Dollar Pair’s Extreme Quiet is Unnerving

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Talking Points:

• Dollar Pair’s Extreme Quiet is Unnerving
• British Pound: IMF Says BoE May Need to Raise Rates Due to Housing Boom
• Euro Unchanged but Government Bond Demand Shows Leverage Still Rising

Dollar Pair’s Extreme Quiet is Unnerving

Market conditions are already extremely quiet, but it seems that we are sliding to even more exceptional levels of listlessness…and just before a heavy round of important event risk. With the FX volatility index only slightly off its record low set earlier this month, we find the most liquid majors opened this new week with incredibly small trading ranges. EURUSD managed a daily range of only 17 pips! That is the second smallest span for the pair since the Euro was introduced. Not much better, GBPUSD traced out only 31 pips (only three other instances of such low activity levels in the past decade) and already-lethargic USDJPY covered only 16 pips (with a notable precedence of sub-20 pip days signaling eventual turns). This is combination of historically quiet markets meeting the regular anxiety that precedes the combination release of the FOMC rate decision and quarterly US GDP readings. This market will remain transfixed on Wednesday’s event risk and will struggle to support any meaningful drives that try to pop up before its release. Rate speculation is the other node of fundamental impact expected with this impending wave, but here we may see the market more ambitious in its lead in. Keep an eye on today’s 5-year Treasury note auction.

British Pound: IMF Says BoE May Need to Raise Rates Due to Housing Boom

The Bank of England is weighing the timing of its first rate hike; but like most of the largest developed regions, monetary policy moves from current levels and conditions are fraught with potential risks. In the UK, the economic recovery is strong but traditional inflation readings are still below the central bank’s target and wage growth is falling further behind the curve. However, there is another facet to this puzzle that seems to be fortifying hawks belief that an earlier hike may be necessary: housing prices. The IMF in its Article IV consultation on the UK suggested that while the sector was not showing signs of bubbles, the central bank should be ready with additional mortgage curbs and even traditional rate hikes if these measures fail. Following this line, June mortgage approval numbers are due today.

Euro Unchanged but Government Bond Demand Shows Leverage Still Rising

The Euro was virtually unchanged against most of its major counterparts this past session. Meanwhile, the Euro-area’s major equity indexes were closed modestly lower. Hesitation consistent with the global capital and currency markets is to be expected. Yet, there was a segment of the region’s financial market that was showing unusual progress: sovereign government bonds (particularly the ‘periphery’). Record or near –record low yields for Portugal, Spain and Italy may show confidence in ECB support; but that may still be confidence misplaced.

Yen Crosses Show Just How Focused Market is On Volatility Measures

When the Bank of Japan (BoJ) backed off of its effort to ramp up its monetary support of weak inflation and struggling economy, one of the major drivers for the yen crosses lost traction. While the open-ended stimulus the central bank continues to feed the market is a stabilizer on the currency, preventing a reversal – much less gaining further ground on its impressive trend – is relying increasingly on investors’ appetite for return amongst historically low-yielding carry. If there were any doubt that traditional data or hope for more stimulus were rendered inert by the market’s own focus, it was the lack of reaction to this morning’s data. Japan’s jobless rate unexpectedly jumped 0.2 percent points to 3.7 percent while overnight household spending dropped 3 percent (year-over-year) and large retailers’ sales dropped 1.8 percent.

Australian Dollar: Strong Demand for Indexed Bond May Signal Glimmer of RBA Rate Speculation

Is the market starting to see the chances of an RBA rate hike in the not-so-distant future? The Australian dollar has slowly carved out a rebound since the beginning of the year, but conviction was still moderate and has been isolated to FX. Now, however, we are starting to see Australian government bond yields (along the curve) rising from lows two weeks ago with more momentum seen in the shorter maturity paper. Another cue this morning was an 8-year ‘indexed’ bond which drew a high demand of 6.62 times the offer. If the market starts to form a time frame for a rate hike sometime in 2015, the Aussie dollar is still significantly discounted, that it can rally even with such a distant view.

Emerging Market: Russian Ruble Again the Biggest Mover

The appetite for yield in the Emerging Market sector is showing a flagging momentum. From the segment’s capital markets, the MSCI Emerging Market ETF has pushed to a fresh 18-month high with a 0.7 percent climb to 45.09 but is still falling short of the escape velocity that would clear a level of hesitation that goes back three years. Meanwhile, the JPMorgan Emerging Market Currency Index continues to carve a gradual but consistent trend lower from its May peak. Looking at the more active currencies on the day, the Russian Ruble once again stood out with a 1.0 percent drop against the US Dollar and 1.1 percent slump versus the Euro. The most recent escalation in Russia-West tensions comes in the form of the US accusing Russia of breaking a 1987 arms treaty that prohibits testing of medium-range, ground-launched cruise missiles.

Gold: Speculative Traders Show Indecision, Concern About Volatility Ahead

Similar to the FX and equity markets, gold was lacking for trend and volatility Monday. The precious metal suffered a modest 0.2 percent ($3.14) decline in the spot market as it oscillates around $1,300. Looking at the participation levels behind the market, we find evidence that investors are growing concerned about the lack of drive – particularly ahead such an important round of event risk for dollar and global stimulus considerations. In the futures market, open interest has been trending lower since the July 10 peak (now down 5.2 percent). That said, the net long position for futures speculators (from the COT report) is just off its highest level since January 2013. Amongst retail traders, the SSI shows a tentative bearish lean with a significantly lower open interest. **Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT	Currency	Release	Survey	Previous	Comments
1:00	AUD	HIA New Home Sales (MoM) (JUN)		-4.3%	Shows growth in Australia’s housing market
5:00	JPY	Small Business Confidence (JUL)		47.3	Reflection of growth confidence within small businesses in Japan
6:00	EUR	German Import Price Index (MoM) (JUN)	0.3%	0.0%	Indicates whether prices of imports have fallen or risen; important for currencies of major trading partners
6:00	EUR	German Import Price Index (YoY) (JUN)	-1.2%	-2.1%
8:30	GBP	Mortgage Approvals (JUN)	63.0K	61.7K	These metrics are indicators of the loan market in England. A strong focus is on Mortgage approvals, which shows how much of loans is being taken out to purchase houses – essentially a reflection of the housing market
8:30	GBP	Net Consumer Credit (JUN)	0.8B	0.7B
8:30	GBP	Net Lending Sec. on Dwellings (JUN)	1.9B	2.0B
8:30	GBP	M4 Money Supply (MoM) (JUN)		-0.1%
8:30	GBP	M4 Money Supply (YoY) (JUN)	-0.6%	-0.9%
8:30	GBP	M4 Money Supply ex IOFCs (Annualised) (3M) (JUN)	3.8%	2.7%
13:00	USD	S&P/Case-Shiller Composite-20 s.a. (MoM) (MAY)	0.30%	0.19%	Housing price index from 20 major metropolitan areas of the United States
13:00	USD	S&P/Case-Shiller Composite-20 (YoY) (MAY)	9.80%	10.82%
13:00	USD	S&P/Case-Shiller Home Price Index (MAY)		168.71
14:00	USD	Consumer Confidence (JUL)	85.5	85.2	Consumer Confidence is closely tracked by the Fed as one of the major factors in its monetary policy.
22:45	NZD	Building Permits (MoM) (JUN)		-4.6%	Shows the change in New Zealand’s housing market by giving the number of buildings approved for construction
23:50	JPY	Industrial Production (MoM) (JUN P)	-1.2%	0.7%	Japanese YoY industrial growth is expected to show a much stronger expansion in June than it did in May
23:50	JPY	Industrial Production (YoY) (JUN P)	5.2%	1.0%

GMT	Currency	Upcoming Events & Speeches
1:30	JPY	BoJ's Koji Ishida Speaks on Japanese Economy
17:00	USD	US to Sell 5-Year Treasury Notes
-:-	USD	Federal Reserve FOMC Meeting

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	6.8650	5.8475	6.2660
Spot	12.9579	2.0936	10.5388	7.7502	1.2410		Spot	6.8266	5.5372	6.2021
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	1.3542	1.7091	102.35	0.9077	1.0799	0.9475	0.8640	137.92	1310.87
Res 2	1.3523	1.7067	102.20	0.9064	1.0784	0.9459	0.8623	137.70	1306.03
Res 1	1.3505	1.7042	102.05	0.9050	1.0770	0.9443	0.8607	137.49	1301.19
Spot	1.3468	1.6993	101.76	0.9023	1.0741	0.9411	0.8574	137.05	1291.50
Supp 1	1.3431	1.6944	101.47	0.8996	1.0712	0.9379	0.8541	136.61	1281.81
Supp 2	1.3413	1.6919	101.32	0.8982	1.0698	0.9363	0.8525	136.40	1276.97
Supp 3	1.3394	1.6895	101.17	0.8969	1.0683	0.9347	0.8508	136.18	1272.13

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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

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