- Dollar Can’t Recover Ground on Holiday Trading Conditions
- Euro: Positive Turn in Greece Funding Curbed by Another S&P Warning
- Australian Dollar Misses Risk Run, Moving on to RBA Decision
- British Pound Marks a Slow Start to an Event-Heavy Week
- Swiss Franc Tumbling Quickly as Specific Safe Haven Appeal Fades
- Japanese Yen Fortified by BoJ’s Positive Outlook, Eased Political Pressure
- Gold Recovery Lacking for Momentum Until Fiat Demand Weighed
Dollar Can’t Recover Ground on Holiday Trading Conditions
The opening trading day to the week was an unusual one. On the one hand, we had significant fundamental event risk headed up by the ongoing Greek bailout saga. Alternatively, liquidity conditions were distorted by the absence of US market participation due to the extended Independence Day holiday weekend. The combination of these two atypical developments was a market high on volatility but low on meaningful follow through. This is the type of frustrating mix that draws many traders into what-looks-like appealing trades that never gain traction after posting an initial signal for entry. Looking to the dollar, we can see the full effect of this market-imposed lethargy. Despite the early morning attempt to post its first bullish close in five trading days, the Dow Jones FXCM Dollar Index (ticker = USDollar) ended Monday in the red. A look across the majors gives us clear representation of this greenback-centered weakness. Gains from the core EURUSD and GBPUSD pairs were measured but well-established in an underlying (though decelerating trend); the safe haven balanced USDJPY and USDCHF pairs were mostly unchanged but still dollar negative; and the yield-tipped NZDUSD was pushing new record highs into the beginning of Tuesday’s session.
Much of the currency’s weakness for the opening session can be chalked up to the carryover of selling momentum from the previous week. When there are is a lull in liquidity; the ability to generate a new trend is exceptionally handicapped – especially when the prevailing winds are generally backing a larger selling effort. Essentially, we should look at Monday as a write-off. Assumptions of trend, breakouts and fundamental shifts should be overlooked as they don’t reflect the conviction of the broader markets. If that is the case, we can approach Tuesday’s session as the opening trading day for the dollar. If that is the case, we can draw forward the prominent fundamental considerations that would will determine the benchmark’s bearing through the rest of the week. Risk appetite trends are still but follow through decelerated between the Asian and European sessions Monday; and it is likely to carry this breaking effort into today’s session.
Risk trends are a considerable burden for the dollar when they are positive; but they have offered limited support when negative. This speaks to an underlying truth of the greenback: that the currency is not a pure safe haven but rather a source of liquidity when funding markets freeze up. That being the case, we note that with the passage of Greece’s fifth round of financial support from the European Union, we have temporarily alleviated the threat of a global crisis. In turn, the credit markets have improved and the greenback’s primary appeal has diminished. The European-based sovereign debt issue is still the most immediate threat; but it will be supplanted through the immediate future the approach of the ECB rate decision. This will take a lot of wind out of any offensive that the dollar tries to mount on risk trend from now until Thursday.
Euro: Positive Turn in Greece Funding Curbed by Another S&P Warning
Another projected outcome was confirmed for euro traders over the weekend; and the support it is offering the currency is visibly wearing thin. After Greek Prime Minister George Papandreou won the confidence vote, it was heavily expected that the country would pass through its additional 78 billion euro austerity measures and secure the fifth tranche of its first bailout package. Indeed, EU Finance Ministers voted this past weekend to release the additional 12 billion in aid (provided the IMF distributes its own portion – which it is expected to approve this Friday). However, from here, the outlook grows a little blurry. Next Monday, the topic of a supplementary bailout package will come up again. In the meantime, Standard & Poor’s threatens to disrupt the quick-fix regime by repeating it would still see a private Greek debt rollover as a default.
Australian Dollar Misses Risk Run, Moving on to RBA Decision
Despite a buoyant start to the week for investor sentiment, the Australian dollar would close Monday out with its first bearish print in five trading days. Considering this weakness was particularly prevalent on AUDNZD, it was clear that the first sub-3.0 percent reading on the TD inflation reading in 11 months along with weak retail sales and approvals weighed the currency specifically. This sets up a dangerous RBA letdown.
British Pound Marks a Slow Start to an Event-Heavy Week
This week is heavy for UK-based scheduled event risk; but Monday started us out with something of a mix. The economy’s housing sector took another step back with a weaker-than-expected construction sector reading and ongoing 5.8 billion sterling deficit on housing equity withdrawal. Both indicators are indicative of an important sector that will add additional weight to austerity measures and future stimulus/ratings issues.
Swiss Franc Tumbling Quickly as Specific Safe Haven Appeal Fades
The franc is quickly retreating against most of its most liquid counterparts – but is this reason enough to call a top? To determine whether the Swiss currency is indeed retreating from its record or near-record highs requires a fundamental position change. The unit is now finding much of its selling pressure through a reversal in safe haven flows from central Europe to the banking economy; but that in itself is not yet a stable driver.
Japanese Yen Fortified by BoJ’s Positive Outlook, Eased Political Pressure
Economic indicators have limited impact on the yen; and even major swings in growth potential seem to leave the currency little fazed. The real concern is changes to its place as a funding currency. Monday morning, the BoJ upgraded its growth outlook slightly while Finance Minister Noda suggested the government was backing off some of the pressure for further stimulus. These developments modestly diminish that role.
Gold Recovery Lacking for Momentum Until Fiat Demand Weighed
If were just a move posted against the dollar, then we could ascribe gold’s advance Monday to thin markets and a speculative effort to curb bearish speculation through the end of last week. However, the metal posted gains across the board. Fundamentally, confidence in fiat currency has not truly gained much traction. More interesting: net speculative futures positioning dropped last week the most since September 2008.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:30 |
AUD |
Trade Balance (Australian dollar) (MAY) |
1900M |
1597M |
Exports to NZ expected to increase |
|
1:30 |
JPY |
Labor Cash Earnings (YoY) (MAY) |
-0.6% |
-1.4% |
Slower fall brings better outlook for market |
|
2:30 |
CNY |
China HSBC Services PMI (JUN) |
54.3 |
Survey expected to follow official lower |
|
|
4:30 |
AUD |
Reserve Bank of Australia Rate Decision |
4.75% |
4.75% |
Commentary will be the most important |
|
7:45 |
EUR |
Italian PMI Services (JUN F) |
49.6 |
50.1 |
Although Italian services industries expected to start shrinking, overall composite numbers expected stagnant |
|
7:50 |
EUR |
French PMI Services (JUN F) |
56.7 |
56.7 |
|
|
7:55 |
EUR |
German PMI Services (JUN F) |
58.3 |
58.3 |
|
|
8:00 |
EUR |
Euro-Zone PMI Composite (JUN F) |
53.6 |
53.6 |
|
|
8:00 |
EUR |
Euro-Zone PMI Services (JUN F) |
54.2 |
54.2 |
|
|
8:30 |
GBP |
PMI Services (JUN) |
53.5 |
53.8 |
Government cuts, weakness hurting sector |
|
8:30 |
GBP |
Official Reserves (Changes) (JUN) |
-$103M |
Sharply fallen as bank buys pounds |
|
|
9:00 |
EUR |
Euro-Zone Retail Sales (MoM) (MAY) |
-1.0% |
0.9% |
Decline in retail sales may not stop this week’s rate decision, but may dull any further hawkishness |
|
9:00 |
EUR |
Euro-Zone Retail Sales (YoY)(MAY) |
-0.6% |
1.1% |
|
|
14:00 |
USD |
Factory Orders (MAY) |
1.0% |
-1.2% |
Recovery may lead manufacturing sector |
|
23:01 |
GBP |
BRC Shop Price Index (YoY) (JUN) |
2.3% |
Retail sales steadily climbing |
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 |
1.4543 |
1.6095 |
80.76 |
0.8478 |
0.9606 |
1.0732 |
0.8292 |
117.45 |
129.99 |
|
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 |
11.5835 |
1.6160 |
6.7239 |
7.7807 |
1.2252 |
Spot |
6.2607 |
5.1288 |
5.3407 |
|
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 |
1.4621 |
1.6188 |
81.19 |
0.8521 |
0.9639 |
1.0821 |
0.8333 |
118.12 |
130.44 |
|
Resist 1 |
1.4582 |
1.6142 |
80.97 |
0.8500 |
0.9623 |
1.0776 |
0.8313 |
117.78 |
130.21 |
|
Pivot |
1.4539 |
1.6094 |
80.76 |
0.8481 |
0.9601 |
1.0745 |
0.8290 |
117.41 |
129.94 |
|
Support 1 |
1.4500 |
1.6048 |
80.54 |
0.8460 |
0.9585 |
1.0700 |
0.8270 |
117.07 |
129.72 |
|
Support 2 |
1.4457 |
1.6000 |
80.33 |
0.8441 |
0.9563 |
1.0669 |
0.8247 |
116.70 |
129.45 |
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 |
1.4724 |
1.6251 |
81.56 |
0.8574 |
0.9693 |
1.0868 |
0.8401 |
119.01 |
131.47 |
|
Resist. 2 |
1.4679 |
1.6212 |
81.36 |
0.8550 |
0.9672 |
1.0834 |
0.8374 |
118.62 |
131.10 |
|
Resist. 1 |
1.4634 |
1.6173 |
81.16 |
0.8526 |
0.9650 |
1.0800 |
0.8346 |
118.23 |
130.73 |
|
Spot |
1.4543 |
1.6095 |
80.76 |
0.8478 |
0.9606 |
1.0732 |
0.8292 |
117.45 |
129.99 |
|
Support 1 |
1.4452 |
1.6017 |
80.36 |
0.8430 |
0.9562 |
1.0664 |
0.8238 |
116.67 |
129.24 |
|
Support 2 |
1.4407 |
1.5978 |
80.16 |
0.8406 |
0.9540 |
1.0630 |
0.8210 |
116.28 |
128.87 |
|
Support 3 |
1.4362 |
1.5939 |
79.96 |
0.8382 |
0.9519 |
1.0596 |
0.8183 |
115.89 |
128.50 |
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.
