- Dollar Slides as Threat Level on Deficit Countdown, EU Troubles Ease
- Euro: What are the Scenarios for the EU Summit?
- British Pound Offered Little Support by Further Deflated BoE Minutes
- Canadian Dollar Rate Forecast-based Rally Cools After Policy Report
- Australian Dollar Absorbs Business Sentiment, Focused on Risk Trends
- Gold Didn’t Break Pace for Long as Investors Contemplate Fiscal Risks
Dollar Slides as Threat Level on Deficit Countdown, EU Troubles Ease
Trading conditions were still running quiet heading into Thursday’s Asian session as market participants waited for the shoe to drop on one of the bigger fundamental catalysts that hold the yoke on capital flows. For the dollar, there are still tangible concerns surrounding the deficit deadlock in Washington as well as the consequences of the European Union’s progress on Greece and the spread of the sovereign debt troubles; but we can distill all of this into a reflection of risk appetite trends. Trading conditions through the previous trading session were exceptionally light with the S&P 500 carving out its smallest range in two weeks and volume slowed to its lowest turnover since last Monday. This benchmark for investor sentiment translated nicely to a gauge for activity for the on-again, off-again safe haven greenback. The Dow Jones FXCM Dollar Index (ticker = USDollar) slid for a second consecutive session to 9,543 – not substantial enough a decline to break from the month-long period of congestion.
Simplifying the picture down to the precepts of risk appetite and risk aversion make for an easy read; but it doesn’t offer a complete enough picture to understand where the dollar will be heading in the immediate future. The lack of conviction behind market sentiment is a quiet that can quickly be disturbed before the end of the week. The current lull in price action is in respect to the EU summit. We will discuss the details of this event risk under the ‘Euro’ section; but for the dollar’s perspective, the anticipation of this known and pivotal event risk curbs large investors’ participation in the capital markets. For investment banks, central banks, sovereign wealth funds and other large players; taking large positions before an event that can significantly alter the market’s landscape is unthinkable. The result is a market that is prone to volatility but cannot find enough interest to sustain trends. That can all change in the upcoming session, however, should the outcome of the summit unlock volatility and unify investors’ convictions. Should skepticism that Europe has put in a genuine fix to its deeply rooted problems prevail, the greenback will stand as the Euro’s most liquid alternative and risk aversion will guide additional capital through the same channel. Alternatively, confidence (short-lived or permanent) will set the US financial problems in deeper relief.
While the EU gathering is a more pressing catalyst given its known time frame; the US deficit countdown is just as threatening for the dollar when it comes down to volatility. The House of Representatives passed the Cut, Cap and Balance Act; but the President’s veto threat is looms. Nevertheless, it seems that there are viable options on the table. The question for the dollar when a proposal is eventually accepted is whether there will be greater relief for the investor sentiment in general (feeding risk appetite) or a more direct boost for the dollar.
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: Preparing for the Euro and Risk Implications of Thursday’s EU Summit
Euro: What are the Scenarios for the EU Summit?
In the past week, we have seen the euro slowly claw back a portion of its previous losses. This partial retracement eases some of the pressure for a dramatic reaction to the currency’s key event risk this week: the EU summit. This particular meeting is so important as it is seen as the opportunity to provide Greece the relief it needs to curb its constant deterioration and to snuff the spread of crisis contagion. In the Asian session, it was reported that representatives from Germany and France had met with ECB President Trichet and EU President Von Rompuy and agreed to a common proposal which they will present at the meeting. Having the two largest economies on the same objective is encouraging.
Determining how the euro will react to the event, we have three general scenarios to consider. A ‘bullish’ outcome is not difficult to accomplish as it doesn’t require a genuine fix to put the Euro Zone on course to purge its debts. Instead, a temporary fix to account for a few symptoms (a second Greece bailout) could be enough to offer the currency a temporary boost. The ‘bearish’ scenario would be best served by the absence of the bare-minimum progress (the vow of additional money for Greece) and would be instantly amplified as worries that the credit freeze is moving towards the EU core. The final conclusion is one of confusion and chop. There is a good chance that the market is looking beyond Greece as they fully expect an eventual selective default. If that is the case, there will be deeper debate on the efforts made to further backstop the region.
British Pound Offered Little Support by Further Deflated BoE Minutes
We’ve come to expect little or nothing from the Bank of England’s rate decision; but there is always the possibility for volatility on the minutes that follow a few weeks later. The most recent wrap up offered the 7-2 vote expected (7 hold and 2 for hikes); but the majority reflection on growth likely running a weaker pace than expected was what really came across to sterling traders. There was no ignoring the EU risks either.
Canadian Dollar Rate Forecast-based Rally Cools After Policy Report
Similar to the influence that the BoE minutes, the Bank of Canada’s monetary policy report spells out the forecast for traders. After the BoC rate decision yesterday, there was a more hawkish tone to the markets; but the policy report cooled this forecast somewhat. The headline CPI forecast for 2Q was seen at 3.4 percent; but it was seen cooling while core prices were expected to peak only at 2.1 percent in 1Q 2011.
Australian Dollar Absorbs Business Sentiment, Focused on Risk Trends
Business confidence in Australia eased through the second quarter as high interest rates, curbed demand from China and uncertainty in the global financial system tempered optimism. This is a long-term concern for those watching rates and growth; but savvy traders know to push this to the backdrop and keep the focus on risk trends. The currency’s link to risk trends remains tight and it will only tighten should volatility pick up.
Gold Didn’t Break Pace for Long as Investors Contemplate Fiscal Risks
One would expect a pullback for gold after an 11-day, $117 rally to record highs would be rather significant. However, the precious metal quickly put in for a rebound that erased much of the previous day’s losses. A deeper reversal is a technical expectation adapted to expectations for profit taking. Yet, we are dealing with a market that is heavily backed by fundamental uncertainty (the EU summit, US debt ceiling) that keeps gold bid.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:30 |
AUD |
RBA Foreign Exchange Transaction (AUD) (JUN) |
601M |
May decrease as rate expectations fall |
|
|
1:30 |
AUD |
NAB Business Confidence (2Q) |
11 |
Confidence could point to economy status |
|
|
2:30 |
CNY |
HSBC Flash China Manufacturing PMI (JUL) |
50.1 |
PBoC tightening may lower index |
|
|
3:00 |
NZD |
Credit Card Spending (YoY) (JUN) |
5.1% |
Credit card spending is a good gauge of consumer and retail spending |
|
|
3:00 |
NZD |
Credit Card Spending s.a. (MoM) (JUN) |
0.6% |
||
|
4:30 |
JPY |
All Industry Activity Index (MoM) (MAY) |
1.8% |
1.5% |
Could point towards recovery |
|
6:00 |
CHF |
Trade Balance (Swiss franc) (JUN) |
3.25B |
Exports may fall further as franc hits record against the Euro, hurting product competitiveness |
|
|
6:00 |
CHF |
Imports (MoM) (JUN) |
-8.4% |
||
|
6:00 |
CHF |
Exports (MoM) (JUN) |
-1.5% |
||
|
7:00 |
EUR |
French PMI Manufacturing (JUL P) |
52.1 |
52.5 |
Expected decrease in PMI may lessen pressure for additional rate hikes |
|
7:00 |
EUR |
French PMI Services (JUL P) |
55.5 |
56.1 |
|
|
7:00 |
CHF |
Money Supply M3 (YoY) |
5.6% |
May continue expansion on low rates |
|
|
7:00 |
CHF |
Real Estate Index Family Homes (2Q) |
392.3 |
Home prices have been declining |
|
|
7:30 |
EUR |
German PMI Services (JUL A) |
56.1 |
56.7 |
Critical PMIs for Germany and all-zone expected to fall, could result in less demand for the Euro |
|
7:30 |
EUR |
German PMI Manufacturing (JUL A) |
54.1 |
54.6 |
|
|
8:00 |
EUR |
Eurozone PMI Manufacturing (JUL A) |
51.5 |
52 |
|
|
8:00 |
EUR |
Euro-Zone Current Account s.a. (euros) (MAY) |
-5.1B |
Trade data could decline following weaker manufacturing, exports |
|
|
8:00 |
EUR |
Euro-Zone Current Account n.s.a. (euros) (MAY) |
-6.5B |
||
|
8:30 |
GBP |
Public Finances (PSNCR) (Pounds) (JUN) |
17.0B |
11.1B |
Government finances and accounts expected to decline as spending increasingly tight due to austerity |
|
8:30 |
GBP |
PSNB ex Interventions(JUN) |
12.5B |
17.4B |
|
|
8:30 |
GBP |
Public Sector Net Borrowing (Pounds) (JUN) |
10.4B |
15.2B |
|
|
8:30 |
GBP |
Retail Sales (MoM) (JUN) |
0.5% |
-1.6% |
Expected improvement in retail sales could prompt Bank of England to revise their hold on interest rates |
|
8:30 |
GBP |
Retail Sales (YoY) (JUN) |
0.0% |
0.0% |
|
|
8:30 |
GBP |
Retail Sales w/Auto Fuel (MoM) (JUN) |
0.6% |
-1.4% |
|
|
8:30 |
GBP |
Retail Sales w/Auto Fuel (YoY) (JUN) |
0.4% |
0.2% |
|
|
9:00 |
CHF |
ZEW Survey (Expectations) (JUL) |
-24.3 |
Survey measures overall sentiment |
|
|
12:30 |
USD |
Initial Jobless Claims (JUL 16) |
410K |
405K |
Claims expected to fall slightly on a week-to-week basis |
|
12:30 |
USD |
Continuing Claims (JUL 9) |
3705K |
3727K |
|
|
13:45 |
USD |
Bloomberg Economic Expectations (JUL) |
-31 |
Surveys have shown weakness going into summer months |
|
|
13:45 |
USD |
Bloomberg Consumer Comfort (JUL 17) |
-43.9 |
||
|
14:00 |
USD |
House Price Index (MoM) (MAY) |
0.1% |
0.8% |
Expected data may reveal lagging sector |
|
14:00 |
USD |
Leading Indicators (JUN) |
0.2% |
0.8% |
Indicators and manufacturing data show weakness in economy |
|
14:00 |
USD |
Philadelphia Fed. (JUL) |
2 |
-7.7 |
|
|
14:30 |
USD |
EIA Natural Gas Storage Change (JUL 16) |
84 |
Natural gas inventories steadily lower |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
11:00 |
EUR |
Euro-zone Meeting of Finance Ministers |
|
12:30 |
USD |
Fed’s Evans Speaks to Reporters in Chicago |
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 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
81.50 |
0.8550 |
1.0000 |
1.1000 |
0.8620 |
113.50 |
140.00 |
|
Spot |
1.4225 |
1.6161 |
78.77 |
0.8184 |
0.9473 |
1.0742 |
0.8564 |
112.05 |
127.30 |
|
Support 1 |
1.4000 |
1.5935 |
78.50 |
0.8075 |
0.9450 |
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 |
11.6454 |
1.6614 |
6.8615 |
7.7928 |
1.2136 |
Spot |
6.4486 |
5.2405 |
5.4891 |
|
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 |
1.4306 |
1.6230 |
79.54 |
0.8284 |
0.9537 |
1.0788 |
0.8595 |
112.70 |
128.42 |
|
Resist 1 |
1.4265 |
1.6196 |
79.16 |
0.8234 |
0.9505 |
1.0765 |
0.8580 |
112.38 |
127.86 |
|
Pivot |
1.4200 |
1.6132 |
78.93 |
0.8206 |
0.9481 |
1.0738 |
0.8553 |
112.02 |
127.29 |
|
Support 1 |
1.4159 |
1.6098 |
78.55 |
0.8156 |
0.9449 |
1.0715 |
0.8538 |
111.70 |
126.74 |
|
Support 2 |
1.4094 |
1.6034 |
78.32 |
0.8128 |
0.9425 |
1.0688 |
0.8511 |
111.34 |
126.17 |
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 |
1.4424 |
1.6321 |
79.60 |
0.8291 |
0.9564 |
1.0884 |
0.8683 |
113.80 |
128.96 |
|
Resist. 2 |
1.4374 |
1.6281 |
79.39 |
0.8264 |
0.9542 |
1.0849 |
0.8653 |
113.36 |
128.54 |
|
Resist. 1 |
1.4325 |
1.6241 |
79.18 |
0.8237 |
0.9519 |
1.0813 |
0.8623 |
112.92 |
128.13 |
|
Spot |
1.4225 |
1.6161 |
78.77 |
0.8184 |
0.9473 |
1.0742 |
0.8564 |
112.05 |
127.30 |
|
Support 1 |
1.4125 |
1.6081 |
78.36 |
0.8131 |
0.9427 |
1.0671 |
0.8505 |
111.18 |
126.47 |
|
Support 2 |
1.4076 |
1.6041 |
78.15 |
0.8104 |
0.9404 |
1.0635 |
0.8475 |
110.74 |
126.06 |
|
Support 3 |
1.4026 |
1.6001 |
77.94 |
0.8077 |
0.9382 |
1.0600 |
0.8445 |
110.30 |
125.64 |
v
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
The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
