- Dollar Benefits from Euro’s Plunge but Deficit Trouble Still Severe
- Euro Traders Panicking as Debt Crisis Spreads to Italy, Spain
- British Pound: Can CPI Data Have a Meaningful Impact on the Sterling?
- Canadian Dollar Follows Commodities Lower, Data Fails to Compensate
- Japanese Yen Traders Expect Little Yen Support from BoJ Decision
- Gold Extends Best Run in Three Months as the Markets Freeze
Dollar Benefits from Euro’s Plunge but Deficit Trouble Still Severe
The dollar’s advance gained traction in earnest to start this week. After a choppy and inconsistent effort to forge a recovery last week (last Thursday and Friday’s sessions would actually tally losses for the currency) we have seen the unit post its biggest rally in four weeks. It is tempting to just jump in on momentum and expect carry through; but it is imperative to identify the source of this market swell. Tracking the foundation of the move allows us to better follow its progress; but more importantly, it helps us to gauge whether the impetus for such a strong move is self-derived and supported by fundamentals.
For a progress report, we see the Dow Jones FXCM Dollar Index (ticker = USDollar) is up over one percent from Friday’s close at 9,712 with tentative follow through on Tuesday’s Asian session. The greenback’s real performance however began during the European trading hours on Monday. And, when we compare the performance of the different majors to capital markets, it isn’t difficult to derive the market’s true catalyst. For the European crosses, EURUSD marked its biggest tumble since June 15th and GBPUSD suffered its biggest drop in two-and-a-half weeks. Alone, we could attribute this move to the European sovereign debt troubles; but the universal gains against the Australian, New Zealand and Canadian currencies sync the FX market up to a general risk aversion effort. That is verified via the S&P 500’s notable 1.8 percent – the biggest single day decline since June 1st.
Risk aversion is the clear catalyst for the dollar’s gains to start the week; so the best means to determine if the currency sustains a break through 9,750 for the index, above 1.40 on EURUSD and below 1.5900 with GBPUSD is to watch the progress behind market sentiment. The most volatile threat at this particular moment is the spread of the European sovereign debt crisis. With heavy government bond selling spreading from the Greece, Portuguese and Irish collective to the much bigger Spanish and Italian markets; we are approaching a level of panic that starts to choke up credit markets. When short-term lending freezes up, we start to see panic set in; and that is when the dollar’s value really starts to shine through. While the greenback is comfortably in the safe haven column; its value over alternatives like the yen and franc is its value when liquidity is at a premium. However, if this ‘liquidity-at-any-cost’ scenario sputters; we may very well see dollar traders switch back to the deficit ceiling countdown. The temporary fix to keep the balance below the legal cap expires on August 2nd and discussions this past weekend have once again failed. That said, it is the consensus that a solution will be found; so perhaps the focus will shift to 2Q earnings beginning this week.
Euro Traders Panicking as Debt Crisis Spreads to Italy, Spain
The euro was under significant pressure last week; but it seems that genuine, panicked selling really didn’t kick in until this week. Uncertainty started to seriously gnaw away at the euro’s seemingly impervious shell this past week when Portugal’s sovereign debt was downgraded to junk status (forcing the central bank to adjust its collateral rules to continue funding the country) and the ECB signaled to the market that interest rate expectations were excessive. This all adds meaningful pressure; but it is not practically speaking a surprise to market participants. What is unsettling is the spread of concern to the Italian and Spanish bond markets. Both countries’ 10-year bond yields marked their biggest daily increases in years to highs not seen in years. News from Spain reports that regional governments are reporting higher debt holdings after audits; while Italy’s total debt exposure (the third largest in the world) is threatening to swamp the EU’s third largest member.
According to officials the regular monthly meeting for Euro Zone financial officials did not cover Italy. Yet, with the Italian 10-year yield less than 1.5 percentage points below the 7 percent figure (a level that is considered the tipping point for Greece, Ireland and Portugal being pushed to a bailout); the proximity is simply too close for comfort. In the meantime, officials reportedly mapped out a rough plan for a second Greek bailout effort; but this effort is under scrutiny considering the Greek finance ministry reported today that its first half deficit was far larger than the official target. Both of these particular issues will likely worsen before they improve; and interestingly enough, both will sell bonds this week.
British Pound: Can CPI Data Have a Meaningful Impact on the Sterling?
If the Bank of England had not gone silent on its monetary policy efforts; the upcoming UK CPI data could have a significant impact on price action for the sterling. Yet, it is almost certain that despite the outcome of the inflation report, the policy authority will hold on rates at its next meeting. That said, we haven’t seen data really support this stubborn positions; so a significant cooling could actually weigh the pound down.
Canadian Dollar Follows Commodities Lower, Data Fails to Compensate
With the commodity block under pressure, it does not come as a surprise that the Canadian dollar is joining the selling movement. With a yield that is the least competitive of its peers, the loonie should see the greatest pressure. However, we can draw on other factors to further push this currency down – including the drop in oil prices, the rise in the US dollar and the BoC’s note that growth was picking up but rates would not rise.
Japanese Yen Traders Expect Little Yen Support from BoJ Decision
The market awaits the Bank of Japan’s monetary policy decision – but the masses aren’t exactly sitting on pins and needles awaiting the outcome. It is universally expected that the central bank will hold rates without any sign of the eventual shift to a tightening regime. What will be interesting is whether the commentary supports the recent easing of government pressure for the central bank to fix all the country’s troubles.
Gold Extends Best Run in Three Months as the Markets Freeze
The impressive run continues for gold. Six consecutive days of advance has guided the metal to June’s highs (the close on the day actually puts the market up at its highest level since the record was set back on the opening day of May. With the financial situation in Europe worsening/spreading, US deficit talks stalling and UK CPI expected to speak to excessive inflation, there is plenty here to keep gold rising.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
0:30 |
AUD |
NAB Business Conditions (JUN) |
1 |
Conditions may be helped by greater spending, though high rates may hurt |
|
|
0:30 |
AUD |
NAB Business Confidence (JUN) |
6 |
||
|
5:30 |
EUR |
French CPI – EU Harmonized (MoM) (JUN) |
0.1% |
0.1% |
French overall headline inflation expected to be stable as industries, consumer spending remain stagnant |
|
5:30 |
EUR |
French CPI – EU Harmonized (YoY) (JUN) |
2.2% |
2.2% |
|
|
5:30 |
EUR |
French CPI (MoM) (JUN) |
0.1% |
0.1% |
|
|
5:30 |
EUR |
French CPI (YoY) (JUN) |
2.1% |
2.0% |
|
|
5:30 |
EUR |
French CPI Ex Tobacco Index (JUN) |
122.49 |
122.4 |
|
|
6:00 |
EUR |
German CPI – EU Harmonized (MoM) (JUN F) |
0.0% |
0.0% |
Forecasted lower inflation in latest revision for June figures – could affect ECB rate decisions for rest of year |
|
6:00 |
EUR |
German CPI – EU Harmonized (YoY) (JUN F) |
2.3% |
2.4% |
|
|
6:00 |
EUR |
German CPI (MoM) (JUN F) |
0.1% |
0.1% |
|
|
6:00 |
EUR |
German CPI (YoY) (JUN F) |
2.3% |
2.3% |
|
|
6:45 |
EUR |
French Current Account (euros) (MAY) |
-4.8B |
||
|
8:30 |
GBP |
CPI (MoM) (JUN) |
0.2% |
0.2% |
Most important data for EU session – BoE has kept rates at 0.50% despite higher inflation to prevent damaging recovery |
|
8:30 |
GBP |
CPI (YoY) (JUN) |
4.5% |
4.5% |
|
|
8:30 |
GBP |
Core CPI (YoY) (JUN) |
3.3% |
3.3% |
|
|
8:30 |
GBP |
Retail Price Index (JUN) |
235.8 |
235.2 |
British retail prices expected to increase moderately in tandem with inflation |
|
8:30 |
GBP |
Retail Price Index (YoY) (JUN) |
5.2% |
5.2% |
|
|
8:30 |
GBP |
Retail Price Index (MoM) (JUN) |
0.3% |
0.3% |
|
|
8:30 |
GBP |
RPI Ex Mort Int. Payments (YoY) (JUN) |
5.3% |
5.3% |
Latest real estate data in the UK suggests mild recovery in the sector |
|
8:30 |
GBP |
DCLG UK House Prices (YoY) (MAY) |
-0.3% |
||
|
8:30 |
GBP |
Visible Trade Balance (Pounds) (MAY) |
-£7336 |
-£7389 |
Trade balance expected to trend slightly higher as cuts reduce import demand |
|
8:30 |
GBP |
Trade Balance Non EU (Pounds) (MAY) |
-£4250 |
-£4339 |
|
|
8:30 |
GBP |
Total Trade Balance (Pounds) (MAY) |
-£2700 |
-£2762 |
|
|
11:30 |
USD |
NFIB Small Business Optimism (JUN) |
91.2 |
90.9 |
Has dropped since February high |
|
12:30 |
International Merchandise Trade (CAD) (MAY) |
-0.9B |
-0.9B |
Weaker US demand hits Canadian goods |
|
|
12:30 |
USD |
Trade Balance (MAY) |
-$44.1B |
-$43.7B |
Widening debt may be due to raw material |
|
14:00 |
USD |
JOLTs Job Openings (MAY) |
2972 |
Should follow private numbers higher |
|
|
14:00 |
USD |
IBD/TIPP Economic Optimism (JUL) |
43.9 |
44.6 |
Survey shows mild dampening in Summer |
|
16:00 |
USD |
DOE Short-Term Crude Outlook (JUL) |
107 |
Energy outlook shows mixed records as crude, industrial energy hurt by weaker economy |
|
|
16:00 |
USD |
DOE Short-Term Mogas Outlook (JUL) |
3.67 |
||
|
16:00 |
USD |
DOE Short-Term Diesel Outlook (JUL) |
3.95 |
||
|
16:00 |
USD |
DOE Short-Term Ht Oil Outlook (JUL) |
4.08 |
||
|
16:00 |
USD |
DOE Short-Term NatGas Outlook (JUL) |
12.19 |
||
|
22:45 |
NZD |
Food Prices (MoM) (JUN) |
0.5% |
Usually a good indicator of inflation |
|
|
JPY |
Bank of Japan Rate Decision |
0.1% |
0.1% |
Expected 0.10% since Dec 2008 |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
JPY |
BOJ to Hold Regular Policy Meeting (JUN) |
|
|
18:00 |
USD |
Fed Releases Minutes from June 21-22 FOMC Meeting |
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 |
122.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8300 |
118.00 |
140.00 |
|
Spot |
1.4010 |
1.5902 |
80.23 |
0.8356 |
0.9687 |
1.0642 |
0.8288 |
112.40 |
127.58 |
|
Support 1 |
1.4000 |
1.5935 |
80.00 |
0.8300 |
0.9500 |
1.0400 |
0.7745 |
113.80 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
75.00 |
0.8250 |
0.9055 |
1.0200 |
0.6850 |
105.50 |
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 |
1.6575 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.6300 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
11.7578 |
1.6453 |
6.8475 |
7.7893 |
1.2281 |
Spot |
6.5634 |
5.3237 |
5.5233 |
|
Support 1 |
11.5200 |
1.5040 |
6.5575 |
7.7490 |
1.2145 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.4725 |
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 |
1.4409 |
1.6120 |
81.11 |
0.8415 |
0.9757 |
1.0807 |
0.8415 |
116.14 |
130.15 |
|
Resist 1 |
1.4210 |
1.6011 |
80.67 |
0.8386 |
0.9722 |
1.0724 |
0.8351 |
114.27 |
128.87 |
|
Pivot |
1.4098 |
1.5947 |
80.39 |
0.8358 |
0.9661 |
1.0678 |
0.8313 |
113.31 |
128.15 |
|
Support 1 |
1.3899 |
1.5838 |
79.95 |
0.8329 |
0.9626 |
1.0595 |
0.8249 |
111.44 |
126.87 |
|
Support 2 |
1.3787 |
1.5774 |
79.67 |
0.8301 |
0.9565 |
1.0549 |
0.8211 |
110.48 |
126.16 |
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 |
1.4207 |
1.6057 |
81.01 |
0.8462 |
0.9781 |
1.0780 |
0.8398 |
113.96 |
129.18 |
|
Resist. 2 |
1.4158 |
1.6018 |
80.81 |
0.8436 |
0.9758 |
1.0746 |
0.8371 |
113.57 |
128.78 |
|
Resist. 1 |
1.4108 |
1.5979 |
80.62 |
0.8409 |
0.9734 |
1.0711 |
0.8343 |
113.18 |
128.38 |
|
Spot |
1.4010 |
1.5902 |
80.23 |
0.8356 |
0.9687 |
1.0642 |
0.8288 |
112.40 |
127.58 |
|
Support 1 |
1.3912 |
1.5825 |
79.84 |
0.8303 |
0.9640 |
1.0573 |
0.8233 |
111.62 |
126.78 |
|
Support 2 |
1.3862 |
1.5786 |
79.65 |
0.8276 |
0.9616 |
1.0538 |
0.8205 |
111.23 |
126.38 |
|
Support 3 |
1.3813 |
1.5747 |
79.45 |
0.8250 |
0.9593 |
1.0504 |
0.8178 |
110.84 |
125.98 |
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.
