- Dollar Settles as Bernanke Talks Down QE3 Speculation
- Euro Traders Await Stress Test Results, Crisis Headlines
- British Pound Shows Notable Strength Against Dollar, Euro, Comm Bloc
- Australian Dollar Facing Speculation of RBA Rate Cuts
- New Zealand Dollar Retreats from Record but Doesn’t Break Trend
- Japanese Yen Eases Back from Record Highs as S&P 500 Steadies
- Gold Is One Day Away from a 30 Year Record
Dollar Settles as Bernanke Talks Down QE3 Speculation
Once the market has a taste for volatility, it can be difficult to transition back into normal trading conditions. That was the dominant theme for the dollar (ticker = USDollar) and broader FX market Thursday. After a series of extraordinarily active trading days, the level of excitability within the speculative crowd finally tempered. This was not due to a lack of news. Amongst the headlines were updates that Fed Chairman Bernanke was arguing against the QE3 speculation that he had stoked the previous day and the release of the June retail sales figures. Yet, the markets were far more restrained. Gauging the activity level on EURUSD, we note that the pair managed its smallest range this week and volume on the currency futures notched its lowest reading since July 7th (340,487 contracts). More readily accessible though was the fact that the pair marked a sharp intraday reversal to cut its rally short. Having come through the dramatic volatility, we find once again that direction is still absent. That same sentiment is found in the S&P 500’s lack of direction. This benchmark for risk appetite has hovered above the 1,300 figure since Tuesday.
Considering there was notable event risk on the docket, why wasn’t the dollar able to maintain the high-level volatility? While scheduled fundamentals can certainly encourage a pickup in trading activity; often the reaction is more dependent on the general state of the market. In other words, unless conditions are already conducive to a particular fundamental theme, bullish or bearish data or cross market winds; these potential drivers will hit resistance and ultimately inflict a muted impact on currencies. That was the situation with the dollar this past session as we saw a clear contrast between the reaction to Bernanke’s testimony on Thursday and Wednesday. On his first day before Congress, the central banker said only that he was keeping all options on the table – which a market that was tilted towards retracing the dollar’s previous gains would interpret as a clear indication of QE3. Yet, Bernanke’s effort to downplay this speculation, the market merely feigned interest. Another perfect example of how important the market’s bearings are to impact was absolute lack of reaction to Standard & Poor’s following Moody’s lead by placing the United States’ top credit rating on creditwatch negative.
If the dominant themes couldn’t shake the dollar; then data would have little chance. The June retail sales figures offered little to work with as the 0.1 percent increase from the headline report did little to boost growth expectations and factory-level inflation curbed the diminished rate outlook. With a severe enough surprise, Friday’s offerings could generate a little more action. The June CPI figures already see a headline reading at 3.6 percent and the University of Michigan confidence survey can boost future growth expectations. Otherwise, limit expectations for volatility.
Related:Discuss the Dollar in the DailyFX Forum, John’s Pick: AUDUSD and Aussie Crosses Turn the Focus Away from Headlines
Euro Traders Await Stress Test Results, Crisis Headlines
If ECB President Trichet hadn’t pushed speculators’ timetable for future interest rate hikes, Thursday’s data may have actually played to the morning euro advance. Topping the docket was the Euro Zone CPI headline number which held at 2.7 percent while the core reading ticked higher to a 1.6 percent clip. Yet, more pertinent to the crisis watch, there were also headlines that would stir concern of contagion. Fitch announced that it had downgraded five Greek banks, Greece Finance Minister Papandreou said that a second bailout was needed immediately and Italy sloughed through a painful bond auction (the 5-year note yield was a three year high and 15-year maturity a record). Perhaps carry a little more punch, in the upcoming session, we expect the EBA Stress Test results. Failures are expected – and their absence would set off a skeptical market. More important than simply the grade though is aid that would be offered to fill the funding gaps.
British Pound Shows Notable Strength Against Dollar, Euro, Comm Bloc
Through swings in risk trends and volatility surrounding US and European financial concerns, the British pound would post gains. Having lost its interest rate guidance and speculation on the growth/austerity balance; the currency still managed to run gains against high and low yield counterparts as well as the headline-centric greenback and euro. One interesting factor is the gilt’s growing appeal as a sovereign safe haven.
Australian Dollar Facing Speculation of RBA Rate Cuts
The Australian dollar’s primary appeal is and has been its exceptional benchmark rate. However, that driver may be in jeopardy. According to overnight index swaps, the market is currently pricing approximately a 25 percent probability of a 25bp cut at the next meeting and a net 35 bps of cuts over 12 months. While that wouldn’t make much of a dent in its yield; it is speculation of change that usually generates to most action.
New Zealand Dollar Retreats from Record but Doesn’t Break Trend
Both the Canadian and Australian dollars have eased off their runs; but the New Zealand currency’s slip hasn’t turned its trend. Even more remarkable, AUDUSD and USDCAD have maintained broad congestion patterns throughout this volatile week; while NZDUSD has extended its run to record highs. Rate expectations are moving up; but it is difficult to see bullishness evidence beyond the 1Q GDP figures.
Japanese Yen Eases Back from Record Highs as S&P 500 Steadies
Speculation of intervention has quickly diminished as the yen stabilizes. Already at a record low (on a close basis), it will take considerable encouragement to push the currency to new heights. Instead, we see that the benchmark for risk appetite (the S&P 500) has extended its consolidation effort. Furthermore, the Deutsche Bank carry trade index has steadied on a two-month range low.
Gold Is One Day Away from a 30 Year Record
Nine consecutive daily advances: that is the best run for gold since November 2006. Should we extend the rally to a 10th day, we will have hit a milestone that was last seen back in July of 1980 (which was actually an 11-day run). What makes this performance even more remarkable is that metal is at a record high. That said, it takes a lot to keep this trend on pace; and concerns over financial stability have visibly tempered.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
2:00 |
CNY |
Actual FDI (YoY) (JUN) |
13.4% |
Change will gauge confidence in economy |
|
|
6:00 |
EUR |
EU 25 New Car Registrations (JUN) |
7.1% |
Indicates direction of EU durables |
|
|
8:00 |
EUR |
Italian Trade Balance (Total) (euros) (MAY) |
-3761M |
Expected to widen before major cuts affecting further imports |
|
|
8:00 |
EUR |
Italian Trade Balance Eu (euros) (MAY) |
-686M |
||
|
9:00 |
EUR |
Euro-Zone Trade Balance s.a. (euros) (MAY) |
-3.2B |
-2.9B |
Has widened to largest since 2011 |
|
9:00 |
EUR |
Euro-Zone Trade Balance (euros) (MAY) |
-4.1B |
||
|
12:30 |
CAD |
Manufacturing Shipments (MoM) (MAY) |
-0.2% |
-1.3% |
Recovery from Chinese demand |
|
12:30 |
USD |
Consumer Price Index Core Index s.a. (JUN) |
224.387 |
Inflation indices expected to be stable as economy further weakens. Likely to result in FOMC holding rates for an extended period of time |
|
|
12:30 |
USD |
Consumer Price Index n.s.a. (JUN) |
225.65 |
225.964 |
|
|
12:30 |
USD |
Consumer Price Index (MoM) (JUN) |
-0.1% |
0.2% |
|
|
12:30 |
USD |
Consumer Price Index (YoY) (JUN) |
3.6% |
3.6% |
|
|
12:30 |
USD |
CPI Ex Food & Energy (MoM) (JUN) |
0.2% |
0.3% |
|
|
12:30 |
USD |
CPI Ex Food & Energy (YoY) (JUN) |
1.6% |
1.5% |
|
|
12:30 |
USD |
Empire Manufacturing (JUL) |
5 |
-7.79 |
Eastern industries may strengthen |
|
13:15 |
USD |
Capacity Utilization (JUL) |
76.9% |
76.7% |
Industrial indices expected strengthen somewhat in July |
|
13:15 |
USD |
Industrial Production (JUL) |
0.3% |
0.1% |
|
|
13:55 |
USD |
U. of Michigan Confidence (JUL P) |
72 |
71.5 |
Expected higher despite labor data |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
16:00 |
EUR |
Bank Stress Tests Summary Released |
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 |
86.00 |
0.8900 |
1.0275 |
1.1800 |
0.8620 |
118.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
81.50 |
0.8550 |
1.0000 |
1.1000 |
0.8520 |
113.50 |
140.00 |
|
Spot |
1.4130 |
1.6129 |
79.13 |
0.8169 |
0.9606 |
1.0709 |
0.8411 |
111.81 |
127.63 |
|
Support 1 |
1.4000 |
1.5935 |
78.50 |
0.8075 |
0.9500 |
1.0400 |
0.7745 |
109.00 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
76.25 |
0.7900 |
0.9055 |
1.0200 |
0.6850 |
106.00 |
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 |
1.7425 |
7.4025 |
7.8165 |
1.3650 |
Resist 2 |
7.5800 |
5.6625 |
6.1150 |
|
Resist 1 |
12.5000 |
1.6730 |
7.3500 |
7.8075 |
1.3250 |
Resist 1 |
6.5175 |
5.3100 |
5.7075 |
|
Spot |
11.7378 |
1.6462 |
6.8441 |
7.7875 |
1.2175 |
Spot |
6.5205 |
5.2777 |
5.5560 |
|
Support 1 |
11.5200 |
1.5725 |
6.5575 |
7.7490 |
1.2145 |
Support 1 |
6.0800 |
5.1050 |
5.3040 |
|
Support 2 |
11.4400 |
1.5040 |
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 |
1.4342 |
1.6238 |
80.21 |
0.8266 |
0.9659 |
1.0843 |
0.8579 |
113.42 |
128.91 |
|
Resist 1 |
1.4236 |
1.6184 |
79.67 |
0.8218 |
0.9632 |
1.0776 |
0.8495 |
112.62 |
128.27 |
|
Pivot |
1.4176 |
1.6139 |
79.07 |
0.8150 |
0.9591 |
1.0735 |
0.8423 |
112.13 |
127.54 |
|
Support 1 |
1.4070 |
1.6085 |
78.53 |
0.8102 |
0.9564 |
1.0668 |
0.8339 |
111.33 |
126.90 |
|
Support 2 |
1.4010 |
1.6040 |
77.93 |
0.8034 |
0.9523 |
1.0627 |
0.8267 |
110.84 |
126.17 |
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 |
1.4324 |
1.6286 |
79.98 |
0.8271 |
0.9697 |
1.0850 |
0.8526 |
113.50 |
129.26 |
|
Resist. 2 |
1.4275 |
1.6247 |
79.77 |
0.8245 |
0.9674 |
1.0815 |
0.8497 |
113.08 |
128.85 |
|
Resist. 1 |
1.4227 |
1.6208 |
79.56 |
0.8220 |
0.9652 |
1.0779 |
0.8469 |
112.65 |
128.44 |
|
Spot |
1.4130 |
1.6129 |
79.13 |
0.8169 |
0.9606 |
1.0709 |
0.8411 |
111.81 |
127.63 |
|
Support 1 |
1.4033 |
1.6050 |
78.70 |
0.8118 |
0.9560 |
1.0639 |
0.8353 |
110.97 |
126.81 |
|
Support 2 |
1.3985 |
1.6011 |
78.49 |
0.8093 |
0.9538 |
1.0603 |
0.8325 |
110.54 |
126.40 |
|
Support 3 |
1.3936 |
1.5972 |
78.28 |
0.8067 |
0.9515 |
1.0568 |
0.8296 |
110.12 |
125.99 |
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.
