- Dollar Climbs, S&P 500 Stumbles after Fed Offers No QE3 Security
- British Pound Tumbles on BoE Minutes Consideration of More Stimulus
- Euro and European Yields Quickly Lose Confidence after Greece Vote
- Canadian Dollar Wavers with Fed Festivities, BoC Warns of Rising Financial Risk
- Japanese Yen and Nikkei Futures Steady through 6.7 Earthquake
- Australian Dollar Finds More Guidance in Equities than Leading Index Release
- Gold Briefly Rallies to Six-Week High before Fed Saps Inflation, Stimulus Influence
Dollar Climbs, S&P 500 Stumbles after Fed Offers No QE3 Security
It was the dollar’s turn Wednesday to steal the fundamental headlines. However, after the disappointing reaction to the Greek confidence vote (a vote that kept the administration in place and thereby supports the bailout initiative and the euro); Forex traders were more reserved in their expectations to the FOMC rate decision. The gravity of the event however was not lost on the market; and traders showed their appreciation for its influence by holding steady on most fronts until the announcement and commentary was crossing the newswires. After the data was fully disseminated and speculators had accounted for the adjustments it made to the markets’ future; a measured decline in risk positioning and climb in the dollar began. Through the opening half of the Asian trading session, we find S&P 500 futures down 1.5 percent from the previous session’s highs while the Dow Jones FXCM Dollar Index has advanced as much as 0.9 percent to 9,661.
Looking at the progress from the markets after the Federal Reserve announced its policy decisions and projections; it is clear that there were no exceptional surprises. That said, there was enough there to alter the outlook for monetary policy expectations and risk trends. With EURUSD retreating back below 1.4300 and GBPUSD slipping below the floor of a five-month rising trend channel, this is not an idle correction. Evaluating the events of the active afternoon New York session, no one was caught off guard by the decision to maintain the benchmark lending rate unchanged at its range between zero and 0.25 percent. The statement was similarly lacking for notable changes beyond a mention of the economic impact Japan’s natural disaster back in March has had. Things get interesting though with the updated economic forecasts. Dampening any lingering hopes that a rate hike could still come before the year is out, the group lowered its growth forecasts through 2013 and softened its near-term inflation outlook. For 2011, the central bank predicts expansion of 2.7 to 2.9 percent (from April’s 3.1 to 3.3) while PCE inflation was set to a 2.3 to 2.5 percent range (from 2.1 to 2.8 percent previously).
Tempering already anemic rate expectations should actually deliver a slight boost to risk and hit to the greenback. Instead, we are responding to the far more contentious scenario for a withdrawal of the extraordinary stimulus that has been pumped in the system, lowered US rates to near-record low levels and subsequently leveled the dollar. In the press conference that followed the decision, Chairman Bernanke reiterated the $600 billion QE2 program would expire at the end of the month. And, while he left the door open for future accommodation “if warranted”, such flexibility to is to be expected. The level of stimulus now looks like it will be held steady for a number of months while the central bank assess, the financial and economic stability. When the market starts speculating on its unwinding, we’ll see risk fall while rates and the dollar surge.
British Pound Tumbles on BoE Minutes Consideration of More Stimulus
If expectations for the Fed’s monetary policy decision were low, the prospects for the Band of England’s minutes were non-existent. However, it is when the entire market is caught off-guard that we see the biggest market reactions. In the wrap up to the central bank’s last rate decision, we found a few surprises that were influential enough to send the British pound tumbling. Adding a notable dovish twist to speculators’ already fading hopes for a rate hike sometime this year, the statement noted that some members felt that is was possible that “further asset purchases” may need to be made in the future if conditions warrant. This is far from a commitment; but set against slowing growth, challenges from the EU periphery and downplaying inflation pressures, it douses lingering speculation. We need to keep an eye on market rates to see if they ease.
Euro and European Yields Quickly Lose Confidence after Greece Vote
The day after Greek Prime Minister George Papandreou won his confidence vote, there was very little sign of optimism amongst investors. Theoretically, this should improve the chances of the nation winning a second bailout package and avoiding default longer term. However, the market realizes the outlook brightened very little. Greek, Portuguese and Irish short-term yields pushed up record or near-record highs.
Canadian Dollar Wavers with Fed Festivities, BoC Warns of Rising Financial Risk
No matter how many times the Bank of Canada telegraphs warnings to the market, the speculative buoyancy behind interest rate forecasts remain. With the BoC’s Financial System Review, the authority said risks had increased and that risk taking had grown more popular. Later in the day, Governor Carney projected slower growth in the “short term”, though he felt the group was not constrained in moving rates.
Japanese Yen and Nikkei Futures Steady through 6.7 Earthquake
Three months after Japan was struck by its largest earthquake on record, we are still seeing the fallout unfold. As such, it shouldn’t surprise that the markets would be jumpy with potential follow up disasters. A 6.7 level trembler struck northern Japan early in the Asian trading day; but the reaction was tame as there didn’t seem to be significant damage according to early reports. Instead, yen traders watch post-FOMC risk trends.
Australian Dollar Finds More Guidance in Equities than Leading Index Release
With Australian economic readings easing through recent months, the first uptick from the Conference Board’s leading indicators composite in four months should come as something of a boon. However, the 0.1 percent increase predominately based on building approvals does little to alter the outlook for a slowdown in activity and rate speculation. The Aussie dollar followed the S&P 500 reversal and now the ASX/200.
Gold Briefly Rallies to Six-Week High before Fed Saps Inflation, Stimulus Influence
Gold was up for a volatile trading day through Wednesday’s active hours. After a slight pullback at the New York open, gold shot higher through the Fed rate decision and the group’s lowered growth forecasts. The need for a safe haven with through the banks forecasts and shift in policy is clear. On the other hand, without a QE3 US interest rates will start to pick up and the dollar will be a more active competitor with gold for capital.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
0:00 |
AUD |
Conference Board Leading Index (APR) |
0.4% |
April outlook may diminish as growth slows |
|
|
2:30 |
CNY |
HSBC Flash China Manufacturing (JUN) |
51.1 |
Preliminary measure steadily dropping |
|
|
6:00 |
CHF |
Trade Balance (Swiss franc) (MAY) |
1.44B |
Stronger franc seen to negatively impact Swiss franc exports |
|
|
6:00 |
CHF |
Exports (MoM) (MAY) |
7.9% |
||
|
6:00 |
CHF |
Imports (MoM) (MAY) |
4.0% |
||
|
7:00 |
EUR |
French PMI Manufacturing (JUN P) |
54 |
54.9 |
PMI of major Eurozone economies expected to drop as global recover slows |
|
7:00 |
EUR |
French PMI Services(JUN P) |
60.5 |
62.5 |
|
|
7:30 |
EUR |
German PMI Manufacturing (JUN A) |
57 |
57.7 |
|
|
7:30 |
EUR |
German PMI Services (JUN A) |
55.7 |
56.1 |
|
|
8:00 |
EUR |
Italian Consumer Confidence Index s.a. (JUN) |
105.3 |
106.5 |
Peripheral risk cut into consumption |
|
8:00 |
EUR |
Euro-Zone PMI Composite (JUN A) |
55.2 |
55.8 |
Overall PMI in major sectors all expected to decline as consumption takes a hit |
|
8:00 |
EUR |
Euro-Zone PMI Manufacturing (JUN A) |
53.8 |
54.6 |
|
|
8:00 |
EUR |
Euro-Zone PMI Services (JUN A) |
55.3 |
56 |
|
|
8:30 |
GBP |
BBA Loans for House Purchase (MAY) |
30000 |
29355 |
British real estate expected to stagnate, still faces headwinds |
|
10:00 |
GBP |
CBI Reported Sales (JUN) |
13 |
18 |
|
|
12:30 |
USD |
Chicago Fed Nat Activity Index (MAY) |
-0.05 |
-0.45 |
Midwest activity expected to recover |
|
12:30 |
USD |
Initial Jobless Claims (JUN 18) |
410K |
Weekly claims should still have troubles going into summer months |
|
|
12:30 |
USD |
Continuing Claims (JUN 11) |
3685K |
||
|
13:45 |
USD |
Bloomberg Consumer Comfort (JUN 19) |
-44.0 |
Level has also been steadily dropping |
|
|
14:00 |
USD |
New Home Sales (MAY) |
310K |
323K |
New home sales expected to decline, signaling still-lagging real estate sector |
|
14:00 |
USD |
New Home Sales (MoM) (MAY) |
-4.0% |
7.3% |
|
|
20:00 |
USD |
RPX Composite 28 Day (YoY) (APR) |
0.5% |
House prices survey should couple with sales, showing decline |
|
|
20:00 |
USD |
RPX Composite 28 Day Index (APR) |
179.78 |
||
|
23:50 |
JPY |
Corporate Service Price (YoY) (MAY) |
-0.8% |
-0.8% |
Service sector still faces challenges |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
1:30 |
JPY |
BOJ Board Member Morimoto to Speak in Nagasaki City |
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 |
1.4374 |
1.6085 |
80.36 |
0.8396 |
0.9716 |
1.0588 |
0.8161 |
115.52 |
129.27 |
|
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 |
11.7760 |
1.6149 |
6.7610 |
7.7865 |
1.2321 |
Spot |
6.3515 |
5.1885 |
5.4350 |
|
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 |
1.4483 |
1.6330 |
80.63 |
0.8483 |
0.9777 |
1.0685 |
0.8238 |
116.19 |
131.16 |
|
Resist 1 |
1.4429 |
1.6207 |
80.49 |
0.8439 |
0.9746 |
1.0637 |
0.8200 |
115.85 |
130.21 |
|
Pivot |
1.4387 |
1.6141 |
80.26 |
0.8390 |
0.9724 |
1.0602 |
0.8156 |
115.50 |
129.60 |
|
Support 1 |
1.4333 |
1.6018 |
80.12 |
0.8346 |
0.9693 |
1.0554 |
0.8118 |
115.16 |
128.65 |
|
Support 2 |
1.4291 |
1.5952 |
79.89 |
0.8297 |
0.9671 |
1.0519 |
0.8074 |
114.81 |
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 |
1.4564 |
1.6246 |
81.20 |
0.8499 |
0.9808 |
1.0731 |
0.8275 |
117.21 |
130.87 |
|
Resist. 2 |
1.4517 |
1.6206 |
80.99 |
0.8473 |
0.9785 |
1.0695 |
0.8247 |
116.78 |
130.47 |
|
Resist. 1 |
1.4469 |
1.6165 |
80.78 |
0.8447 |
0.9762 |
1.0659 |
0.8218 |
116.36 |
130.07 |
|
Spot |
1.4374 |
1.6085 |
80.36 |
0.8396 |
0.9716 |
1.0588 |
0.8161 |
115.52 |
129.27 |
|
Support 1 |
1.4279 |
1.6005 |
79.94 |
0.8345 |
0.9670 |
1.0517 |
0.8104 |
114.68 |
128.46 |
|
Support 2 |
1.4231 |
1.5964 |
79.73 |
0.8319 |
0.9647 |
1.0481 |
0.8075 |
114.26 |
128.06 |
|
Support 3 |
1.4184 |
1.5924 |
79.52 |
0.8293 |
0.9624 |
1.0445 |
0.8047 |
113.83 |
127.66 |
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.
