- Dollar Briefly Hits a Month High before Risk-Led Correction
- Euro Recovers Lost Ground on Greece News but is this a True Reversal?
- British Pound Hits a Three Month Against Dollar as Sales Slow, Rates Drop
- Canadian Dollar Tumbles as Yield Outlook and Oil Toppled
- Japanese Yen Posts Uneven Performance Despite Supposed Risk Decline
- Crude Oil Falls back to Three-Year Rising Trendline as IEA Open Reserves
- Gold Slides Below 50-Day Average For the First Time Since February
Dollar Briefly Hits a Month High before Risk-Led Correction
Thursday’s trading session was a dramatic one for the currency and capital markets. For the benchmark dollar (ticker = USDollar), the biggest intraday rally since its climb on the 15th (as rumors of a possible Greek coalition led many to believe an EU default was near) offered a clear reflection of the fundamentals that have defined this particular asset as a reserve currency. That said, the same safe haven role would ensure the mid-session correction that began with temporary relief for Greece’s debt crisis and subsequently evolved into a rally for equities and risk appetite. Through the end of the trading day, the Dow Jones FXCM Dollar Index would retrace nearly two-thirds of the morning rally; but the bullish bearing was still in place. The same retention of strength was noted across the fundamental and risk spectrum with pairs like EURUSD, USDJPY and AUDUSD closing out with greenback gains. That said, the near-full reversal of a 1.9 percent decline on the S&P 500 and Dow Jones Industrial Average reminds us that markets are still looking for a solid trend to follow and the dollar will struggle until that theme is found.
Tracking the dollar’s progress through the previous session, it isn’t a stretch to connect its performance to the fallout from the Fed decision and Chairman Bernanke’s commentary Wednesday afternoon. The climb began not long after the market participants and the media realized the central bank head would not commit to a replacement to the expiring (next week) QE2 program. The immediate implications for the greenback will be a turn in market-based rates when the pumping of funds into the system ends and demand continues to rise. Through the subsequent trading sessions, the focus shifted to the ‘risk’ aspects of this change of gears. An abundant and cheap source of capital would soon be removed, and the increase in cost would unsettle the balance of growing risk and already feeble yield income. Undermined risk appetite would carry over into the Thursday’s session as Chinese money market rates surged to a 2007 high and default premiums for Europe surged to record highs. Yet, with the dollar tapped into sentiment, the sharp rebound in global equities that followed news of Greece’s temporary austerity gap plug (more on that below) would spark the same about-face for the greenback.
Heading into the final trading hours of the week, volatility is still high as the market is very sensitive to meaningful fundamental developments. Therefore, our primary concern still lies with broad changes in sentiment. Active themes and trends should remain our focus; and that means we are still waiting for underlying themes to establish lasting, cross-market runs. Nevertheless, we should still keep more distant concerns in mind. Next week, QE2 ends and speculation on US rates will pick up. Another concern is yet another breakdown in deficit ceiling talks in Congress.
Euro Recovers Lost Ground on Greece News but is this a True Reversal?
Sometimes, the market is only concerned with short-term relief. Through there may be larger problems on the horizon, speculators are willing to put their faith in short-term fixes that support their trades. That is the case the euro was presented with this past session. As the risk aversion move was mixing with the growing EU contagion storyline; temporary reprieve was offered with news that Greece’s new Finance Minister Evangelos Venizelos had come up with a way to close the 2.8 billion austerity gap with a one-time solidarity level amongst other initiatives. This will push back a default; but it far from solves the underlying issue. After approving the medium-term budget, EU officials must still agree on a bailout to secure the IMF’s next round of aid in the first program. Furthermore, if that additional support comes through, the country will still struggle severely to service its debt while other troubled members (Portugal and Ireland) will ask for additional accommodation.
British Pound Hits a Three Month Against Dollar as Sales Slow, Rates Drop
Data for the British pound this past session offered up a mixed picture. The CBI retail sales report for June reported the first net decline from the indicator in a year while mortgage approvals offered a modest uptick (to 30,509) without meaningfully altering the troubled housing sector’s course. Yet, calendar watching is the true fundamental guide. Looking at overnight UK Libor rates, we can see where the bear trend originates.
Canadian Dollar Tumbles as Yield Outlook and Oil Toppled
Just as the interest rate outlook for the Euro Zone and UK is having an impact on their respective currencies; the short-term Canadian Libor rate is starting to destabilize the usually steadfast loonie. The one-week rate has seen its fastest retreat since December as growth, capital markets and interest rate forecasts recede. Adding to that pain is the strong greenback and the four-month low in US oil.
Japanese Yen Posts Uneven Performance Despite Supposed Risk Decline
If everything in the market were simple, Thursday would have ended with a strong rally across the board for the Japanese yen. However, that was not the case. The US dollar, Japanese yen and New Zealand dollar all posted gains against the yen; while the rest of the majors held to relatively small losses. Risk aversion was in control Thursday; but the brand of ‘safe haven’ is becoming more important.
Crude Oil Falls back to Three-Year Rising Trendline as IEA Open Reserves
US crude oil (West Texas Intermediate) has held to a general downtrend since the beginning of May. However, that bearing has recently found a greater level of momentum just over these past few weeks. Risk aversion has hit the speculative ranks in this commodity; but it was the news that the IEA planned to release 60 million barrels of oil to compensate for Libya’s shortfall that has now put prices with its three-year bull trend.
Gold Slides Below 50-Day Average For the First Time Since February
We have seen a few pullback s in gold over the past months; but we seem to be reaching milestones more frequently recently. With Thursday’s session, the metal fell below its 50-day moving average for the first time since mid-February and it closed below the trendline that has defined the bull run since the end of January. Risk aversion typically helps gold; but if the need is for liquidity, the dollar attracts more of that capital.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:35 |
CNY |
MNI Business Condition Survey (JUN) |
61.22 |
Outlook slightly weakened by PBoC policy |
|
|
6:45 |
EUR |
French Consumer Confidence Indicator (JUN) |
84 |
84 |
German outlook most important – peripheral risk and slower rate of exports seen as most damaging to sentiment |
|
8:00 |
EUR |
German IFO – Expectations (JUN) |
106.3 |
107.4 |
|
|
8:00 |
EUR |
German IFO – Business Climate (JUN) |
113.4 |
114.2 |
|
|
8:00 |
EUR |
German IFO – Current Assessment (JUN) |
120.8 |
121.4 |
|
|
8:00 |
EUR |
Italian Retail Sales (YoY) (APR) |
-0.7% |
-2.0% |
Short term sales expected to fall slower, as year-over-year shows economic recovery |
|
8:00 |
EUR |
Italian Retail Sales s.a. (MoM) (APR) |
-0.1% |
-0.2% |
|
|
12:30 |
USD |
Cap Goods Orders Nondef Ex Air (MAY) |
1.0% |
-2.6% |
Major data event for the day – expectations for stronger manufacturing, orders should help economic confidence |
|
12:30 |
USD |
Cap Goods Ship Nondef Ex Air (MAY) |
-1.7% |
||
|
12:30 |
USD |
Durable Goods Orders (MAY) |
1.5% |
-3.6% |
|
|
12:30 |
USD |
Durables Ex Transportation (MAY) |
0.9% |
-1.6% |
|
|
12:30 |
USD |
Gross Domestic Product (Annualized) (1Q F) |
1.9% |
1.8% |
Final revision of first quarter output not expected to drastically change |
|
12:30 |
USD |
Gross Domestic Product Price Index (1Q F) |
1.9% |
1.9% |
|
|
12:30 |
USD |
Core Personal Consumption Exp (QoQ) (1Q F) |
1.4% |
1.4% |
|
|
12:30 |
USD |
Personal Consumption (1Q F) |
2.2% |
2.2% |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
8:00 |
EUR |
EU Leaders Summit in Brussels |
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 |
1.6750 |
89.00 |
0.9345 |
1.0275 |
1.1800 |
0.8400 |
122.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6600 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8215 |
118.00 |
140.00 |
|
Spot |
1.4242 |
1.5996 |
80.57 |
0.8381 |
0.9788 |
1.0518 |
0.8135 |
114.76 |
128.89 |
|
Support 1 |
1.4000 |
1.6050 |
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 |
11.8682 |
1.6301 |
6.8360 |
7.7901 |
1.2369 |
Spot |
6.4563 |
5.2370 |
5.4648 |
|
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 |
1.4473 |
1.6139 |
81.06 |
0.8469 |
0.9887 |
1.0640 |
0.8227 |
116.25 |
129.77 |
|
Resist 1 |
1.4358 |
1.6068 |
80.82 |
0.8425 |
0.9837 |
1.0579 |
0.8181 |
115.50 |
129.33 |
|
Pivot |
1.4242 |
1.6003 |
80.55 |
0.8395 |
0.9776 |
1.0517 |
0.8132 |
114.68 |
128.91 |
|
Support 1 |
1.4127 |
1.5932 |
80.31 |
0.8351 |
0.9726 |
1.0456 |
0.8086 |
113.93 |
128.46 |
|
Support 2 |
1.4011 |
1.5867 |
80.04 |
0.8321 |
0.9665 |
1.0394 |
0.8037 |
113.11 |
128.04 |
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 |
1.4440 |
1.6166 |
81.40 |
0.8488 |
0.9885 |
1.0663 |
0.8251 |
116.44 |
130.49 |
|
Resist. 2 |
1.4391 |
1.6124 |
81.20 |
0.8461 |
0.9861 |
1.0627 |
0.8222 |
116.02 |
130.09 |
|
Resist. 1 |
1.4341 |
1.6081 |
80.99 |
0.8434 |
0.9836 |
1.0591 |
0.8193 |
115.60 |
129.69 |
|
Spot |
1.4242 |
1.5996 |
80.57 |
0.8381 |
0.9788 |
1.0518 |
0.8135 |
114.76 |
128.89 |
|
Support 1 |
1.4143 |
1.5911 |
80.15 |
0.8328 |
0.9740 |
1.0445 |
0.8077 |
113.92 |
128.08 |
|
Support 2 |
1.4093 |
1.5868 |
79.94 |
0.8301 |
0.9715 |
1.0409 |
0.8048 |
113.50 |
127.68 |
|
Support 3 |
1.4044 |
1.5826 |
79.74 |
0.8274 |
0.9691 |
1.0373 |
0.8019 |
113.08 |
127.28 |
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.
