Talking Points:
- Dollar Fails to Leverage Key EURUSD Break
- British Pound Retreats after BoE Minutes, Carney Comments
- New Zealand Dollar Tumbles…After a Rate Hike
Dollar Fails to Leverage Key EURUSD Break
The day after EURUSD – the world’s most liquid currency pair – marked a key break below 1.3500, the pair carved out a trading range of just 19 pips. This is only the second time in the Euro’s history that this pair has settled on a range of less than 20 pips (the other instance was April 18 of this year). This, of course, is a reflection of a more general malaise that sees the average daily range for this key pair falling to record lows alongside the FX volatility readings. Market conditions where participation and volatility are drained is a great equalizer for fundamental and technical developments. The key to seeing the dollar and broader financial markets return to trend – bullish or bearish – is seeing the masses return and reestablish a level of commitment. Can the combo of NFPs, FOMC decision and 2Q US GDP net week do it?
British Pound Retreats after BoE Minutes, Carney Comments
The data on the UK docket this past session were encouraging. The home loans filed with the BBA for June unexpectedly increased and the CBI’s retail sales survey for the current month posted an unexpected acceleration in growth. Yet, neither of these carries much weight for what is truly capturing sterling traders’ attention: interest rate speculation. The BoE minutes and Governor Carney speech more than compensated however. The Governor’s comments were noncommittal between surprise that capacity was diminishing quickly at the same time he was voicing concerns of headwinds. From minutes, we learned that the vote to hold rates was still 9-0 to, the second half growth outlook cooled slightly and some feared an early rate hike could shock the system. This doesn’t stop the first hike.It tames the pace of subsequent moves.
New Zealand Dollar Tumbles…After a Rate Hike
That is not what we expect to happen after a rate hike. The theory goes that – everything else being equal – an increase in interest rates should bolster the value of the target currency. Yet, when the Reserve Bank of New Zealand (RBNZ) announced that it was raising its benchmark lending rate for its fourth consecutive meeting to 3.50 percent (a 25bp increase), the currency dropped against all of its counterparts…sharply. This affront to efficient market theory reflects the heavy impact that speculation can have. Traders had already priced in the hike for this particular meeting. Realizing it simply met expectations. What was unknown and the source of the next move was whether the RBNZ would keep pace with the tightening. According to the statement released alongside the event, the central bank wants to assess the impact that monetary policy tightening to date. Pausing rates has real-world influence on FX where their forecasts for the currency do not.
Australian Dollar Extends Gains Following Rising Inflation Pressures
Compared to the RBNZ hike, Australian inflation figures are a significant downgrade for actively shaping interest rate expectations. Nevertheless, where the Kiwi was had the wind knocked out of it, the Aussie dollar extended its drive through this past session in the wake of the firmer core 2Q CPI figures. The difference in performance arises from expectations. While this data is still far removed from the fist RBA rate hike, the market was not pricing in a positive yield curve. With a forward looking bias, this particular piece of data puts the possibility of higher yields back on the map. Adding to this, New Zealand’s Finance Minister hinted at plans for investing in Australia.
Euro Traders Look to July PMI Figures to Benchmark Growth Forecast
There are three major fundamental loose ends for the Euro, but the market is not actively trying to unravel them. This past session, the second most liquid currency in the world played the pliable counterpart to more active peers. On the docket, the growth and sovereign debt concerns seemed to abate with periphery bond yields shying away from the tentative rebound from multi-year and record lows. Draining some of the market-moving impact of next week’s Spanish 2Q GDP reading, the Bank of Spain reported an uptick in last quarter’s pace to 0.5 percent growth – their numbers generally fall in-line with the official stats. Ahead, we will see the growth story amplified as we take in German and Eurozone activity surveys (manufacturing, services and composite). Modest declines are expected and bigger misses will spark drive.
Emerging Market Currencies Gain on Yield Appetite
While the Emerging Market capital benchmarks were not showing much progress to Tuesday’s 18-month highs – the MSCI ETF was little changed on the day with a 0.1 percent advance – the FX players were looking at consistent gains. Leading the pack of broad gains, the Turkish Lira advanced 0.8 percent for a fourth consecutive day’s climb and the South African Rand ran 0.6 percent higher on a similar string of daily gains. Even the Russian Ruble – facing increasing financial and economic pressure after the MH17 flight incidence – has advanced a second day by 0.4 percent. We’ll see if the currency can maintain this strength with Norway’s SWF withdrawing $8 billion in Russian investment.
Goldman Sachs Updates Gold Forecast, Still Below Spot
Against the backdrop of a quiet dollar, inconsistent risk backdrop and a few updates to firm broader monetary policy expectations; it comes as little surprise that gold was under pressure this past session. Yet, as much as the picture is leaning towards a deleveraging of the metal – known ETF holdings at 55.90 million ounces are still double what it was at the beginning of 2008 – the metal maintained its balance and put in for little movement on the day. In the void, a few noteworthy forecasts were issued for the commodity’s projected path. A Reuters poll of analysts and traders projected an average $1,270 target for the third quarter and $1,255 through the final three month period. Meanwhile, Goldman Sachs admitted that its forecast at the start of the year was a little too aggressive. The bank’s research group raised its long-term forecast from $1,066 to $1,200. As usual, swings in expectations are bigger than prices for gold.**Bring the economic calendar to your charts with the DailyFX News App.
ECONOMIC DATA
GMT | Currency | Release | Survey | Previous | Comments |
1:35 | JPY | Markit/JMMA Purchasing Manager Index Manufacturing (JUL P) | 51.5 | PMI data indicates an expansion/contraction in the sector for which it is reported | |
1:45 | CNY | HSBC Purchasing Manager Index Manufacturing (JUL P) | 51.0 | 50.7 | Is a significant mover of the Australian Dollar as China is Australia’s largest trader partner |
7:00 | EUR | Markit French Purchasing Manager Index Manufacturing (JUL P) | 48.1 | 48.2 | Important indicators that are being tracked by the ECB as it tries to prevent deflation in the Eurozone economy. |
7:00 | EUR | Markit French Purchasing Manager Index Services (JUL P) | 48.2 | 48.2 | |
7:00 | EUR | Markit French Purchasing Manager Index Composite (JUL P) | 48.0 | 48.1 | |
7:30 | EUR | Markit German Purchasing Manager Index Manufacturing (JUL P) | 52.0 | 52 | |
7:30 | EUR | Markit German Purchasing Manager Index Services (JUL P) | 54.4 | 54.6 | |
7:30 | EUR | Markit German Purchasing Manager Index Composite (JUL P) | 53.8 | 54 | |
8:00 | EUR | Markit Euro-Zone Purchasing Manager Index Manufacturing (JUL P) | 51.7 | 51.8 | |
8:00 | EUR | Markit Euro-Zone Purchasing Manager Index Services (JUL P) | 52.6 | 52.8 | |
8:00 | EUR | Markit Euro-Zone Purchasing Manager Index Composite (JUL P) | 52.7 | 52.8 | |
8:00 | EUR | Italian Retail Sales s.a. (MoM) (MAY) | 0.4% | Policy makers will be hoping for an increase in total retail sales because it shows a recovering consumer market | |
8:00 | EUR | Italian Retail Sales (YoY) (MAY) | 2.6% | ||
8:30 | GBP | Retail Sales ex Auto (MoM) (JUN) | 0.3% | -0.5% | Reflection of consumer confidence in the UK, important mandate of Bank of England. |
8:30 | GBP | Retail Sales ex Auto (YoY) (JUN) | 4.6% | 4.7% | |
8:30 | GBP | Retail Sales inc Auto (MoM) (JUN) | 0.2% | -0.5% | |
8:30 | GBP | Retail Sales inc Auto (YoY) (JUN) | 3.9% | 3.9% | |
9:00 | EUR | Italian Consumer Confidence Index s.a. (JUL) | 105.7 | Consumer Confidence is currently being closed followed in the Eurozone | |
12:30 | USD | Initial Jobless Claims (JUL 19) | 302K | Unemployment is an important factor driving the Fed’s monetary policy and is closely watched by the FOMC. | |
12:30 | USD | Continuing Claims (JUL 12) | 2507K | ||
13:45 | EUR | Markit Purchasing Manager Index Manufacturing (JUL P) | 57.5 | 57.3 | Significant data release tracked to determine expansion or contraction in the Eurozone’s manufacturing sector. |
14:00 | USD | New Home Sales (JUN) | 480K | 504K | The housing market is an important sector tracked by economists to determine a broader recovery |
14:00 | USD | New Home Sales (MoM) (JUN) | -4.8% | 18.6% | |
15:00 | USD | Kansas City Fed Manufacturing Activity (JUL) | 6 | Accumulated results are used to determine longer term trends in the manufacturing sector | |
23:01 | GBP | Hometrack Housing Survey (MoM) (JUL) | 0.3% | The Bank of England has recently focused on curbing a sharp increase in UK housing prices. | |
23:01 | GBP | Hometrack Housing Survey (YoY) (JUL) | 6.0% | ||
23:30 | JPY | National Consumer Price Index (YoY) (JUN) | 3.5% | 3.7% | Inflation is currently the most important mandate of the Bank of Japan as the country has been trying to fight deflation. Figures are likely to drive monetary policy expectations. |
23:30 | JPY | National Consumer Price Index ex-Fresh Food (YoY) (JUN) | 3.3% | 3.4% | |
23:30 | JPY | National Consumer Price Index ex Food, Energy (YoY) (JUN) | 2.3% | 2.2% | |
23:30 | JPY | Tokyo Consumer Price Index (YoY) (JUL) | 2.8% | 3.0% | |
23:30 | JPY | Tokyo Consumer Price Index ex-Fresh Food (YoY) (JUL) | 2.7% | 2.8% | |
23:30 | JPY | Tokyo Consumer Price Index ex Food, Energy (YoY) (JUN) | 2.0% | 2.0% | |
23:50 | JPY | Corporate Service Price (YoY) (JUN) | 3.6% | 3.6% | Tracks change in prices of goods sold by corporations, is a leading indicator of CPI |
23:50 | JPY | Japan Buying Foreign Bonds (Yen) (JUL 18) | ¥671.5B | Provides direction of flow of capital. More significant in emerging economies where Foreign Investment is a significant driver of economy. | |
23:50 | JPY | Japan Buying Foreign Stocks (Yen) (JUL 18) | ¥71.9B | ||
23:50 | JPY | Foreign Buying Japan Stocks (Yen) (JUL 18) | -¥160.9B | ||
23:50 | JPY | Foreign Buying Japan Bonds (Yen) (JUL 18) | -¥2.9B |
GMT | Currency | Upcoming Events & Speeches |
15:45 | JPY | Bank of Japan Governor Kuroda Speaks in Thailand |
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
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