Dollar Swells Without Break as S&P 500 Drops, Fisher Warns of Hikes

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Talking Points:

• Dollar Swells Without Break as S&P 500 Drops, Fisher Warns of Hikes
• British Pound Top Performer as Data Revives BoE Hopes, More Ahead
• Euro Faces Top Event Risk in 2Q Italian GDP Release

Dollar Swells Without Break as S&P 500 Drops, Fisher Warns of Hikes

The dollar was up against most of its major counterparts this past session and the Dow Jones FXCM Dollar Index (ticker = USDollar) posted its first gain in three trading days. Yet, despitethe breadth of the currency’s performance, its momentum was lacking the necessary muscle to revitalize the July bull run. With USDollar, GBPUSD, USDJPY and AUDUSD still facing boundaries to progress; the focus turns to what can motivate bulls to advance the market. Both of the dollar’s principal drivers were receiving air time on the financial headlines – yet neither has secured conviction. On speculative appetite front, ‘risk aversion’ continues to play out on some markets and is absent in others. Global equities on the one hand are starting to break through critical technical foundations to the bull phase of the past three years, and the S&P 500 stands at its 100-day moving average. On the other, the FX market is showing little of the aversion to risk. And, for the dollar, the safety appeal is through liquidity – an extreme degree. Meanwhile, the timing of the Fed’s return to rate hikes found a big push from known hawk Richard Fisher. The Dallas Fed President suggested the FOMC is coming around to his views and the timing of a hike was moving “further forward”. These are certainly the most hawkish remarks to date, but yields and Fed Funds futures showed little conviction his view was spreading.

British Pound Top Performer as Data Revives BoE Hopes, More Ahead

Among the majors, the British Pound was easily the best performer Tuesday with gains against the high yield and safe haven counterparts. Given the currency’s struggles over the past weeks, it would be a stretch to call the advance a tide change; but the performance was well founded via fundamentals. Markit’s service sector PMI for July posted its strongest rate of growth in eight months. Currency and yields responded. Yet, a NIESR report that suggests there is greater labor market slack than appreciated and the series-low BRC inflation index remind us just how fragile the bullish effort can be. Ahead, we have data for housing inflation, industrial production and the NIESR’s GDP estimate.

Euro Faces Top Event Risk in 2Q Italian GDP Release

EURUSD officially closed at its lowest level in 9 months in part on hefty selling pressure this past session (the dollar’s own gains would amplify that particular pair’s performance as well). The data listings were of limited interest, but the universal uptick in Eurozone sovereign bond yields captured the market’s attention effectively enough. In the upcoming session, traders keeping their finger on the Euro’s pulse will watch cautiously to see if the retreat in government debt interest is just another hiccup or the start of something more pervasive. There will also be a risk concern as the region’s equity indexes didn’t suffer the late-NY session drop Tuesday. On the calendar, we have Italy’s 2Q GDP release.

New Zealand Dollar Drops…as Unemployment Rate Drops

The Kiwi Dollar was the worst performer amongst the majors this past session and it is already taking the title into morning trade Wednesday. This push is an extension of a three-week decline that has seen the currency drop between 1.7 and 4.0 percent – versus the Canadian and US currencies respectively. As mixed as its motivations may be, risk aversion is certainly contributing to this push. When the market is already in a bearish frame of mind, catalysts tend to be easily found. What is interesting, though, is the Kiwi’s slide this morning. A reported 0.4 percent increase in employment through 2Q – though short of the consensus would still lower the jobless rate to a five-year low 5.6 percent. Then again, a focus on ‘qualitative’ aspects to jobs data recently may leverage the earnings growth miss and drop in participation rate.

Australian Dollar Traders Move on to the Next Round of Data: July Jobs Report

The RBA’s monetary policy decision did little to sway the Aussie dollar one way or the other. A reiteration of keeping interest rates steady for an extended period and lamenting what they consider a still-high exchange rate does little to alter the market’s own view of the currency. Yet, where the in-line policy decision was staged for a volatility disappointment, the upcoming July employment statistics offer a greater chance of volatility. The jobs data has a history of both printing far from consensus and stirring volatility for the Aussie Dollar. Heading into the release, the consensus is for a mild 13,200 net increase in payrolls and a hold for the jobless rate at a decade high 6.0 percent.

Emerging Market Currencies and Bonds Retreat Accelerates

Top, scheduled event risk for the Emerging Markets did little to prompt speculators’ appetites or fear. The Reserve Bank of India maintained a benchmark lending rate of 8.00 percent, while Russia’s service sector and composite PMI figures for July both bested expectations. And yet, the Indian Rupee only managed a 0.2 percent gain on the USD while the Russian Ruble fell another 0.5 percent to a three-month low versus the US currency. The economic rations did little to alter the general performance of the EM segment with investor sentiment under pressure. The MSCI ETF dropped 1.5 percent on the day while the Bloomberg EM sovereign bond index looks to be making a bearish turn in earnest.

Gold Volume Rebounds but Progress Still Elusive

On Tuesday, volume behind gold futures sunk to its second lowest level – around 78,000 contracts – of 2014. While turnover did pick up this past session (just above 103,000), it is still well below the monthly average. More importantly, the rebound in trading activity meant little for price action. The commodity is still hemmed into a tight congestion pattern with a distinctly bearish bias. For the burgeoning concern in financial market stability, the lack of severity to the move leaves the metal’s performance handily offset by the dollar’s gains. Neither does the drop in yields from the US to the Eurozone to Asia doesn’t seem to leverage the appeal of the commodity with no interest income but a higher standard volatility level. Gold traders await one of the market’s major drivers to finally generate conviction.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT	Currency	Release	Survey	Previous	Comments
05:00	JPY	Coincident Index	109.6	111.3	Indicates economic sentiment in Japan, has been on a downtrend since February this year
05:00	JPY	Leading Index	105.4	104.8
06:00	EUR	German Factory Orders s.a. (MoM)	0.9%	-1.7%	A pickup will reduce expectations of added stimulus from the ECB
06:00	EUR	German Factory Orders n.s.a. (YoY)	1.1%	5.5%
07:00	GBP	Halifax Plc House Prices s.a. (MoM)	0.4%	-0.6%	The Bank of England recently introduced measures to curb the sharp increase in housing prices
07:00	GBP	Halifax House Price (3MoY)	9.6%	8.8%
07:15	CHF	Consumer Price Index (MoM)	-0.4%	-0.1%	The YoY inflation rates in Switzerland have been bound between -0.5% and 0.5% since May 2013.
07:15	CHF	Consumer Price Index (YoY)	0.0%	0.0%
07:15	CHF	CPI EU Harmonized (YoY)	-0.3%	-0.1%
07:30	EUR	Markit Germany Construction PMI		45.5	The PMI has seen a downward trend since February this year.
08:10	EUR	Markit France Retail PMI		47.6	Improving sentiment in Retail PMI will reflects an improving consumer sentiment and will reduce expectations of added stimulus from the ECB
08:10	EUR	Markit Italy Retail PMI		43.8
08:10	EUR	Markit Germany Retail PMI		56.2
08:10	EUR	Markit Eurozone Retail PMI		50
08:30	GBP	Manufacturing Production (MoM)	0.6%	-1.3%	A pick up in Industrial and Manufacturing production in the UK will stir interest rate hike speculations from the BoE as it will be a step closer to achieving its policy target
08:30	GBP	Manufacturing Production (YoY)	2.1%	3.7%
08:30	GBP	Industrial Production (MoM)	0.8%	-0.7%
08:30	GBP	Industrial Production (YoY)	-1.1%	2.3%
09:00	EUR	Italian GDP s.a. and w.d.a. (YoY)	0.1%	-0.5%	Except the 4th quarter of 2013, Italy has been reporting a contraction in its economy since the 3rd quarter of 2011
09:00	EUR	Italian GDP s.a. and w.d.a. (QoQ)	0.1%	-0.1%
11:00	USD	MBA Mortgage Applications		-2.2%	Reflect US housing demand
12:30	CAD	Canada International Merchandise Trade (Canadian dollar)	0.00B	-0.15B	Significant variations in trade balances usually have an impact on the currency
12:30	USD	US Trade Balance	-$44.9B	-$44.4B	Reversed a widening trade deficit trend last month (June)
14:00	GBP	NIESR Gross Domestic Product Estimate		0.9%	Form of monthly GDP report that provides indications for the main quarterly report. Has remained between 05% and 0.9% since April 2013
14:30	USD	DOE U.S. Crude Oil Inventories		-3697K	Inventories have dropped for 5 consecutive weeks
23:30	AUD	AiG Performance of Construction Index		51.8	The construction index has seen a rising trend since April of this year
23:50	JPY	Foreign Buying Japan Bonds (Yen)		¥164.7B	A pick up in purchases of Japanese bonds is seen during times of geopolitical unrest as investors search for safe havens.
23:50	JPY	Japan Buying Foreign Bonds (Yen)		¥-302.0B
23:50	JPY	Japan Buying Foreign Stocks (Yen)		¥24.3B
23:50	JPY	Foreign Buying Japan Stocks (Yen)		¥204.5B

GMT	Currency	Upcoming Events & Speeches
02:30	NZD	Finance Minister English to Speak in Canberra
08:15	GBP	London Mayor Boris Johnson Delivers ‘Europe Report’
--:--	USD	U.S.-African Summit, Washington, DC

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	13.2247	2.1418	10.7169	7.7500	1.2479		Spot	6.8969	5.5678	6.2834
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	1.3468	1.6986	103.53	0.9144	1.0977	0.9377	0.8580	138.62	1304.30
Res 2	1.3449	1.6960	103.35	0.9130	1.0960	0.9359	0.8562	138.38	1299.11
Res 1	1.3429	1.6935	103.18	0.9116	1.0944	0.9342	0.8544	138.15	1293.92
Spot	1.3391	1.6884	102.82	0.9088	1.0911	0.9306	0.8507	137.68	1283.53
Supp 1	1.3353	1.6833	102.46	0.9060	1.0878	0.9270	0.8470	137.21	1273.14
Supp 2	1.3333	1.6808	102.29	0.9046	1.0862	0.9253	0.8452	136.98	1267.95
Supp 3	1.3314	1.6782	102.11	0.9032	1.0845	0.9235	0.8434	136.74	1262.76

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

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