- Dollar Volatility Settling More Quickly than S&P 500 Activity
- Euro: Efforts to Ban Short Sales Do Little to Promote Stability
- Swiss Franc Plummets after SNB Floats a Euro Peg Option
- British Pound Unfazed by Chancellor Osborne’s Dour Outlook
- Australian Dollar Balanced between Jobs Disappointment, Risk Appetite
- Japanese Yen: Looking Forward to Growth, Carry and Intervention
- Gold Finally Retreats but Fear Will Keep the Pressure On
Dollar Volatility Settling More Quickly than S&P 500 Activity
The market adapts and acclimates to whatever conditions are prevailing at the time. For example, we have seen time and again that an exceptionally quiet period for volatility and market swings quickly tames expectations for trends and instead encourages range trading. If that is the case, what do we make of the conditions we are currently facing? This week, we have seen the strong risk-aversion trends of previous weeks level off while the excessive volatility that leveraged the strong runs are still in place. To illustrate this unusual mix, we have EURUSD churning out its largest daily swings (measured by the Average True Range) since the major trend reversal back in May of Last year at the same time the pair has worked its way deeper into a months-long congestion pattern. Perhaps a more dramatic case is made by the S&P 500 index. Following a dramatic plunge, the benchmark has spent this past week essentially within the range that was carved out on Monday. That said, the ground the market has covered during this period averages out to the highest level we have seen since October of 2008 – back during the worst of the financial crisis. High volatility and a struggle for direction – that fits the fundamentals rather well.
We aren’t lacking for points of concern at the moment; but the mere existence of a financial or economic hardship does not ensure the market is bound to fall apart. Even more important than the presence of a fundamental burden is the market’s sensitivity to it. At the moment, the ranks are still tuned in to the stability of global and important regional financial conditions. Concern is particularly tense in the European system where sovereign credit health, bank funding and dependence on short-term liquidity are exceptionally high (more on that below). Trouble in one of the major regions given the frequently global hits we have seen is enough to keep the entire system under pressure. However, difficult conditions simmer for the US as well. Less than a week after the US downgrade and a few days after the Fed announced its intentions to keep funding capital as close to free as possible, we are still seeing strain on financial behemoth Bank of America. Credit default swaps for a firm that many would consider Too Big to Fail are at their highest levels since April of 2009. As short-term market rates continue to rise, expect to seem more issues along these lines.
For docket-watchers, the final 24 hours brings a pair of important economic indicators. In the scheme of things, a slowdown in growth for the world’s largest economy is one of the primary threats to capital markets. That said, measuring consumers’ contribution to expansion (their spending accounts for approximately three quarters of overall output) through retail sales and the University of Michigan confidence figure is important. In the meantime, the June trade figure reported its deepest deficit since October 2008 – watch out for negative GDP revisions.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: Currencies and S&P 500 at High Risk of Breakout as Volatility Holds
Euro: Efforts to Ban Short Sales Do Little to Promote Stability
Despite the effort of politicians, policymakers and regulators, Europe’s financial stability isn’t showing much improvement. Though panic of a French downgrade has dissipated since Standard & Poor’s reaffirmed the country’s rating; Reuters reported a number of Asian banks were preparing to cut credit lines to their French counterparts due to the latter’s exposure to the periphery. Though, it is difficult to say who tapped the ECB; the central bank reported a surge in overnight funding to the tune of 4.08 billion euros. Moving to ban short-selling by France, Italy, Spain and Belgium will likely do little to answer funding problems. In the meantime, we will gauge France’s economic health as well with 2Q GDP.
Swiss Franc Plummets after SNB Floats a Euro Peg Option
Realizing they are quickly running out of options, the SNB decided to take its fight against the rapidly appreciation franc to the next level. After lowering rates to near zero, opening foreign swap lines and flooding the system with francs; there was only one option left: pegging the currency. In an interview, SNB member Jordan said a temporary peg to the Euro would be a legal option to ensure price stability. This would essentially make intervention the norm rather than individual efforts. However, there is no guarantee it will work. Risk flows could certainly break their effort.
British Pound Unfazed by Chancellor Osborne’s Dour Outlook
Typically, policymakers are cheerleaders for their economies and markets – even when the world is falling down around them. So, it is always surprising when one of these officials delivers a warning of hardship. That is exactly what Chancellor of the Exchequer Osborne did this past session. His reflections that we are facing the worst financial conditions since 2008 are certainly appropriate…and concerning.
Australian Dollar Balanced between Jobs Disappointment, Risk Appetite
The unexpected drop in net employment figures (due to the slide in full-time positions) set the Australian dollar back for only a few moments. Why would a currency that has seen it interest rate outlook take a dramatic turn for the worst be able to weather such a dour reading? Risk appetite. Though the outlook for rates for Australia has eased, a strong rebound in yield demand helped to compensate.
Japanese Yen: Looking Forward to Growth, Carry and Intervention
We are still hovering just above the range and record lows around 76.25 for USDJPY; and tension is building. Intervention is still a favorite topic at these levels – especially when trend flattens and volatility eases off for the pair. Carry trends still offer the most reasonable projection of activity; but we should also pay closer attention to growth. The BoJ lowered its outlook from 1.5 to 0.5 percent; and 2Q GDP is due Monday.
Gold Finally Retreats but Fear Will Keep the Pressure On
It was bound to happen. After five weeks of solid trend (and three days of unprecedented rally) to record highs, the metal was bound to ease off. That said, a correction is not necessarily a true reversal point. Those that speculated on commodity’s rise will certainly consider booking some profit; but give the state of instability in the global financial markets, we won’t likely see a strong diversification effort away from gold just yet.
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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 |
|
3:00 |
NZD |
Non Resident Bond Holdings (JUL) |
61.4% |
July may be last increase before meltdown |
|
|
4:30 |
JPY |
Industrial Production (MoM) (JUN F) |
3.9% |
Final revision expected to follow preliminary data higher |
|
|
4:30 |
JPY |
Industrial Production (YoY) (JUN F) |
-1.6% |
||
|
4:30 |
JPY |
Capacity Utilization (MoM) (JUN) |
12.8% |
Has recovered, signaling normalization |
|
|
5:30 |
EUR |
French CPI – EU Harmonised (MoM) (JUL) |
-0.3% |
0.1% |
French inflation data expected lower as consumer fears sap spending; unlikely to affect ECB rates in future in large way |
|
5:30 |
EUR |
French CPI (MoM) (JUL) |
-0.3% |
0.1% |
|
|
5:30 |
EUR |
French CPI – EU Harmonised (YoY) (JUL) |
2.3% |
2.3% |
|
|
5:30 |
EUR |
French CPI (YoY) (JUL) |
2.2% |
2.1% |
|
|
5:30 |
EUR |
French CPI Ex Tobacco Index (JUL) |
122 |
19 |
|
|
5:30 |
EUR |
French GDP (YoY) (Q2 P) |
2.0% |
2.2% |
With debt contagion spreading to France, will lower expected output add to risk aversion fears? |
|
5:30 |
EUR |
French GDP (QoQ) (Q2 P) |
0.3% |
0.9% |
|
|
6:45 |
EUR |
French Non-Farm Payrolls (QoQ) (Q2 P) |
0.4% |
French labor data expected weaker on slowing economy |
|
|
6:45 |
EUR |
French Wages (QoQ) (Q2 P) |
1.0% |
||
|
8:00 |
EUR |
Italian Trade Balance Eu (euros) (JUN) |
-600M |
Expected to have seasonal decline, coupled with lower demand of Italian goods |
|
|
8:00 |
EUR |
Italian Trade Balance (Total) (euros) (JUN) |
-2407M |
||
|
9:00 |
EUR |
Euro-Zone Industrial Production w.d.a. (YoY) (JUN) |
4.2% |
4.4% |
Largely led by German exports, manufacturing sectors |
|
9:00 |
EUR |
Euro-Zone Industrial Production s.a. (MoM) (JUN) |
0.0% |
0.2% |
|
|
9:00 |
EUR |
Italian CPI (NIC incl. tobacco) (YoY) (JUL F) |
2.7% |
2.7% |
Final Italian inflation data also not expected to have much influence on future ECB decisions |
|
9:00 |
EUR |
Italian CPI – EU Harmonized (YoY) (JUL F) |
2.1% |
2.1% |
|
|
9:00 |
EUR |
Italian CPI (NIC incl. tobacco) (MoM) (JUL F) |
0.3% |
0.3% |
|
|
9:00 |
EUR |
Italian CPI – EU Harmonized (MoM) (JUL F) |
-1.7% |
-1.7% |
|
|
12:30 |
USD |
Advance Retail Sales (JUL) |
0.5% |
0.1% |
An expected upswing in retail sales despite during summer months could point to a “soft patch” as consumers still willing to spend |
|
12:30 |
USD |
Retail Sales Less Autos (JUL) |
0.3% |
0.0% |
|
|
12:30 |
USD |
Retail Sales Ex Auto & Gas (JUL) |
0.2% |
0.2% |
|
|
13:55 |
USD |
U. of Michigan Confidence (AUG P) |
62 |
63.7 |
Confidence still expected weaker |
|
14:00 |
USD |
Business Inventories (JUL) |
0.5% |
1.0% |
Inventories may slow on lower demand |
|
CNY |
Actual FDI (YoY) (JUL) |
2.8% |
Foreign investment may slow as China puts restrictions on investment; increased money supply may indicate more tightening by the PBoC, government restrictions |
||
|
CNY |
New Yuan Loans (JUL) |
550.0B |
633.9B |
||
|
CNY |
Money Supply – M0 (YoY) (JUL) |
14.4% |
|||
|
CNY |
Money Supply – M1 (YoY) (JUL) |
13.5% |
13.1% |
||
|
CNY |
Money Supply – M2 (YoY) (JUL) |
15.8% |
15.9% |
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 |
0.8275 |
1.0275 |
1.0800 |
0.9020 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6475 |
81.50 |
0.8000 |
1.0000 |
1.0400 |
0.8750 |
113.50 |
140.00 |
|
Spot |
1.4227 |
1.6222 |
76.86 |
0.7633 |
0.9866 |
1.0337 |
0.8307 |
109.34 |
124.68 |
|
Support 1 |
1.4000 |
1.5935 |
77.00 |
0.7000 |
0.9425 |
0.9925 |
0.7745 |
109.00 |
124.00 |
|
Support 2 |
1.3700 |
1.5750 |
76.25 |
0.6800 |
0.9055 |
0.9700 |
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 |
1.8235 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.7425 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
12.2702 |
1.7840 |
7.2067 |
7.7922 |
1.2105 |
Spot |
6.5026 |
5.2362 |
5.5390 |
|
Support 1 |
11.5200 |
1.6500 |
6.5575 |
7.7490 |
1.2000 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.5725 |
6.4295 |
7.7450 |
1.1800 |
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 |
1.4398 |
1.6313 |
77.72 |
0.7968 |
1.0013 |
1.0498 |
0.8479 |
110.84 |
125.64 |
|
Resist 1 |
1.4313 |
1.6268 |
77.29 |
0.7801 |
0.9940 |
1.0418 |
0.8393 |
110.09 |
125.16 |
|
Pivot |
1.4208 |
1.6189 |
76.80 |
0.7519 |
0.9895 |
1.0264 |
0.8235 |
109.06 |
124.28 |
|
Support 1 |
1.4123 |
1.6144 |
76.37 |
0.7352 |
0.9822 |
1.0184 |
0.8149 |
108.31 |
123.80 |
|
Support 2 |
1.4018 |
1.6065 |
75.88 |
0.7070 |
0.9777 |
1.0030 |
0.7991 |
107.28 |
122.92 |
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 |
1.4448 |
1.6409 |
77.91 |
0.7788 |
0.9996 |
1.0523 |
0.8466 |
111.41 |
126.73 |
|
Resist. 2 |
1.4393 |
1.6363 |
77.65 |
0.7749 |
0.9964 |
1.0476 |
0.8427 |
110.89 |
126.22 |
|
Resist. 1 |
1.4337 |
1.6316 |
77.39 |
0.7710 |
0.9931 |
1.0430 |
0.8387 |
110.37 |
125.70 |
|
Spot |
1.4227 |
1.6222 |
76.86 |
0.7633 |
0.9866 |
1.0337 |
0.8307 |
109.34 |
124.68 |
|
Support 1 |
1.4117 |
1.6128 |
76.33 |
0.7556 |
0.9801 |
1.0244 |
0.8227 |
108.31 |
123.66 |
|
Support 2 |
1.4061 |
1.6081 |
76.07 |
0.7517 |
0.9768 |
1.0198 |
0.8187 |
107.79 |
123.15 |
|
Support 3 |
1.4006 |
1.6035 |
75.81 |
0.7478 |
0.9736 |
1.0151 |
0.8148 |
107.27 |
122.63 |
v
Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
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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.
