rate hike through the immediate future; so the price data is a write off. The construction and factory activity numbers are two central indicators for economic activity; and should be incorporated into longer-term expectations. That being said, they are not top tier readings; so expectations should be restrained. As usual, dollar traders should remain vigilant of unforeseen risk catalysts as that will play more critically to the dollar’s safe haven status.

Related: Discuss the Dollar in the DailyFX Forum, US Dollar Forecast to Gain on an Unwind in Short Positioning

Euro Struggles for Ground Despite Improved Sentiment, Higher Inflation Reading

With a bounce in risk appetite – albeit a modest one – we would expect fundamental underperformers to garner significant relief. The euro, would see little of this respite. The correction in sentiment and dollar tumble aside, the shared currency’s lack of performance was all the more unusual given the presence of bullish economic data. Eurozone consumer-level inflation data for July reported a 1.7 percent annual pace of growth that was the strongest since November of 2008. This should theoretically brighten the outlook for a potential rate hike. However, the ECB is so preoccupied by troubled growth trends and an unstable financial position that the market has come to learn that price pressures will not be a critical factor in monetary policy until conditions are far more pressured. In the coming 24 hours, we may see a little more reaction from the euro. On the calendar, we have the ZEW investor sentiment survey which will tell hint at the condition of the markets. If that weren’t direct enough, Irish and Spanish government debt sales will tell us objectively how stable things are in the region.

Japanese Yen Climbs Despite a Clear Disappointment in GDP Figures

In perhaps one of the most unusual fundamental developments seen in some time; the Japanese yen has appreciated significantly against most of its counterparts despite a notable stall in the risk aversion effort and clear disappointment in growth trends. A 0.1 percent level of growth in GDP through the quarter and 0.9 percent contraction in nominal GDP is merely confirmation that Japan is not a safe haven destination.

British Pound Maintains Significant Technical Boundary as Housing Trends Fade, Growth Dims

With momentum slowing in risk-based trend, the presence of technical resistance can easily create an insurmountable hurdle for a currency pair. That was the case with GBPUSD. Coming upon a very clear rising trend channel floor, the pair simply wouldn’t have the momentum to maintain its bearings. The Rightmove housing data does disappoint though. All gains for the year were unwound and inventory is at a two-year high.

Australian Dollar Traders Garner Little Guidance from RBA Minutes

With the central bankers of the world offering few clues to illuminate ultimately unchanged policy stances, traders have turned to interpreting prepared and impromptu statements. The RBA’s minutes were of the former type; but the authority wouldn’t offer much to those looking for a definitive shift to a dovish or hawkish bearing. The bank said the current rate was “appropriate” and conditions were more uncertain.

Swiss Franc Rallies as Safe Haven Capital Diverted from the Japanese Yen

While the Japanese yen would advance on the day, there is an unmistakable blow to the currency’s safe haven status following today’s economic data. That being said, there will be a need to diversify to a harbor that doesn’t suffer the same entrenched troubles. The franc is a natural alternative especially when we consider the capital transfer that we see between EURCHF.

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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
EUR	8:00	Euro-Zone Current Account s.a. (euros) (JUN)	-5.8B	Posted current account deficit in May for a fifth consecutive month.
EUR	8:00	Euro-Zone Current Account n.s.a. (euros) (JUN)	-16.7B
GBP	8:30	Consumer Price Index (MoM) (JUL)	-0.2%	0.1%	BoE Governor Mervyn King says inflation will be about 1.5% in two years, below the banks 2% target.
GBP	8:30	Consumer Price Index (YoY) (JUL)	3.1%	3.2%
GBP	8:30	Core Consumer Price Index (YoY) (JUL)	3.0%	3.1%
GBP	8:30	Retail Price Index (JUL)	223.6	224.1	The U.K. retail price index rose month-over-month in June for a fifth consecutive month.
GBP	8:30	Retail Price Index (MoM) (JUL)	-0.2%	0.2%
GBP	8:30	Retail Price Index (YoY) (JUL)	4.9%	5.0%
GBP	8:30	RPI Ex Mort Int.Payments (YoY) (JUL)	4.8%	5.0%
EUR	9:00	German ZEW Survey (Economic Sentiment) (AUG)	20	21.2	Euro-Zone ZEW economic sentiment declined in July to its lowest reading since March 2009.
EUR	9:00	German ZEW Survey (Current Situation) (AUG)	24.0	14.6
EUR	9:00	EZ ZEW Survey (Economic Sentiment) (AUG)	9.3	10.7
CAD	12:30	International Securities Transactions (C$) (JUN)	10.000B	23.156B	June reading was a record-high.
CAD	12:30	Manufacturing Shipments (MoM) (JUN)	-0.5%	0.4%	May sales rose for 8th month in 9.
USD	12:30	Housing Starts (MoM) (JUL)	2.0%	-5.0%	Housing starts fell to 549K in June, the lowest reading since 2009.
USD	12:30	Housing Starts (JUL)	560K	549K
USD	12:30	Building Permits (MoM) (JUL)	-0.9%	2.1%	Building permits fell in June to the lowest level since October 2009.
USD	12:30	Building Permits (JUL)	578K	583K
USD	12:30	Producer Price Index (MoM) (JUL)	0.2%	-0.5%	Producer prices fell more than forecast in June, pulled down by lower energy and food costs.
USD	12:30	Producer Price Index (YoY) (JUL)	4.2%	2.8%
USD	12:30	PPI Ex Food & Energy (MoM) (JUL)	0.1%	0.1%
USD	12:30	PPI Ex Food & Energy (YoY) (JUL)	1.3%	1.1%
USD	13:15	Industrial Production (JUL)	0.5%	0.1%	Industrial production ticked higher in June for a fourth consecutive month.
USD	13:15	Capacity Utilization (JUL)	74.6%	74.1%
USD	21:00	ABC Consumer Confidence (AUG 15)	-47	Rose last week from -50 reading.

Currency	GMT	Upcoming Events & Speeches
AUD	1:30	Reserve Bank of Australia Meeting Minutes
USD	13:00	Treasury Secretary Timothy Geithner Speaks in Washington D.C.

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

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