- Dollar Takes a Double Blow from Bernanke and Moody’s
- Euro Troubles Deepen but the Market is Temporarily Distracted
- Japanese Yen: Is 79 the Magic Number for BoJ Intervention?
- New Zealand Dollar Surges on Remarkable 1Q Growth
- British Pound Suffers Little Lasting Impact from Jobless Jump
- Gold Close to its Best Run in Nearly Five Years as Dollar Collapses
Dollar Takes a Double Blow from Bernanke and Moody’s
The dollar took a dramatic hit through Wednesday’s session with consecutive headlines that seem to obliterate any lingering hope that the currency can recover its footing through the immediate future. However, we should be skeptical of this dramatic selling effort just as surely as we were dubious of its previous rally. Before the winds shifted on Wednesday, the greenback managed a 740-point rally against its benchmark counterpart (the euro); but this performance was watered down when we checked its other pairings. This is strong evidence that the drive was the work of the euro and perhaps tempered risk trends rather than the greenback itself. Now we find the currency plunged into its worst day-over-day tumble in seven months. This is the case for both for the Dow Jones FXCM Dollar Index (ticker = USDollar) and EURUSD. Yet, when we look a little closer, we find that some of the majors are working their way back into dense congestion patterns (EURUSD, GBPUSD, AUDUSD) while others are forging record-dollar lows (USDJPY, USDCHF, NZDUSD). Neither condition speaks to an easy case for momentum behind prevailing trends. We need to ascertain conviction; and we do so by looking at the fundamentals.
This past trading day delivered one of the most consistent fundamental barrages for a currency that we have seen in months. There was already a level of selling pressure behind the dollar before the New York session was online; but it was more a drift than a meaningful drive. The fireworks began after 14:00 GMT when Fed Chairman Ben Bernanke delivered his semi-annual monetary policy report to the House Financial Services Committee. In hours of testimony, the market would focus in specifically on the central banker’s suggestion that the authority was “prepared to respond” if further stimulus was needed and that all options were on the table including further quantitative easing (the dreaded and prayed-for QE3). If the dollar is to ever regain significant ground, the currency will have to see an increase in short-term rates to first shake out carry trades funded by dollar and then eventually attract investment capital. The second blow would come towards the end of the US trading session when Moody’s warned that it may cut the US sovereign debt rating if the debt ceiling issue is not resolved. Where the dollar’s safe haven status is already wavering, a threat like this could strip the currency of its last meaningful role.
Now that we are passed the initial flush of the panicked, dollar selloff; we should look back at these two events with a more objective eye. As for Bernanke’s comments, he didn’t meaningfully boost the potential of further stimulus; rather he stated what has been said all along: that all options would be entertained should the markets require it. What was really influential here was that the market was already thinking through the negative implications of QE3; so its mention stirred existing fears. It should also be noted that the policy head also said that the economy may also require less accommodation in the future; and not long ago, it was said that the Fed was in agreement as to the steps of stimulus withdrawal. And, as for the Moody’s warning; this is actually the second agency to issue a warning. Standard & Poor’s warned a while ago. What’s more, the market already knows that the implications are far more dire should the US not reach a debt deal – though that is still considered a very small probability. If indeed these are concerns already priced in; the dollar will quickly normalize. That said, we have another driver to consider: the official start of the Q2 earnings. Google and JPMorgan are on deck to report; and they could stoke risk appetite trends.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: Euro Sovereign Crisis versus US Downgrade and QE3 Concerns
Euro Troubles Deepen but the Market is Temporarily Distracted
Wednesday’s price action for EURUSD is an excellent case that the FX market is often an effort of avoiding the worst performer rather than looking for the best. While the euro’s troubles deepened given the day’s news flow, the shock to the US headlines was enough to put the shared currency under better light. That said, we can see that the euro actually suffered a particularly weak session against the franc, sterling and kiwi dollar through the session. The top headline for the day was the downgrade of Greece’s credit rating to CCC by Fitch. This places the official rating one step above default; but this country was already put on the ledge weeks before by another ratings agency. At this point, the market is as close to being at peace with a default as it can get. If we want to make headway on the crisis front, it will be via Spain, Italy or Stress Tests.
Japanese Yen: Is 79 the Magic Number for BoJ Intervention?
Surely the Bank of Japan is considering intervention. That is a common remark floating around trading circles; but this is not the way we should read the market. There is certainly a significant probability that the central bank will sell yen; but we should really consider whether it will have any meaningful impact on the market. Consider the last time the authority acted – it was with the backing of the G7 and after a dramatic market tumble. That move had a limited shelf life. With subsequent iterations, group effort is unlikely and capital limits will be clear.
New Zealand Dollar Surges on Remarkable 1Q Growth
It was worth the wait. Delayed a week, the New Zealand 1Q GDP figures caught commodity bloc traders off-guard this morning. Heading into the release, the 0.3 percent forecast for quarterly growth seemed somewhat elevated given the earthquake that struck in February. Yet, this natural disaster didn’t seem to curb the broader economy’s performance as it grew an astounding 0.8 percent and led NZDUSD to fresh record highs.
British Pound Suffers Little Lasting Impact from Jobless Jump
After interest rate speculation completely drained, there was little left to guide the pound in its day-to-day activities. A possible fill in was the precarious balance between growth and the austerity efforts. Yet, when the stats office reported a 24,500-net increase in jobless claims through June (the biggest increase since May 2009), the pound showed barely a blip. This currency is fully engaged in its counterparts’ bearings.
Gold Close to its Best Run in Nearly Five Years as Dollar Collapses
All the fundamental stars are aligning for gold. The US is talking about devaluing its currency further while the European financial crisis finds its roots running deeper and deeper. This is the perfect mix to drive capital to an alternative to currencies. And, appropriately, the metal marked its highest close on record Wednesday and extended its first 8-day run since April. We haven’t gone 9-straight sessions since November 2006.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
0:00 |
NZD |
REINZ House Price Index (JUN) |
3186.2 |
Increase in house prices may add pressures on rate hikes |
|
|
0:00 |
NZD |
REINZ House Price Index (MoM) (JUN) |
-1.8% |
||
|
0:00 |
NZD |
REINZ House Price Index (YoY) (JUN) |
10.8% |
||
|
1:00 |
AUD |
Consumer Inflation Expectation (JUL) |
3.3% |
Expectations dropping as economy slows |
|
|
3:00 |
NZD |
Non Resident Bond Holdings (JUN) |
61.2% |
Bond holdings gauge interest in NZ debt |
|
|
4:00 |
JPY |
Tokyo Condominium Sales (YoY) (JUN) |
3.6 |
Has fluctuated at lower levels |
|
|
6:00 |
JPY |
Machine Tool Orders (YoY) (JUN F) |
53.3% |
Weaker orders could reveal continued weakness in economy |
|
|
8:00 |
EUR |
Italian CPI (NIC incl. tobacco) (MoM) (JUN F) |
0.1% |
0.1% |
First inflation data for Europe today – expected unchanged, but will not have large bearing on ECB rate decisions |
|
8:00 |
EUR |
Italian CPI (NIC incl. tobacco) (YoY) (JUN F) |
2.7% |
2.7% |
|
|
8:00 |
EUR |
Italian CPI – EU Harmonized (MoM) (JUN F) |
0.1% |
0.1% |
|
|
8:00 |
EUR |
Italian CPI – EU Harmonized (YoY) (JUN F) |
3.0% |
3.0% |
|
|
9:00 |
EUR |
Euro-Zone CPI (MoM) (JUN) |
0.0% |
0.0% |
Flat CPI may pressure future ECB rate rises as contagion fears take center stage |
|
9:00 |
EUR |
Euro-Zone CPI (YoY) (JUN) |
2.7% |
2.7% |
|
|
9:00 |
EUR |
Euro-Zone CPI – Core (YoY) (JUN) |
1.5% |
1.5% |
|
|
12:30 |
USD |
Advance Retail Sales (JUN) |
0.0% |
-0.2% |
Mixed expectations for retail sales could be the first good news of the week for the US economy |
|
12:30 |
USD |
Retail Sales Ex Auto & Gas (JUN) |
0.4% |
0.3% |
|
|
12:30 |
USD |
Retail Sales Less Autos (JUN) |
0.1% |
0.3% |
|
|
12:30 |
USD |
Initial Jobless Claims (JUN 9) |
415K |
418K |
Claims expected to mildly decrease |
|
12:30 |
USD |
Continuing Claims (JUL 2) |
3680K |
3681K |
|
|
12:30 |
USD |
Producer Price Index (MoM) |
-0.2% |
0.2% |
Producer prices expected to stay the same in a year-over-year measure, may guide Fed rate decisions |
|
12:30 |
USD |
Producer Price Index (YoY) |
7.3% |
7.3% |
|
|
12:30 |
USD |
Producer Price Index Ex Food & Energy (MoM) |
0.2% |
0.2% |
|
|
12:30 |
USD |
PPI Ex Food & Energy (YoY) (JUN) |
2.2% |
2.1% |
|
|
13:45 |
USD |
Bloomberg Consumer Comfort |
-45.5 |
Has steadily dropped since early 2011 |
|
|
14:00 |
USD |
Business Inventories |
0.8% |
0.8% |
Estimates show continued investment |
|
14:30 |
USD |
EIA Natural Gas Storage Change |
95 |
Energy levels could drop on US slowness |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
8:00 |
EUR |
ECB Publishes July Monthly Report |
|
9:00 |
EUR |
Italy to Sell 2016-2026 Debt |
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 |
89.00 |
0.9345 |
1.0275 |
1.1800 |
0.8400 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8300 |
113.50 |
140.00 |
|
Spot |
1.3976 |
1.5913 |
79.24 |
0.8306 |
0.9666 |
1.0598 |
0.8181 |
110.74 |
126.10 |
|
Support 1 |
1.4000 |
1.5935 |
79.00 |
0.8300 |
0.9500 |
1.0400 |
0.7745 |
109.00 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
75.00 |
0.8250 |
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 |
11.7927 |
1.6465 |
6.8786 |
7.7948 |
1.2252 |
Spot |
6.5865 |
5.3360 |
5.5990 |
|
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 |
1.4183 |
1.6049 |
80.81 |
0.8444 |
0.9843 |
1.0735 |
0.8390 |
114.46 |
129.09 |
|
Resist 1 |
1.4080 |
1.5981 |
80.02 |
0.8375 |
0.9755 |
1.0667 |
0.8286 |
112.60 |
127.59 |
|
Pivot |
1.3958 |
1.5881 |
79.60 |
0.8329 |
0.9690 |
1.0596 |
0.8198 |
111.09 |
126.36 |
|
Support 1 |
1.3855 |
1.5813 |
78.81 |
0.8260 |
0.9602 |
1.0528 |
0.8094 |
109.23 |
124.86 |
|
Support 2 |
1.3733 |
1.5713 |
78.39 |
0.8214 |
0.9537 |
1.0457 |
0.8006 |
107.72 |
123.63 |
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 |
1.4172 |
1.6068 |
80.01 |
0.8411 |
0.9760 |
1.0736 |
0.8290 |
112.28 |
127.68 |
|
Resist. 2 |
1.4123 |
1.6029 |
79.82 |
0.8385 |
0.9736 |
1.0701 |
0.8263 |
111.90 |
127.29 |
|
Resist. 1 |
1.4074 |
1.5991 |
79.62 |
0.8359 |
0.9713 |
1.0667 |
0.8236 |
111.51 |
126.89 |
|
Spot |
1.3976 |
1.5913 |
79.24 |
0.8306 |
0.9666 |
1.0598 |
0.8181 |
110.74 |
126.10 |
|
Support 1 |
1.3878 |
1.5835 |
78.86 |
0.8253 |
0.9619 |
1.0529 |
0.8126 |
109.97 |
125.31 |
|
Support 2 |
1.3829 |
1.5797 |
78.66 |
0.8227 |
0.9596 |
1.0495 |
0.8099 |
109.58 |
124.91 |
|
Support 3 |
1.3780 |
1.5758 |
78.47 |
0.8201 |
0.9572 |
1.0460 |
0.8072 |
109.20 |
124.51 |
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
