Talking Points:
- Dollar Looks to Fed to Secure Strongest Run in Half a Century
- British Pound Edges Higher as Market Digests Shift in Scotland Sentiment
- Euro Focus Still on ECB Policy, But Sovereign Bond Yields are Rising…
Dollar Looks to Fed to Secure Strongest Run in Half a Century
Friday is opening once again green for the Dow Jones FXCM Dollar Index (ticker = USDollar). If we close out the session positive, it would mark the fifth consecutive daily advance – matching the currency’s best performance since February. Furthermore, baring a sharp drop before the week closes, we are going to close an even more incredible record for the dollar: the ninth consecutive weekly gain. For the ICE Dollar Index, that matches the longest bull series on records going back nearly 50 years (there were comparable runs in 1997, 1979 and 1975). In other words, the US currency has enjoyed an incredible level of strength. Yet, in a financial system where complacency and comfort dominate; such a move is an affront to established market conditions. Either currency or broader sentiment must yield.
Given the shift in the dollar’s position and fundamentals, the rise in FX-based volatility measures and the event risk ahead; we may very well find the system is more prone to change than the errant currency. Whether Dollar or FX trader, appreciation of the rapid increase in implied (expected) volatility measures is warranted. It has been particularly pronounced in the shorter-term, currency-based arena. That certainly has a lot to do with the high-level event risk we face next week including the FOMC rate decision. However, we find that the turn in activity FX activity measures is consistent over longer durations, and the sentiment is spreading to other asset classes. Is the seasonal transition from ‘Summer Lull’ conditions finally stirring historically temperate markets? Is the fire beginning in the currency realm?
To determine the next leg of the greenback’s course – and certainly to change the current of the general financial system – elemental changes and event risk are necessary. On that front, few known events carry as much weight as Wednesday’s FOMC decision. Beyond just the penultimate Taper, this event will offer updated forecasts and Chairwoman Janet Yellen’s press conference. In this event, there is heavy volatility potential. While the currency’s gains and some surveys insinuate a market that is more certain of a hawkish path, Fed Funds futures and market-wide speculative positioning show a deeper sense of blissful ignorance. A path towards tighter policy will eventually turn the tides.
British Pound Edges Higher as Market Digests Shift in Scotland Sentiment
It was a YouGov opinion poll gauging Scots’ position on the impending referendum vote this past weekend that prompted GBPUSD to gap sharply lower Monday. A 51 percent support for independence from the UK suddenly thrust an expected low-probability event to the top of the list of concerns. Noting the lack of appreciation they initially paid this event, it comes as little surprise that the sterling found limited lift on an updated survey from the same group that showed a shift to the ‘No’ camp by the same margin. The vote on September 18 (Thursday) stands as a top event risk for the pound as the implications are not clear. However, also keep an eye on BoE rate forecasts with UK CPI on Tuesday.
Euro Focus Still on ECB Policy, But Sovereign Bond Yields are Rising…
The projected ballooning of Euro-area monetary policy is certainly turning the screws on the markets. The three-month Euribor rate has dropped to a record low below 0.09 percent and the Euro has collapsed 7.7 percent in four months against a dollar that is still under the influence of QE3. And, much of this has been in anticipation. While the ECB has cut rates, it has yet to increase its balance sheet. That begins next Thursday when the bank allots its first Targeted-LTRO. This tangible stimulus move still has influence to exact, however, we shouldn’t forget there are other forces at play. A rise in Eurozone sovereign bond yields and a retreat in foreign interest in Eurozone capital markets is concerning.
Japanese Yen: Will This USDJPY Rally Hit 110?
USDJPY targets keep rising as the pair extends its incredible run. Yet, momentum is not as easy to maintain to 110 and beyond as many may appreciate. The first obstacle to this pair’s progress is the known event risk for the dollar. While the Fed decision could certainly drive the greenback higher on a hawkish upgrade; that is a necessary outcome to that must be realized to fulfill current expectations. A hawkish Fed could also spur risk aversion. And, BoJ Governor Kuroda repeating the ‘no need for more QE’ stance, there is little to stop an inflated carry unwind.
Australian Dollar Rallies on Strong Jobs, Retreats When Realized they Were Part-Time
It is important to appreciate that data does not have a black-and-white impact on the markets. That is because its implications are interpreted by a group with biases and different analyses. Case-in-point was the Aussie August jobs figures. What was originally a rally on a 121,000-net increase in jobs turned into a complete reversal when the market realized the bulk was part-time jobs.
Emerging Markets at Critical Juncture in Bull Trend as Investors Contemplate Fed Tightening
Technical traders are watching the MSCI Emerging Market ETF closely. Having dropped back 3.5 percent from its multi-year high set this past Friday, the index has experienced a swell in volatility into the backbone of the 8-month advance. Hold or collapse has more to do with underlying fundamentals than stops and entries. Is the Fed soon to start withdrawing the liquidity that has lowered volatility and encouraged yield reach?
Gold Creeps into 8-Month Lows, Volatility on the Rise
While gold isn’t on fire, it is still melting lower. The metal has continued to drop through the morning hours Friday to push us to levels not seen since January. This consistent decline is developing alongside rising volume in the speculative futures and ETFs exposures. Meanwhile, the CBOE’s Gold Volatility Index has forged ahead to 5-month highs. What will central bank speculation do to the metal next week…
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ECONOMIC DATA
GMT | Currency | Release | Survey | Previous | Comments |
22:30 | NZD | Business NZ Performance of Manufacturing Index | 53.5 | ||
22:45 | NZD | Food Prices (MoM) | -0.70% | Gives RBNZ one way of looking at price increases | |
1:30 | AUD | Credit Card Balances | $A49.9B | These two measures grow with the economy. | |
1:30 | AUD | Credit Card Purchases | $A23.1B | ||
4:30 | JPY | Industrial Production (MoM) | 0.20% | These are from the month of July F | |
4:30 | JPY | Industrial Production (YoY) | -0.90% | ||
4:30 | JPY | Capacity Utilization (MoM) | -3.30% | ||
6:00 | EUR | German Wholesale Price Index (MoM) | 0.10% | Gives the ECB one way of measuring the inflation of the largest economy in the Eurozone | |
6:00 | EUR | German Wholesale Price Index (YoY) | 0.50% | ||
8:30 | GBP | Construction Output SA (YoY) | 3.20% | 5.30% | Improved construction performance can put pressure on BoE to increase rates |
8:30 | GBP | Construction Output SA (MoM) | 0.60% | 1.20% | |
9:00 | EUR | Euro-Zone Industrial Production s.a. (MoM) | 0.70% | -0.30% | Indicator of how manufacturing is performing; however, these measure for July |
9:00 | EUR | Euro-Zone Industrial Production w.d.a. (YoY) | 1.40% | 0.00% | |
9:00 | EUR | Euro-Zone Employment (QoQ) | 0.10% | Monetary policy decisions are dictated by the employment situation | |
9:00 | EUR | Euro-Zone Employment (YoY) | 0.20% | ||
12:30 | USD | Advance Retail Sales | 0.60% | 0.00% | Can indicate how strong the consumption is in the economy; however the measures are volatile |
12:30 | USD | Retail Sales Less Autos | 0.30% | 0.10% | |
12:30 | USD | Retail Sales Ex Auto and Gas | 0.40% | 0.10% | |
12:30 | USD | Retail Sales Control Group | 0.50% | 0.10% | |
12:30 | USD | Import Price Index (MoM) | -1.00% | -0.20% | Important as it contributes to the general CPI |
12:30 | USD | Import Price Index (YoY) | -0.40% | 0.80% | |
13:00 | CAD | Teranet/National Bank HPI (MoM) | 1.10% | House prices are important to the BoC rate decision as rate changes can change the cost of mortgages | |
13:00 | CAD | Teranet/National Bank HPI (YoY) | 4.90% | ||
13:00 | CAD | Teranet/National Bank HP Index | 165.84 | ||
13:55 | USD | U. of Michigan Confidence | 83.3 | 82.5 | Improved confidence can interest rate increases more likely |
14:00 | USD | Business Inventories | 0.40% | 0.40% |
GMT | Currency | Upcoming Events & Speeches |
6:05 | JPY | BOJ Governor Kuroda Speech |
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 | 13.3250 | 2.3000 | 11.8750 | 7.8075 | 1.3250 | Resist 1 | 7.3285 | 5.8475 | 6.3145 | |
Spot | 13.1524 | 2.1625 | 10.7255 | 7.7502 | 1.2554 | Spot | 7.0676 | 5.7562 | 6.2669 | |
Support 1 | 12.8350 | 2.0700 | 10.2500 | 7.7490 | 1.2000 | Support 1 | 6.7750 | 5.3350 | 5.7450 | |
Support 2 | 12.6000 | 1.7500 | 9.3700 | 7.7450 | 1.1800 | Support 2 | 6.0800 | 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 | 1.3026 | 1.6421 | 106.13 | 0.9394 | 1.0948 | 0.9406 | 0.8352 | 137.23 | 173.13 |
Res 2 | 1.3003 | 1.6393 | 105.94 | 0.9376 | 1.0932 | 0.9390 | 0.8335 | 136.99 | 172.81 |
Res 1 | 1.2980 | 1.6365 | 105.75 | 0.9359 | 1.0915 | 0.9374 | 0.8319 | 136.75 | 172.48 |
Spot | 1.2934 | 1.6309 | 105.36 | 0.9324 | 1.0882 | 0.9341 | 0.8285 | 136.28 | 171.83 |
Supp 1 | 1.2888 | 1.6253 | 104.97 | 0.9289 | 1.0849 | 0.9308 | 0.8251 | 135.81 | 171.19 |
Supp 2 | 1.2865 | 1.6225 | 104.78 | 0.9272 | 1.0832 | 0.9292 | 0.8235 | 135.57 | 170.86 |
Supp 3 | 1.2842 | 1.6197 | 104.59 | 0.9254 | 1.0816 | 0.9276 | 0.8218 | 135.33 | 170.54 |
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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com
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