• Dollar Traders Will have to Determine Currency’s Safe Haven Role with Friday’s GDP Revisions, Bernanke Commentary
  • Euro Suffers the Ire of the Financial Media as Investors Ferret Out Global Troubles
  • British Pound Struggles to Hold onto Optimism from Macro Data after the S&P Issues a Warning
  • Japanese Yen Limits Reaction to Tempered Sentiment, Data as Clarification Sought on Intervention Chances
  • Australian Dollar Speculation Ignores Election Results to Focus on Next Week’s GDP
  • Canadian Dollar Advances for a Second Day but Outlook for Growth and Rates Continues to Fade

Dollar Traders Will have to Determine Currency’s Safe Haven Role with Friday’s GDP Revisions, Bernanke Commentary

The economic docket was relatively light for the US dollar; but that wouldn’t prevent the currency from drifting off its fundamental mooring. The favored reserve fiat would put in for its second consecutive decline. Looking at the trade-weighted Dollar Index, the current pattern for price action looks very similar to the development from last week. Not surprisingly, the underlying market conditions that contributed to the brief retracement and general congestion back then are present now. It is first important to establish that the 48 hour decline from the greenback is not yet a bear trend. Rather, this move is more appropriately labeled as a correction that falls within a range that has developed through the week. The intraweek swings the currency has put in for this past week were short-term reactions to fundamental catalysts; but it has been a tangible struggle to gain a footing on a clear trend. We can trace this hesitancy back to underlying investor sentiment itself. Today, we see the Dow Jones Industrial Average slip below the 10,000 mark while keeping within the previous session’s coverage; and US-based crude oil reversed for a second day. In conjunction with the stalled EURUSD, this lax correlation between markets suggests risk appetite has tempered.

From today’s fundamental offerings, the lack of volatility (much less a trend) should not come as a surprise. On the docket, the initial jobless claims figures for the week through August 21st eased more than expected to a 473,000-annual clip. The positive implications this data may have had were summarily offset by the report that 310,000 filings were added to continuing claims owing to extended benefits – a poor reflection of the recovery effort by employment. The same questionable outcome is afforded to the MBA’s mortgage foreclosure reading for the second quarter which slipped from 4.63 to 4.57 percent; and yet it is still just off its record high. This data could easily be construed to support a bearish outlook; but the fundamental gravity heading into the end of the week is too great for this second tier data to significant alter traders’ expectations. Instead, the ranks are waiting to absorb and interpret tomorrow’s top event risk. On the docket, we have the revision of the second quarter GDP reading. Normally, the market’s interest stops with the first reading; but the magnitude of the expected revision and intensified speculation of a stalled recovery in the second half of the year has made this second reading perhaps more influential than the first. Given the disappointing housing, manufacturing and inventory developments over the past weeks; it shouldn’t surprise that there is talk of a 1.0 percent reading or lower. The other major event for the day is the Jackson Hole Symposium. A meeting of mind on monetary policy, this forum has been used to delivery forecasts in the past. There is fringe speculation that Bernanke may lower his growth outlook or event announce new stimulus.

For dollar traders, the outcome of this collective event risk is actually much more complicatedthan establishing whether it is good or bad for the economy. Normally, the impact this wave has on risk appetite would impact the dollar as a safe haven. Yet we have seen this role diminish somewhat recently as greenback has deviated from other capital markets. That said, the more panicked the crowd; the more they need shelter.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: EURUSD, GBPUSD Correct, USDJPY Still Top Opportunity

Euro Suffers the Ire of the Financial Media as Investors Ferret Out Global Troubles

Aside from those pairings that pit it against distinct safe havens, the euro would ease lower into the final trading day of the week. Once again, the shared currency’s unique connection to the US dollar has put its fate in the hands of tomorrow’s US-based event risk. At the same time, the euro’s sensitivity to risk aversion contributed to its weak performance Thursday. With investors concerned over the financial future of the European Union, we have seen media attention intensify surrounding the region’s short-comings. On the headlines today, was a Eurobarometer report that Europeans were the least confident in the EU in six years; German Finance Minister Schuaeble warned the market to moderate its expectation for German growth; and Spain could owe taxpayers anywhere between hundreds of millions to 5 billion euros. With the focus on ‘bad news’ the modestly lower yields on Irish sovereign bond auctions and uptick in German consumer confidence doesn’t look so encouraging.

British Pound Struggles to Hold onto Optimism from Macro Data after the S&P Issues a Warning

There was one remarkable piece of scheduled event risk from the UK’s docket; and it would offer a questionably positive reading for sterling traders to work with. The CBI’s retail and wholesale sales reading for August unexpectedly grew to its highest reading since April of 2007. However, the fact that much of this performance can be tied to prices leaves it with a dubious contribution to broader economic health. With no alternative interpretation, the warning from S&P’s Ratings that UK’s banks were at risk over the long-term raises financial stability questions.

Japanese Yen Limits Reaction to Tempered Sentiment, Data as Clarification Sought on Intervention Chances

Once again USDJPY would deviate from the path the rest of the dollar-base majors would take. While EURUSD and GBPUSD advanced back above former support levels; the yen-denominated pair kept the psychological 85 level intact. Short-term concerns are lost with this pair. Instead traders are waiting to see whether the US will meet another crisis and/or if Japan will throttle the stimulus pedal or intervene in the FX market.

Australian Dollar Speculation Ignores Election Results to Focus on Next Week’s GDP

The economic assessment of the Australian dollar’s fundamental backdrop has deteriorated substantially; but the extent of the damage has been covered by intervening risk appetite trends. When major hurdles to sentiment have been cleared, the focus will turn back onto faded growth and interest rate potential. We could be looking at a major fundamental storm front developing with 2Q GDP figures due next week.

Canadian Dollar Advances for a Second Day but Outlook for Growth and Rates Continues to Fade

The Canadian dollar climbed for the second session; but gains proved difficult to hold onto. The loonie is grouped with currencies that it can’t often keep up with as it doesn’t sport the necessary level of yield. Interest rates have in fact dropped out of the picture at this point; and the true concern now is the potential for relative growth. The US recovery is expected to slow sharply but is Canada destined for the same next week.

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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

JPY

23:30

National CPI (YoY) (JUL)

-0.9%

-0.7%

The deflationary price environment in Japan is expected to continue, as the year-over-year CPI stays firmly negative on the headline number, as well as the core figures (ex-food and energy)

JPY

23:30

National CPI Ex-Fresh Food (YoY) (JUL)

-1.1%

-1.0%

JPY

23:30

National CPI Ex Food, Energy (YoY) (JUL)

-1.5%

-1.5%

JPY

23:30

Tokyo Consumer Price Index (YoY) (AUG)

-1.1%

-1.2%

JPY

23:30

Tokyo CPI Ex-Fresh Food (YoY) (AUG)

-1.2%

-1.3%

JPY

23:30

Tokyo CPI Ex Food, Energy (YoY) (AUG)

-1.4%

-1.4%

JPY

23:30

Jobless Rate (JUL)

5.3%

5.3%

The July jobless rate in Japan is expected to remain flat from June

JPY

23:30

Job-To-Applicant Ratio (JUL)

0.53

0.52

JPY

23:30

Household Spending (YoY) (JUL)

–

0.5%

EUR

0:00

German Consumer Price Index (MoM) (AUG P)

0.0%

0.3%

At 1.1 percent annual inflation, there is little pressure on ECB President Trichet to consider rate hikes anytime in the near future.

EUR

0:00

German Consumer Price Index (YoY) (AUG P)

1.1%

1.2%

EUR

0:00

German CPI – EU Harmonised (MoM) (AUG P)

0.1%

0.3%

EUR

0:00

German CPI – EU Harmonised (YoY) (AUG P)

1.1%

1.2%

EUR

6:00

German Import Price Index (YoY) (JUL)

9.7%

9.1%

EUR

6:00

German Import Price Index (MoM) (JUL)

-0.4%

0.9%

EUR

6:45

French Survey of Industrial Investments

–

–

GBP

8:30

Gross Domestic Product (QoQ) (2Q P)

1.1%

1.1%

Preliminary GDP data for the UK’s second quarter is expected to show that the economy grew at the same pace as the first quarter, or 1.6% year-over-year. As GDP data is backward looking, it may not have a lasting impact on the market.

GBP

8:30

Gross Domestic Product (YoY) (2Q P)

1.6%

1.6%

GBP

8:30

Private Consumption (2Q P)

0.5%

-0.1%

GBP

8:30

Index of Services (3Mo3M) (JUN)

–

0.8%

GBP

8:30

UK Total Business Investment (QoQ) (2Q P)

3.0%

7.8%

GBP

8:30

UK Total Business Investment (YoY) (2Q P)

6.2%

-7.7%

GBP

8:30

Government Spending (2Q P)

0.3%

1.5%

GBP

8:30

Gross Fixed Capital Formation (2Q P)

1.8%

4.5%

GBP

8:30

Exports (2Q P)

2.1%

-1.7%

GBP

8:30

Imports (2Q P)

1.8%

1.6%

CHF

9:30

KOF Swiss Leading Indicator (AUG)

2.20

2.23

Will Switzerland follow mainland Europe into its economic cooling

USD

12:30

US GDP (QoQ) (Annualized) (2Q S)

1.4%

2.4%

Revised GDP figures for the U.S. 2Q are expected to show much lower growth in the period, falling from 2.4% to 1.4% annualized, in large part due to an unfavorable trade balance

USD

12:30

US Personal Consumption (2Q S)

1.6%

1.6%

USD

12:30

US GDP Price index (2Q S)

1.8%

1.8%

USD

12:30

US Core PCE (QoQ) (2Q S)

1.1%

1.1%

USD

13:55

University of Michigan Confidence (AUG F)

69.6

69.6

The revision isn’t expected to budge from its relief reading

Currency

GMT

Upcoming Events & Speeches

USD

-:-

Fed Chairman Bernanke Speaks in Jackson Hole Symposium

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

1.2719

1.5532

84.38

1.0238

1.0571

0.8868

0.7031

107.31

131.06

0.8189

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

13.0631

1.5237

7.3325

7.7784

1.3566

Spot

7.4031

5.8551

6.2988

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

1.2825

1.5669

85.09

1.0357

1.0651

0.8959

0.7141

108.44

132.59

0.8219

Resistance 1

1.2772

1.5601

84.74

1.0297

1.0611

0.8913

0.7086

107.88

131.82

0.8204

Pivot

1.2711

1.5529

84.53

1.0260

1.0566

0.8873

0.7035

107.45

131.28

0.8180

Support 1

1.2658

1.5461

84.18

1.0200

1.0526

0.8827

0.6980

106.89

130.51

0.8165

Support 2

1.2597

1.5389

83.97

1.0163

1.0481

0.8787

0.6929

106.46

129.97

0.8141

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

1.2887

1.5721

85.44

1.0368

1.0703

0.9001

0.7141

109.10

133.29

0.8275

Resistance 2

1.2845

1.5674

85.18

1.0336

1.0670

0.8968

0.7114

108.65

132.73

0.8253

Resistance 1

1.2803

1.5627

84.91

1.0303

1.0637

0.8935

0.7086

108.20

132.17

0.8232

Spot

1.2719

1.5532

84.38

1.0238

1.0571

0.8868

0.7031

107.31

131.06

0.8189

Support 1

1.2635

1.5437

83.85

1.0173

1.0505

0.8801

0.6976

106.42

129.95

0.8146

Support 2

1.2593

1.5390

83.58

1.0140

1.0472

0.8768

0.6948

105.97

129.39

0.8124

Support 3

1.2551

1.5343

83.32

1.0108

1.0439

0.8735

0.6921

105.52

128.83

0.8103

v

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

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