- Dollar Shows Mixed Progress Across Majors as Debt Troubles Continue
- Euro Stabilizes as Crises Headlines Ebb, ECB Reports No Bond Purchases
- Canadian Dollar Traders will Look to BoC Decision to Guide Rate Outlook
- Australian Dollar Stumbles after RBA Minutes Report Curbed GDP Outlook
- New Zealand Dollar Limits Gains Despite 1Q CPI Running at a Two Decade High
- Swiss Franc Stumbles on Euro’s Gains, SNB Report of FX Trading Losses
- Gold Rally Nearly a Record on Two Fronts: Current Level and Momentum
Dollar Shows Mixed Progress Across Majors as Debt Troubles Continue
Just as surely as the S&P 500 failed to break the closely-watched 1,300 figure; the US dollar would fail to make meaningful headway of its own through Monday’s session. The opening trading day of the week was a notable contrast to the average activity level of the past two weeks where remarkable financial headlines were met with dramatic volatility through currencies, equities and bond yields. The difference between current market conditions and those a week ago is not the amperage of the news but rather investors’ acclimation to the news. We know that the troubles in the US, Europe and Asia are still there; but there hasn’t been any significant enough deterioration in the situation to warrant further adjustment on current positioning. This wouldn’t necessarily curb speculation from seeping in and driving risk trends (and thereby the greenback); but the presence of significant events ahead as well as conflicting themes certainly hampers weak efforts to generate trends.
At the forefront of dollar traders’ minds is the countdown to the US deficit officially breaking its legal ceiling. It is tempting to see this particular driver’s impact through a risk trends lens. If the US were to cross its legal limit, it would signify a short-term default which would lead the credit rating agencies to lower the nation’s top sovereign rating. Though it is hard to determine exactly how far such an unprecedented event could reach, it is very likely that the US capital markets would take a hit during the event. Traditionally, a strong risk aversion move would benefit the US dollar (ticker = USDollar). However, the safe haven flows aren’t directly seeking out the greenback; rather they are looking for the shelter of US Treasuries and money markets. Yet, since these are the particular markets that would take the most direct hit in such an even; the US dollar would likely suffer significantly on just such a risk aversion move. It would dramatically change the bearings of the US dollar.
Despite the high cost of such an outcome, however, the dollar didn’t move closer to the abyss Monday; because a default is still considered a very low probability. Yet, we can see concern of the severe problems even a one-step default would have on the US markets. The 5-year US credit default swap is at its highest level in 17 months and US-based ratings agency Egan-Jones announced it had downgraded the country’s top credit rating. While Egan-Jones is not one of the major three; the NRSRO’s decision is ominous. In the meantime, US House Majority Leader Eric Cantor has announced a GOP-led bill (the Cut, Cap and Balance Act) would be brought to vote in the upcoming session. Should this particular headline fail to generate traction, greenback traders could also tap important 2Q earnings from Goldman Sachs and Bank of America.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: Crisis or Not, The Market Needs More Motivation to Sell Euros and Dollars
Euro Stabilizes as Crises Headlines Ebb, ECB Reports No Bond Purchases
The European Union is currently facing a sovereign debt crisis particularly with its periphery member nations. This isn’t news to a euro trader; but many expect this suggestion alone to drive the euro to consistent losses. The FX market (just like any other asset class) is always seeking a equilibrium; and without meaningful developments, the euro will inevitably stabilize. That is the situation we see the shared currency dealing with now. We have not read about any additional downgrades or major changes in political posturing; so the euro’s long-term bearing is fully clouded. Further preventing speculation from taking over, we also have the EU meeting on Greece’s second bailout program on Thursday. Depending on the outcome of this gathering, the health of the region’s credit markets can take very different paths. In the meantime, there is some relief to be found in the ECB’s report that they didn’t purchase any government bonds last week – remarkable given the tumult of downgrades and strained bond auctions. However, the official look-back period only runs to Tuesday; so next week’s update could still deliver a few surprises.
Canadian Dollar Traders will Look to BoC Decision to Guide Rate Outlook
The Canadian dollar absorbed news of a significant increase in net capital flows into Canada through May (a C$15.4 billion surplus) with barely a flicker in the currency’s chart. The event risk for the upcoming session will carry a little more weight. While the Bank of Canada is not expected to change its monetary policy bearing; there is still substantial speculation of a hawkish shift well before the Fed. The statement will confirm this.
Australian Dollar Stumbles after RBA Minutes Report Curbed GDP Outlook
Maintaining a relatively high yield simply does not ensure a currency can continue to rise – point in case: the Australian dollar. While the benchmark for the currency is at 4.75 percent; the Aussie dollar has stumbled against most of its counterparts recently as its risk plateaus. Add to that suggestions by the RBA minutes that growth is unlikely to hit expectations and arguments for eventual cuts start to gain traction.
New Zealand Dollar Limits Gains Despite 1Q CPI Running at a Two Decade High
The New Zealand dollar has defied fundamental gravity at every turn. While the growth and interest rate outlooks are both cut with significant troubles; the kiwi has maintained its bullish bearing. So, it is therefore surprising to see that tangible evidence of a hawkish push from the RBNZ in the form of 21-year highs in the 1Q CPI reading failed to generate lasting strength from the currency. Is the run finally flagging?
Swiss Franc Stumbles on Euro’s Gains, SNB Report of FX Trading Losses
With a bounce in the euro, the currency that stands to lose the most is its direct safe haven alternative – the Swiss franc. The Swissie slipped against most of its counterparts Monday due largely to this particular concern. It is also worth noting the report from the SNB that they tallied 38 billion francs in FX losses trying to control the exchange rate; but this is nothing new to policy watchers.
Gold Rally Nearly a Record on Two Fronts: Current Level and Momentum
Monday’s close officially pushed gold’s rally to 11 consecutive, positive trading days. There have only been two instances of this in the past 35 years; and the data we have doesn’t show 12 days. It is fitting that such a run is pushing the metal to a record high above $1,600/ounce. That said, it is also fitting that such a consistent suggests exhaustion on a push to such heights…
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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 |
|
5:30 |
JPY |
Nationwide Department Store Sales (YoY) (JUN) |
-2.4 |
Japanese retail still weak, suggesting that more reconstruction efforts may be warranted |
|
|
5:30 |
JPY |
Tokyo Department Store Sales (YoY) (JUN) |
-4.3 |
||
|
9:00 |
EUR |
Euro-Zone Construction Output s.a. (MoM) (MAY) |
0.7% |
Construction has be steadily declining since end of first quarter |
|
|
9:00 |
EUR |
Euro-Zone Construction Output w.d.a. (YoY) (MAY) |
-2.0% |
||
|
9:00 |
EUR |
German ZEW Survey (Current Situation) (JUL) |
85 |
87.6 |
Major EU economic sentiment surveys expected to show weakness stemming from peripheral problems |
|
9:00 |
EUR |
Eurozone ZEW Survey (Economic Sentiment) (JUL) |
-5.9 |
||
|
9:00 |
EUR |
German ZEW Survey (Economic Sentiment) (JUL) |
-12.5 |
-9 |
|
|
12:30 |
CAD |
Leading Indicators (MoM) (JUN) |
0.8% |
1.0% |
Overall economy indicator has weakened |
|
12:30 |
USD |
Building Permits (JUN) |
595K |
609K |
Construction expectations weaker, may indicate sector still falls behind the rest of the overall economy |
|
12:30 |
USD |
Building Permits (MoM%) (JUN) |
-2.3% |
8.2% |
|
|
12:30 |
USD |
Housing Starts (JUN) |
575K |
560K |
|
|
12:30 |
USD |
Housing Starts (MoM%) (JUN) |
2.7% |
8.2% |
|
|
13:00 |
CAD |
Bank of Canada Rate Decision |
1.0% |
1.0% |
Commentary will be most important |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
1:30 |
AUD |
Reserve Bank’s Board July Minutes |
|
23:30 |
USD |
Fed’s Hoenig Speaks on Monetary Policy and Agriculture |
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 |
1.6600 |
86.00 |
0.8900 |
1.0275 |
1.1800 |
0.8620 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
81.50 |
0.8550 |
1.0000 |
1.1000 |
0.8520 |
113.50 |
140.00 |
|
Spot |
1.4138 |
1.6125 |
79.07 |
0.8136 |
0.9558 |
1.0630 |
0.8450 |
111.79 |
127.50 |
|
Support 1 |
1.4000 |
1.5935 |
78.50 |
0.8075 |
0.9500 |
1.0400 |
0.7745 |
109.00 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
76.25 |
0.7900 |
0.9055 |
1.0200 |
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 |
1.7425 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.6730 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
11.7415 |
1.6520 |
6.9096 |
7.7941 |
1.2189 |
Spot |
6.5036 |
5.2742 |
5.5616 |
|
Support 1 |
11.5200 |
1.5725 |
6.5575 |
7.7490 |
1.2145 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.5040 |
6.4295 |
7.7450 |
1.2000 |
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 |
1.4261 |
1.6240 |
79.46 |
0.8282 |
0.9680 |
1.0709 |
0.8530 |
113.14 |
128.67 |
|
Resist 1 |
1.4199 |
1.6183 |
79.26 |
0.8209 |
0.9619 |
1.0670 |
0.8490 |
112.47 |
128.08 |
|
Pivot |
1.4107 |
1.6094 |
79.11 |
0.8121 |
0.9575 |
1.0615 |
0.8452 |
111.56 |
127.37 |
|
Support 1 |
1.4045 |
1.6037 |
78.91 |
0.8048 |
0.9514 |
1.0576 |
0.8412 |
110.89 |
126.79 |
|
Support 2 |
1.3953 |
1.5948 |
78.76 |
0.7960 |
0.9470 |
1.0521 |
0.8374 |
109.98 |
126.08 |
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 |
1.4334 |
1.6282 |
79.92 |
0.8239 |
0.9648 |
1.0771 |
0.8567 |
113.48 |
129.14 |
|
Resist. 2 |
1.4285 |
1.6242 |
79.71 |
0.8213 |
0.9626 |
1.0736 |
0.8538 |
113.05 |
128.73 |
|
Resist. 1 |
1.4236 |
1.6203 |
79.49 |
0.8187 |
0.9603 |
1.0701 |
0.8508 |
112.63 |
128.32 |
|
Spot |
1.4138 |
1.6125 |
79.07 |
0.8136 |
0.9558 |
1.0630 |
0.8450 |
111.79 |
127.50 |
|
Support 1 |
1.4040 |
1.6047 |
78.65 |
0.8085 |
0.9513 |
1.0559 |
0.8392 |
110.95 |
126.68 |
|
Support 2 |
1.3991 |
1.6008 |
78.43 |
0.8059 |
0.9490 |
1.0524 |
0.8362 |
110.53 |
126.27 |
|
Support 3 |
1.3942 |
1.5968 |
78.22 |
0.8033 |
0.9468 |
1.0489 |
0.8333 |
110.10 |
125.87 |
Written by: John Kicklighter, Senior 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
