- Dollar May have Stumbled on the FOMC’s Decision but the Real Collapse Comes through Speculation
- Euro Rallies on an Otherwise Discouraging Outcome for Portugal’s Debt Auction
- British Pound Plunges as the Bank of England Adopts a Policy Bias Similar to the Much-Maligned Fed
- New Zealand Dollar Marks a Sharp Retreat after 2Q GDP Disappointment
- Canadian Dollar Slides after an Unexpected Drop in Retail Sales Matches up to General Risk Aversion
- Japanese Yen: BoJ and Finance Ministry Under Increased Pressure as USDJPY, Yen Crosses Retrace
Dollar May have Stumbled on the FOMC’s Decision but the Real Collapse Comes through Speculation
The fallout from the FOMC’s rate decision yesterday seems to have had only a passing effect on investor confidence itself; but its impact on the US dollar, Treasuries and gold is proving far more influential. Measuring the traditional correlations between asset classes that have a distinct place on the risk appetite spectrum, we can see the gap expanding. As our benchmark for market sentiment (for its lack of complexity), we see that the equities have shown little lasting impact from Tuesday’s big-ticket event. In fact, the S&P 500 actually fell 0.5 percent on the day after the 0.3 percent dip through the previous session. If we were working under the ‘normal’ conditions of three months ago, we would expect this to leverage the risk aversion correlation and boost the dollar moderately. Yet, that certainly wasn’t the case through the day. Instead, we note that the Dollar Index notched its second significant decline (0.8 percent from close to close) and took out a very obvious range support at 80 along the way. Now trading at a six-month low, it is easy for speculators to supply selling where fundamental necessity would otherwise fall apart. To better put this poor performance into perspective, we see EURUSD has rallied to a new five-month high and USDJPY slipped back below 85.
We have seen the tables turning slowly on the fundamental appeal of the dollar for some time now; but it seems that the Fed has offered the decisive turning point where the single currency will be regularly on the defensive. Recapping the outcome of yesterday’s decision and policy statement, there was no tangible change in the central bank’s actual efforts and the alterations to verbiage in the statement were relatively minor. However, these particular modifications catered specifically to international investors’ shifting confidence. While the threat of an expansion of stimulus has been a lingering possibility for some time; the validation of the option by the actual policy authority makes it feel more real. Does this mean, an increase in asset purchases is imminent? Not really. Keeping all doors open is an approach that most major central banks have adopted partly in an effort to dissuade the distorting influence of speculation (though deterring traders’ effort to forecast the future is a futile endeavor). Nevertheless, the long-term troubles that face the United States (large fiscal debts, a slowing of the economic recovery, the dependency on temporary stimulus, etc) are more palpable as the market’s scrutiny intensifies. Though the object of this focus is new; the concept should be familiar as the Euro-area drew the ire of international investors through the second quarter. For traders, this shift is important for interpreting how to analyze the dollar. No longer maintaining the direct, negative correlation to risk appetite trends; fundamental market participants instead need to measure the general discontent with relative outlook for US growth, yield potential and the dollar’s reserve presence. On the other hand, this concern doesn’t permanently knock the currency off the safe haven track. If there is a clear and strong trend to develop in risk appetite, the currency could overcome these passive concerns. And, if it is a rise in confidence, the dollar’s plunge will accelerate.
Switching from big structural themes, we take a look at the day’s macroeconomic event risk. The FHFA’s house price index for July was the top release for the day. As a lagging indicator, this report has little influence by the 3.3 percent drop in the average sale price reflects a depressed sector. Tomorrow’s existing home sales will give a more timely and influential update. We should also keep an eye on the leading indicators.
Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Building Up Short Yen Interest While on Hold with the Dollar
Euro Rallies on an Otherwise Discouraging Outcome for Portugal’s Debt Auction
It seems the euro will rally despite the quality of the event risk that shapes the currency’s future. On the economic docket today, data would show factory orders for the region dropped 2.4 percent (the biggest drop in 19 months) and consumer confidence improved less than expected. What was truly interesting through was the sovereign debt auctions for the day. After upgrading its deficit projections yesterday, Portugal would draw much higher yields for sale of four (4.695 percent) and 10 year notes (6.242 percent). The focus seems to be on finding sufficient demand to cover the supply; but there is a concept of affordability that will determine the long-term success of the effort. At this point, the euro is drawing its strength from the weakness of the dollar. This schadenfreude will last as long as there is a need for an alternative to the greenback.
British Pound Plunges as the Bank of England Adopts a Policy Bias Similar to the Much-Maligned Fed
It may not have been very clear in the GBPUSD’s performance; but the pound was under significant pressure Wednesday. The Bank of England’s minutes offered a dovish shift when the market was already extremely sensitive to policy. Aside from member Sentance’s dissention, the group noted that the probability for increasing stimulus going forward had increased. Interestingly enough, that may not curb rate hikes.
New Zealand Dollar Marks a Sharp Retreat after 2Q GDP Disappointment
The New Zealand economy marked its slowest quarterly expansion in a year according to the official 2Q GDP numbers. Normally, this news could be weathered with the right application of yield demand; but today, such news is further interpretation that the kiwi dollar may actually lag for return along with the rest of its major FX counterparts. Looking at the breakdown, manufacturing marked the worst sector performance.
Canadian Dollar Slides after an Unexpected Drop in Retail Sales Matches up to General Risk Aversion
If there are still those fundamental traders out there holding out for rate hikes and higher yields from Canada, they were dealt a blow Wednesday. Offering a direct read on growth, retail sales fell 0.1 percent in July (the fourth month they have failed to grow). Even the improvement in the Leading Indicators composite (used for forecasting growth) is flimsy as it was an uptick from 13-month lows.
Japanese Yen: BoJ and Finance Ministry Under Increased Pressure as USDJPY, Yen Crosses Retrace
How much interest is there in verbal intervention nowadays? Not much. However, from Japan it might carry a little more weight as officials have already shown their willingness to act. Early Wednesday, BoJ Governor Shirakawa said he was watching economic activity, exports and profitability closely. To back him up, Prime Minister Kan vowed meaningful economic policy to lead to a lasting turn in deflation and the currency.
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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
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
22:45 |
Gross Domestic Product (QoQ) (2Q) |
0.7% |
0.6% |
New Zealand’s economy expanded in 2Q as exports strengthened. |
|
NZD |
22:45 |
Gross Domestic Product (YoY) (2Q) |
2.5% |
1.9% |
|
|
AUD |
1:30 |
RBA Foreign Exchange Transaction (A$) (AUG) |
570M |
RBA FX transactions fell in August. |
|
|
EUR |
6:45 |
French Own-Company Production Outlook (SEP) |
-9 |
French business confidence increased in July to the highest level in two years. |
|
|
EUR |
6:45 |
French Production Outlook Indicator (SEP) |
-1 |
-2 |
|
|
EUR |
6:45 |
French Business Confidence Indicator (SEP) |
98 |
98 |
|
|
EUR |
7:00 |
French PMI Manufacturing (SEP P) |
55.0 |
55.1 |
French August manufacturing reading was highest in 3 months. |
|
EUR |
7:00 |
French PMI Services (SEP P) |
60.0 |
60.4 |
|
|
EUR |
7:30 |
German PMI Manufacturing (SEP A) |
57.6 |
58.2 |
Germany’s manufacturing fell in August to lowest level in 6 months. |
|
EUR |
7:30 |
German PMI Services (SEP A) |
57.2 |
57.2 |
|
|
EUR |
8:00 |
Euro-Zone PMI Manufacturing (SEP A) |
54.5 |
55.1 |
Growth in European industries weakened in August, although beat market expectations. |
|
EUR |
8:00 |
Euro-Zone PMI Services (SEP A) |
55.5 |
55.9 |
|
|
EUR |
8:00 |
Euro-Zone PMI Composite (SEP A) |
55.7 |
56.2 |
|
|
GBP |
8:30 |
BBA Loans for House Purchase (AUG) |
34000 |
33698 |
Declined for second month in July. |
|
EUR |
9:00 |
Italian Unemployment Rate s.a. (2Q) |
8.6% |
8.4% |
Likely rose to 7-year high in 2Q. |
|
USD |
12:30 |
Initial Jobless Claims (SEP 18) |
450K |
450K |
Initial claims fell last week to their lowest level since July. |
|
USD |
12:30 |
Continuing Claims (SEP 11) |
4473K |
4485K |
|
|
USD |
14:00 |
Existing Home Sales (MoM) (AUG) |
7.1% |
-27.2% |
Existing sales plunged in July for a third consecutive monthly decline. |
|
USD |
14:00 |
Existing Home Sales (AUG) |
4.10M |
3.83M |
|
|
USD |
14:00 |
Leading Indicators (AUG) |
0.1% |
0.1% |
Slowed in last four months. |
|
USD |
20:00 |
RPX Composite 28 Day (YoY) (JUL) |
0.16% |
Composite rose annually in June for a fourth consecutive month. |
|
|
USD |
20:00 |
RPX Composite 28 Day Index (JUL 31) |
197.09 |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
12:30 |
Treasury Secretary Timothy Geithner Speaks in Dallas, Texas |
|
USD |
14:40 |
Fed’s Charles Evans Speaks at Chicago Fed, IMF Conference |
|
USD |
17:00 |
Former Fed Chairman Paul Volcker Speaks at Chicago Fed |
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 |
EUR/GBP |
|
Resistance 2 |
1.3815 |
1.6375 |
95.05 |
1.0600 |
1.0922 |
0.9850 |
0.7635 |
127.60 |
146.05 |
0.8725 |
|
Resistance 1 |
1.3500 |
1.5965 |
89.00 |
1.0460 |
1.0750 |
0.9665 |
0.7440 |
120.00 |
140.00 |
0.8600 |
|
Spot |
1.3389 |
1.5669 |
84.56 |
0.9868 |
1.0302 |
0.9562 |
0.7373 |
113.22 |
132.48 |
0.8545 |
|
Support 1 |
1.2500 |
1.5300 |
83.00 |
0.9800 |
0.9950 |
0.8100 |
0.6850 |
103.80 |
125.00 |
0.8065 |
|
Support 2 |
1.2150 |
1.5125 |
80.00 |
0.9650 |
0.9700 |
0.7835 |
0.6585 |
100.00 |
119.00 |
0.7780 |
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 |
|
Resistance 2 |
14.4500 |
1.8025 |
8.7915 |
7.8165 |
1.4945 |
Resistance 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resistance 1 |
13.8500 |
1.6755 |
8.3675 |
7.8075 |
1.4655 |
Resistance 1 |
7.5800 |
5.5400 |
6.1150 |
|
Spot |
12.6376 |
1.4853 |
7.0263 |
7.7577 |
1.3249 |
Spot |
6.8506 |
5.5641 |
5.8898 |
|
Support 1 |
12.0500 |
1.4500 |
6.6950 |
7.7490 |
1.3000 |
Support 1 |
6.7600 |
5.3000 |
5.8000 |
|
Support 2 |
11.7200 |
1.3665 |
6.4300 |
7.7450 |
1.2500 |
Support 2 |
6.4440 |
5.1000 |
5.6000 |
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 |
EUR/GBP |
|
Resistance 2 |
1.3551 |
1.5776 |
85.59 |
1.0041 |
1.0453 |
0.9648 |
0.7468 |
114.07 |
134.23 |
0.8643 |
|
Resistance 1 |
1.3470 |
1.5723 |
85.07 |
0.9954 |
1.0377 |
0.9605 |
0.7420 |
113.65 |
133.36 |
0.8594 |
|
Pivot |
1.3359 |
1.5662 |
84.68 |
0.9897 |
1.0285 |
0.9557 |
0.7370 |
113.10 |
132.54 |
0.8528 |
|
Support 1 |
1.3278 |
1.5609 |
84.16 |
0.9810 |
1.0209 |
0.9514 |
0.7322 |
112.68 |
131.67 |
0.8479 |
|
Support 2 |
1.3167 |
1.5548 |
83.77 |
0.9753 |
1.0117 |
0.9466 |
0.7272 |
112.13 |
130.85 |
0.8413 |
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 |
EUR/GBP |
|
Resistance 3 |
1.3556 |
1.5846 |
85.58 |
0.9989 |
1.0426 |
0.9698 |
0.7484 |
114.93 |
134.53 |
0.8636 |
|
Resistance 2 |
1.3514 |
1.5802 |
85.32 |
0.9959 |
1.0395 |
0.9664 |
0.7456 |
114.50 |
134.02 |
0.8613 |
|
Resistance 1 |
1.3472 |
1.5758 |
85.07 |
0.9929 |
1.0364 |
0.9630 |
0.7428 |
114.08 |
133.50 |
0.8591 |
|
Spot |
1.3389 |
1.5669 |
84.56 |
0.9868 |
1.0302 |
0.9562 |
0.7373 |
113.22 |
132.48 |
0.8545 |
|
Support 1 |
1.3306 |
1.5580 |
84.05 |
0.9807 |
1.0240 |
0.9494 |
0.7318 |
112.36 |
131.46 |
0.8499 |
|
Support 2 |
1.3264 |
1.5536 |
83.80 |
0.9777 |
1.0209 |
0.9460 |
0.7290 |
111.94 |
130.94 |
0.8477 |
|
Support 3 |
1.3222 |
1.5492 |
83.54 |
0.9747 |
1.0178 |
0.9426 |
0.7262 |
111.51 |
130.43 |
0.8454 |
v
Written by: John Kicklighter, 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
