• Dollar Retrenches into Congestion as a Questionable NFP Release and Holiday Weekend Approach
  • Euro Little Moved by Fundamentals Thursday but Policy and GDP Data Important to Future
  • British Pound Sees Its Questionable Advance Fall Apart after Housing Data Deteriorates
  • Swiss Franc Advances with Help from Best Economic Activity Reading in Two Years
  • Australian Dollar Strength Undermined by Liquidity and Service Sector Lull
  • Japanese Yen Doesn’t Benefit from a Stabilization in Risk Trends or Improvement in Capital Spending

Dollar Retrenches into Congestion as a Questionable NFP Release and Holiday Weekend Approach

Trading conditions were relatively mixed between the US dollar and the many other speculative assets out there. The greenback would officially close Thursday’s session with a bearish performance on a trade-weighted basis; but the slide was especially modest. For the most part, this would fulfill the correlations expected from the safe haven considering the European equities close the day very nearly unchanged; while the benchmark S&P 500 index for the US session would pick up on the modest bite of risk appetite with a 0.9 percent climb of its own. However, the strength and optimism this bullish performance would imply is diminished when measured against the previous session’s rally (the best performance in eight weeks). In fact, taking a more inclusive assessment of risk appetite, we see that the many barometers for speculative sentiment were ultimately restrained. This ballast shouldn’t be at all a surprise to any well-informed trader as we are coming up to one of the market’s favored economic catalysts and a drain in liquidity very shortly thereafter.

Ironically enough, today’s most influential event risk is scheduled for release tomorrow. The US nonfarm payrolls indicator has enough of a reputation across the markets that investors will limit or remove risk well ahead of the event to avoid a dramatic shift in their positions when the data is eventually released. Interestingly enough, this burden on volatility isn’t out of place in current market conditions. Price action has more or less held a steady course until Wednesday’s explosion on otherwise lacking fundamental developments that contradicting the bigger outlook for the global economy. That being the case, a correction or restraint was an exceptionally high probability. That being said, today’s economic developments shouldn’t be overlooked simply because they have failed to stimulate a sluggish market. For scheduled macroeconomic releases, we see data that can easily be interpreted with a skeptical eye. The best outcome would come from the ICSC chain store sales report for August which advanced 3.2 percent. As it is a consumer spending gauge (the bedrock of economic activity), it would seem supportive of expansion; but the knowledge that the increase was encouraged by tax holidays and discounts undermines the optimism surrounding its outcome. From there, the 5.2 percent increase in pending home sales is merely a token improvement following such massive underperformance in previous months and other areas of the sector. As for the tepid 0.1 percent increase in factory orders in July and 1.8 percent drop in 2Q productivity, the implications for the economy should be clear.

Looking ahead to tomorrow, the excitable amongst the trading ranks are prepared for dramatic breakouts and perhaps the development of new trends. However, such an outcome is unlikely. The indicator itself has had limited influence over investor sentiment over recent months because the reality of high unemployment for an extended period has dawned upon even the most optimistic prognosticators. What’s more, the Labor Day holiday weekend will further encourage big market participants to prevent big moves. Outside of a massive surprise, expect placid seas.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Falling Back on Long-Term EURUSD, GBPUSD as NFPs Approach

Euro Little Moved by Fundamentals Thursday but Policy and GDP Data Important to Future

It is unfortunate for those that subsist on volatility that the threat of NFPs and an extended liquidity drain for the United States was obscuring the market’s view of fundamentals today; because the euro was presented with significant developments. Taking it chronologically and in an ascending order of importance, the second (or preliminary) reading of 2Q Eurozone GDP impressed only the policy markers who are charged with playing cheerleader to their economy. The headline quarterly reading matched the 1.0 percent reading initially printed; but the details were less than impressive. A 1.8 percent increase in investment and 0.5 percent rise in household consumption were better than expected; but hardly the pace needed to sustain a robust recovery when the rest of the world is expected to cool. Then there was the ECB decision. Like the Fed and BoJ, the ECB would concede to a troubled outlook and extend unlimited loans to banks on one week and month terms until January. This capitulation is another sign that the strain on global markets is increasing; and when we could down to it, the EU has lingering financial troubles.

British Pound Sees Its Questionable Advance Fall Apart after Housing Data Deteriorates

Though there wasn’t much push behind it, the positive bearing on risk appetite should have been solid enough to boost the pound. However, scheduled event risk would interfere with this drift. Two economic indicators crossed the wires Thursday. The Nationwide home prices reading marked the fastest drop in six months as the supply glut persists. At the same time, construction activity would hit a half-year low of its own.

Swiss Franc Advances with Help from Best Economic Activity Reading in Two Years

With risk aversion controlling the market’s general outlook for a month now and capital fleeing the Eurozone due to its uncertain financial position since Greece required a bailout, the franc really didn’t need another catalyst to support buying interests. But it would get another push much to the SNB’s chagrin. The 3.4 percent annualized pace of expansion was the fastest in over two years; but it isn’t likely to last.

Australian Dollar Strength Undermined by Liquidity and Service Sector Lull

After an incredible run on Wednesday that would easily clear congestion, the Aussie dollar was perhaps the best position currency to find follow through. However, the slump in volatility would hit this increasingly investment dependent currency especially hard. Not helping things, the calendar would further bring a service sector activity reports for August that read a contractionary period for a fourth consecutive month.

Japanese Yen Doesn’t Benefit from a Stabilization in Risk Trends or Improvement in Capital Spending

The Japanese yen is a direct benefactor from risk aversion (for debatable reasons); but the currency certainly doesn’t receive a pass when sentiment is otherwise stable. With speculators holding back on their new trades in observance of tomorrow’s big-ticket event risk; the market would further absorb the 2Q capital spending data with limited interest. Yet, the 1.5 percent contraction was the smallest drop since 3Q 2007.

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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

AUD

23:30

AiG Performance of Service Index (AUG)

46.6

Sits at lowest level since July 2009.

JPY

23:50

Capital Spending (2Q)

-6.5%

-11.5%

Japanese capital investment fell annually in the last 12 quarters.

JPY

23:50

Capital Spending ex Software (2Q)

-5.9%

-12.9%

CNY

1:00

PMI Non-Manufacturing (AUG)

60.1

Declined in 2 of past 3 months.

CHF

7:15

Consumer Price Index (MoM) (AUG)

0.0%

-0.7%

Swiss inflation unexpectedly slowed in July on lower import costs.

CHF

7:15

Consumer Price Index (YoY) (AUG)

0.4%

0.4%

EUR

7:45

Italian PMI Services (AUG)

50.0

49.6

Growth in Europe’s manufacturing and services industries weakened more than expected in August as the composite index fell to 56.1 from a 56.7 reading the prior month.

EUR

7:50

French PMI Services (AUG F)

59.9

59.9

EUR

7:55

German PMI Services (AUG F)

58.5

58.5

EUR

8:00

Euro-Zone PMI Services (AUG F)

55.6

55.6

EUR

8:00

Euro-Zone PMI Composite (AUG F)

56.1

56.1

GBP

8:30

Purchasing Manager Index Services (AUG)

52.9

53.1

Sits at lowest level since June 2009.

GBP

8:30

Official Reserves (Changes) (AUG)

-$24M

Declined in July after 5-month rise.

EUR

9:00

Euro-Zone Retail Sales (MoM) (JUL)

0.2%

0.2%

Euro retail sales were unchanged in June as spending fell in France.

EUR

9:00

Euro-Zone Retail Sales (YoY) (JUL)

0.6%

1.2%

USD

12:30

Change in Non-Farm Payrolls (AUG)

-105K

-131K

U.S. unemployment rate likely rose in August after holding at 9.5% in the two prior months.

USD

12:30

Change in Private Payrolls (AUG)

46K

71K

USD

12:30

Unemployment Rate (AUG)

9.6%

9.5%

USD

12:30

Change in Manufacturing Payrolls (AUG)

10K

36K

Payrolls increased in last 7 months.

USD

12:30

Average Hourly Earnings (MoM) (AUG)

0.1%

0.2%

Average weekly hours have not risen above their current levels since the first quarter of 2009.

USD

12:30

Average Hourly Earnings (YoY) (AUG)

1.6%

1.8%

USD

12:30

Average Weekly Hours (AUG)

34.2

34.2

USD

14:00

ISM Non-Manufacturing Composite (AUG)

53.2

54.3

Likely fell to lowest level since Jan.

Currency

GMT

Upcoming Events & Speeches

USD

14:00

Fed’s Dennis Lockhart Speaks in Johnson City, Tennessee

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

0.9335

0.7440

120.00

140.00

0.8600

Spot

1.2815

1.5387

84.20

1.0139

1.0540

0.9110

0.7151

107.90

129.57

0.8328

Support 1

1.2500

1.5125

83.00

1.0130

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

13.0457

1.5106

7.2296

7.7731

1.3456

Spot

7.2572

5.8096

6.1529

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

1.2886

1.5508

84.81

1.0230

1.0607

0.9156

0.7222

108.74

131.24

0.8386

Resistance 1

1.2850

1.5448

84.51

1.0185

1.0573

0.9133

0.7187

108.32

130.40

0.8357

Pivot

1.2814

1.5399

84.25

1.0140

1.0523

0.9094

0.7142

107.89

129.79

0.8319

Support 1

1.2778

1.5339

83.95

1.0095

1.0489

0.9071

0.7107

107.47

128.95

0.8290

Support 2

1.2742

1.5290

83.69

1.0050

1.0439

0.9032

0.7062

107.04

128.34

0.8252

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

1.2980

1.5574

85.31

1.0268

1.0672

0.9242

0.7261

109.69

131.76

0.8417

Resistance 2

1.2939

1.5527

85.03

1.0236

1.0639

0.9209

0.7233

109.24

131.21

0.8395

Resistance 1

1.2898

1.5480

84.76

1.0204

1.0606

0.9176

0.7206

108.80

130.67

0.8373

Spot

1.2815

1.5387

84.20

1.0139

1.0540

0.9110

0.7151

107.90

129.57

0.8328

Support 1

1.2732

1.5294

83.64

1.0074

1.0474

0.9044

0.7096

107.00

128.47

0.8283

Support 2

1.2691

1.5247

83.37

1.0042

1.0441

0.9011

0.7069

106.56

127.93

0.8261

Support 3

1.2650

1.5200

83.09

1.0010

1.0408

0.8978

0.7041

106.11

127.38

0.8239

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