Talking Points:
- Dollar Performance Not as Robust as EURUSD Insinuates
- Euro Tumbles As European Equities Rally
- British PoundOut of Room and Facing Trial by Event Risk
Dollar Performance Not as Robust as EURUSD Insinuates
The world’s most liquid currency cross EURUSD made a significant break this past session. Breaking through the 1.3500-floor that kept the bears at bay since its dramatic reaction to the June ECB rate decision on June 5, this looks at first blush like a serious coup for the greenback. Yet, the currency’s broader performance doesn’t bear the weight of the bulls’ run just yet. Through the past session, the dollar lost ground versus its Aussie counterpart and was virtually unchanged against the Yen, Pound and Canadian dollar. For those keeping track of the technical boundaries, the Dow Jones FXCM Dollar Index (ticker = USDollar) was unable to surpass 2014’s moving bearish guide at 10,450 and even the heavily EURUSD-weighted ICE DXY Index found itself short of this year’s 81 high.
From the fundamental landscape, there wasn’t much to inspire the dollar to charge higher. The ‘risk’ barometer moved further away from the extreme readings usually associated to a rally for the currency. In fact, the S&P 500 moved back within striking distance of a fresh record high and the capital market volatility measures eased further back from last Thursday’s peaks. In the absence of a sentiment-motivated bid for the safe haven, there was serious potential from the June consumer inflation (CPI) figures. This data series puts the pressure on the Federal Reserve to recalibrate monetary policy and consider the timing for a return to hikes. Yet, the stress wasn’t particularly high in this round of data. The headline annual figure held at 2.1 percent – notably above their target – while the core measure unexpectedly ticked lower to 1.9 percent. Outside of the dollar’s response, 2-year Treasury yields sunk 3.7 percent and the December 2015 Fed Fund futures were little changed. While there are other events scheduled this week, the gravity of next week’s FOMC decision, NFPs and 2Q GDP may keep the dollar anchored.
Euro Tumbles As European Equities Rally
Next to the Swiss Franc, the Euro was the worst performer amongst the majors this past session. That said, its stumble began before the heavy-hitting news and data started to cross the wires. From the calendar, the Eurozone 1Q government debt numbers increased for the first time in three quarters to 93.9 percent of GDP. Taking the more geopolitical route, the European Union Finance Ministers announced they would expand their sanctions against Russia. What comes as greater surprise is that the currency was retreating while local equities posted substantial gains between 1 and 2.2 percent. The region’s financial stability wasn’t called into question. Meanwhile, the Eurozone government bond yields ticked higher (demand eased), though with little conviction. We need to monitor this prominent EURUSD break for conviction.
British Pound Out of Room and Facing Trial by Event Risk
GBPUSD is facing an impending breakout – a break of necessity. The pair is currently facing a price range of around 40 pips while its average daily range over the past month (20 trading day ATR) is over 60 pips that will put speculators on edge for moves that look to resolve this pressure and could consequently spark a larger move and a surge in volume. In the forthcoming trading session, we have three events that could stoke the pound’s most pressing interests: interest rate expectations. Set for simultaneous release, the BBA home loans data takes on increased prominence with officials’ warnings about the sector growing overheated; while the BoE minutes will directly shape the central bank’s bearings. A little later, BoE Governor Carney is scheduled to speak. Perhaps he will state further surprise of market rate-speculation…
New Zealand Dollar Coils before Heavily-Anticipated RBNZ Hike
Heading into the upcoming RBNZ rate decision (due at 21:00 GMT), there is an incredible level of certainty. Of the 15 economists polled by Bloomberg, 14 expect a fourth 25bp hike to 3.50 percent. The market itself is pricing in an 85 percent probability of a similar move according to swaps. That is a heavy speculative lean…and yet the New Zealand dollar hasn’t generated much progress from this hawkishness. In fact, the currency has gained little to no ground against many of its counterparts since the first hike. So what happens if they decide to hold?
Australian Dollar Advances as Core Inflation Heats Up
When will the RBA hike rates again? Over a long enough time line, tightening is inevitable, but for this theme to be a proactive driver for the currency, there needs to be some degree of confidence where speculators can grab on and its timeframe needs to be considered competitive. Given the currency’s sluggish performance these past few years and the fact that its rate is still the second highest among the majors as is, it is particularly sensitive to speculation of hikes. So, when the core CPI reading hit a four-year high 2.9 percent, there was a spark.
Emerging Markets Gap to 18 Month High, Ruble Climbs Despite EU Sanctions
The US equity indexes were unable to set fresh records, but the MSCI Emerging Market ETF logged an impressive performance gapping to an 18-month high. The bond index for the group similarly advanced to fresh highs. For the currency group, the day’s performance was split. The more thinly traded EM currencies lost ground, but the larger units were green and led by the Russian Ruble’s 0.7 percent advance.
As Rate Expectations Grow, Gold Will Struggle
US inflation figures gave limited impetus to extend rate hopes to the dollar as they attempt to time the Fed’s first move back into hawkish territory. Though while the pressure is not imminent, it is definitely building. And that is what we are seeing in the UK, Japan, Australia and others. As the onus of rate hikes grows, gold’s appeal diminishes. Up next, traders will be watching the UK data set.**Bring the economic calendar to your charts with the DailyFX News App.
ECONOMIC DATA
GMT | Currency | Release | Survey | Previous | Comments |
1:00 | AUD | Skilled Vacancies (MoM) (JUN) | -1.3% | Reflects changes in Australia’s skilled job market | |
1:30 | AUD | Consumer Prices Index (QoQ) (2Q) | 0.5% | 0.6% | Inflation figures are an important mandate of most central banks today and are a great driver of monetary policy expectations. Higher than expected numbers increase speculation of a rate hike by the nation’s central bank. |
1:30 | AUD | Consumer Prices Index (YoY) (2Q) | 3.0% | 2.9% | |
1:30 | AUD | CPI RBA Trimmed Mean (QoQ) (2Q) | 0.6% | 0.5% | |
1:30 | AUD | CPI RBA Trimmed Mean (YoY) (2Q) | 2.7% | 2.6% | |
1:30 | AUD | CPI RBA Weighted Median (QoQ) (2Q) | 0.7% | 0.6% | |
1:30 | AUD | CPI RBA Weighted Median (YoY) (2Q) | 2.7% | 2.7% | |
6:45 | EUR | French Business Survey Overall Demand (JUL) | 7 | Economic indicators from the Eurozone are currently being observed carefully for any signs of growth | |
6:45 | EUR | French Production Outlook Indicator (JUL) | -19 | ||
8:30 | GBP | BBA Loans for House Purchase (JUN) | 41757 | Loan growth represents demand for housing | |
9:00 | EUR | Euro-Zone Government Deficit (1Q) | Higher than expected deficits weigh negatively on an area’s currency as the government is expected to fund the deficit by raising additional debt | ||
10:00 | GBP | CBI Reported Sales (JUL) | 16 | 4 | Again an indicator that covers a vast number of sectors and represents economic changes |
11:00 | USD | MBA Mortgage Applications (JUL 18) | -3.6% | Represents change in demands for loans to buy houses | |
12:30 | CAD | Retail Sales (MoM) (MAY) | 0.5% | 1.1% | Measure of consumer confidence within an area; important mandate of central banks |
12:30 | CAD | Retail Sales ex Autos (MoM) (MAY) | 0.3% | 0.7% | |
14:00 | EUR | Euro-Zone Consumer Confidence (JUL A) | -7.5 | -7.5 | Currently it is been carefully followed for any signs of an economic recovery |
14:30 | USD | DOE U.S. Crude Oil Inventories (JUL 18) | -7525K | Higher than expected inventories tend to drop oil prices as supply exceeds demand | |
21:00 | NZD | Reserve Bank of New Zealand Interest Rate Decision | 3.50% | 3.25% | Interest rate decisions and forward monetary policy guidance are the most closely watched announcements for the near future value of the corresponding currency |
22:45 | NZD | Trade Balance (New Zealand dollars) (JUN) | 150M | 285M | The Trade Balance determines change in demand of a currency, and is consequently tracked closely by traders |
22:45 | NZD | Exports (New Zealand dollars) (JUN) | 4.25B | 4.60B | |
22:45 | NZD | Imports (New Zealand dollars) (JUN) | 4.05B | 4.32B | |
23:50 | JPY | Adjusted Merchandise Trade Balance (Yen) (JUN) | -1122B | -862B | A net trade deficit signifies an important trend within a region – the imports are higher than the exports. |
23:50 | JPY | Merchandise Trade Balance Total (Yen) (JUN) | -665B | -909B | |
23:50 | JPY | Merchandise Trade Exports (YoY) (JUN) | 1.0 | -2.7 | |
23:50 | JPY | Merchandise Trade Imports (YoY) (JUN) | 8.4 | -3.6 |
GMT | Currency | Upcoming Events & Speeches | ||
1:20 | AUD | RBA’s Low Speaks at RMB Internationalization Round Table | ||
1:30 | JPY | BoJ's Hiroshi Nakaso Speaks on Japanese Economy | ||
8:30 | GBP | Bank of England Minutes | ||
11:30 | EUR | ECB Executive Board Member Praet Speaks on Lithuania | ||
11:45 | GBP | BOE Governor Carney Addresses Business Audience in Glasgow |
SUPPORT AND RESISTANCE LEVELS
To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal
To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table
CLASSIC SUPPORT AND RESISTANCE
EMERGING MARKETS 18:00 GMT | SCANDIES CURRENCIES 18:00 GMT | |||||||||
Currency | USD/MXN | USD/TRY | USD/ZAR | USD/HKD | USD/SGD | Currency | USD/SEK | USD/DKK | USD/NOK | |
Resist 2 | 13.5800 | 2.3800 | 12.7000 | 7.8165 | 1.3650 | Resist 2 | 7.5800 | 5.8950 | 6.5135 | |
Resist 1 | 13.1500 | 2.3000 | 11.8750 | 7.8075 | 1.3250 | Resist 1 | 6.8155 | 5.8475 | 6.2660 | |
Spot | 12.9418 | 2.1289 | 10.6645 | 7.7501 | 1.2466 | Spot | 6.6888 | 5.4511 | 6.1665 | |
Support 1 | 12.8350 | 2.0700 | 10.2500 | 7.7490 | 1.2000 | Support 1 | 6.0800 | 5.3350 | 5.7450 | |
Support 2 | 12.6000 | 1.7500 | 9.3700 | 7.7450 | 1.1800 | Support 2 | 5.8085 | 5.2715 | 5.5655 | |
INTRA-DAY PROBABILITY BANDS 18:00 GMT
CCY | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | Gold |
Res 3 | 1.3750 | 1.7247 | 102.19 | 0.8930 | 1.0692 | 0.9524 | 0.8822 | 139.83 | 1345.75 |
Res 2 | 1.3732 | 1.7223 | 102.04 | 0.8917 | 1.0679 | 0.9508 | 0.8806 | 139.61 | 1340.98 |
Res 1 | 1.3714 | 1.7199 | 101.89 | 0.8904 | 1.0665 | 0.9492 | 0.8789 | 139.40 | 1336.21 |
Spot | 1.3679 | 1.7152 | 101.59 | 0.8878 | 1.0639 | 0.9460 | 0.8756 | 138.97 | 1326.67 |
Supp 1 | 1.3644 | 1.7105 | 101.29 | 0.8852 | 1.0613 | 0.9428 | 0.8723 | 138.54 | 1317.13 |
Supp 2 | 1.3626 | 1.7081 | 101.14 | 0.8839 | 1.0599 | 0.9412 | 0.8706 | 138.33 | 1312.36 |
Supp 3 | 1.3608 | 1.7057 | 100.99 | 0.8826 | 1.0586 | 0.9396 | 0.8690 | 138.11 | 1307.59 |
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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com
To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter
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