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Forex pairs in this Article » USDOLLAR, GOLD, EUR/USD, AUD/USD, USD/JPY, GBP/USD, EUR/JPY
  • Dollar or S&P 500 – One to Reverse if Fed Mentions Taper
  • Euro: Trouble Grows as Portugal 2014 GDP Forecast Slashed
  • British Pound Traders Focus on BoE Minutes, Jobs Data
  • Canadian Dollar Set for its First BoC Decision Under New Leadership
  • Japanese Yen: Policy Officials Hope Bernanke Forestalls Taper Fears
  • Australian Dollar Firms as Speculation of RBA Rate Cut Eases
  • Gold Ready to Break $1,300 if Fed Testimony Keeps $85 Billion Through Year End
Dollar or S&P 500 – One to Reverse if Fed Mentions Taper

We are coming on the top event risk for this week: Fed Chairman Ben Bernanke’s testimony on monetary policy before the US House of Representatives. This particular event can single-handedly leverage a trend-defining reversal in the dollar or S&P 500. To establish just how market moving this event risk can be, we only need to look back a week. With the release of the FOMC minutes – the transcript of the last policy gathering – the Dow Jones FXCM Dollar (ticker = USDollar) suffered a 90-point drop, its biggest in five weeks. Before that, the June 19 Fed meeting sparked a massive 115-point USDollar rally and painful 3.9 percent, two-day US equities tumble. In both events, there was fodder to alter speculation surrounding the time frame for the central bank’s first reduction in QE3 – conveniently termed ‘The Taper’. However, more interesting from the reaction was establishing just how sensitive the market was to the change and what part speculation plays.

If we were to look back over last week’s minutes, the highlight that pulled the rug out from under the dollar was suggestion that ‘many’ FOMC members wanted to see further improvement in employment conditions before they considered the Taper. It was also noted, though, that nearly half of the group also suggested it was possible that QE3 could be fully stopped by the end of the year. Furthermore, no Fed official has contradicted the June Taper warning. With the USDollar just off 3 year highs and the S&P 500 at record highs, the pressure is extreme.

Euro: Trouble Grows as Portugal 2014 GDP Forecast Slashed

It would seem that all is well with the euro fundamentally if we were to go by the currency’s performance as of late. Pairings ranging from EURUSD to EURAUD show favorable strength for the world’s second most liquid currency. And yet, much of this strength likely comes at the benefit of weaker counterparts. The greenback has recently taken a hit due to the Taper pushback and the high yielder Aussie has dropped across the board as FX-based carry takes a hit. This combination of cross winds may have unintentionally covered a growing strain in the Euro area. Adding to that pressure this past session, we learned that German investor confidence unexpectedly dropped in July – this country has been the anchor of growth, sentiment and monetary policy for the region. More vital, the Bank of Portugal slashed its 2014 GDP forecast of 1.1 percent growth to 0.3 percent. Add to that Greek protests, a drop in foreign Italian bond holdings and recent France downgrade…

British Pound Traders Focus on BoE Minutes, Jobs Data

Event risk this past session offered support to dovish Bank of England (BoE) policy members to pursue an easing further stimulus. The problem is: the group has not lacked for evidence to justify further bond purchases or other QE efforts and have nevertheless continued to hold their bearing. In the meantime, the June CPI reading was still just off the 3.0 percent threshold that necessitates the Governor the write a letter to the Chancellor of the Exchequer and even the most dovish of the MPC – Paul Fisher – was talking about how an exit from stimulus could be made in testimony. In the upcoming session, we may have a greater opportunity to stoke volatility. The jobs report is a direct read into economic activity and the BoE minutes my show us that Governor Carney introduced more than guidance at his first meeting…

Canadian Dollar Set for its First BoC Decision Under New LeadershipThere is a lot for Canadian dollar traders to account for in the upcoming North American trading sessions. First and foremost, the waves of volatility that can spill over from US markets can rock the loonie as an ‘investment currency’ as well as a beneficiary of imported growth. However, looking beyond the sympathy reaction to the US for a moment, we have the first Bank of Canada (BoC) rate decision under new Governor Stephen Poloz. Though his remarks to this point have been rather benign, he can change the tone of the board and introduce a new element to the meetings – like Mark Carney starting guidance at the BoE. Don’t write this event off.

Japanese Yen: Policy Officials Hope Bernanke Forestalls Taper Fears

Japanese policy officials have taken out all the stops and applied unprecedented stimulus in a bid to end decades of troublesome deflation – and many believe to also drive the yen down. Given the scale of their effort to increase the monetary base by ¥60 to ¥70 trillion this year, there isn’t much further they can escalate their agenda – nor would they want to unless forced to. Why is this effort working? Successful is in large part due to broad acceptance of risk appetite which keeps the otherwise tepid yields on yen crosses as appealing backstops. Then again, what happens if global risk taking falters? What if yield matters as volatility returns? This is a real risk if Bernanke doesn’t stymie fears.

Australian Dollar Firms as Speculation of RBA Rate Cut Eases

While change in language with the Reserve Bank of Australia’s (RBA) minutes yesterday was subtle, the impact on the oversold currency was not. The Aussie dollar rallied between 0.6 (AUDNZD) and 1.7 (AUDUSD) against its counterparts Tuesday. Given the depths of the currency’s losses over the past few months, it is easier to rouse momentum behind a countertrend move. That catalyst for the shift though was the minutes itself. The suggestion that current policy was appropriate due to in part to past rate cuts and the inflation outlook “could” give scope for cuts suggests less pressure to ease. The probability of a rate cut at next meeting dropped from 70 percent on Friday to 48 percent now.

Gold Ready to Break $1,300 if Fed Testimony Keeps $85 Billion Through Year End

The activity level on gold (measured by the Average True Range) has cooled to levels not seen since June 18 – notably just before the Fed rate decision sent the precious metal tumbling below $1,300 for the first time in years. It just so happens, that this downshift in activity brings us back to that same level, just this time it is approaching from the opposite side. Looking for its first meaningful bull move since the metal began its tumble back in September (the bullish efforts since the turn are arguably simply corrective phases of the dominant trend), gold needs a firm fundamental push to make a concerted move higher. Should Bernanke confirm recent speculation that the Fed will defer its Taper beyond the September meeting, it could reverse some of the impact of withdrawal fears. To truly build its alternative-store-of-wealth appeal, we would need something like the BoE minutes showing an impending stimulus increase or the Greek parliament vote reviving the Eurozone crisis.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

Westpac Leading Index (MoM) (MAY)

0.6%

After the RBA minutes indicated a less dovish stance, good data may boost an oversold Aussi in the short term.

2:00

CNY

Conference Board Leading Economic Index (JUN)

Any big surprises will be noted, although markets are becoming increasingly more wary over Chinese data.

6:00

JPY

Machine Tool Orders (YoY) (JUN F)

-12.4%

The print has not been in positive territory since the spring of last year.

8:30

GBP

Jobless Claims Change (JUN)

-8.0K

-8.6K

The print has been negative since the fall of 2012.

8:30

GBP

Claimant Count Rate (JUN)

4.5%

4.5%

Market participants attempting to estimate a time frame for any easing out of the BoE will be noting any jobs and inflation data. Fisher said on Tuesday that any Fed QE exit would mean spillovers on the UK.

8:30

GBP

Average Weekly Earnings ex Bonus (3MoY) (MAY)

1.1%

0.9%

8:30

GBP

Average Weekly Earnings inc Bonus (3MoY) (MAY)

1.4%

1.3%

8:30

GBP

ILO Unemployment Rate (3M) (MAY)

7.8%

7.8%

9:00

CHF

ZEW Survey (Expectations) (JUL)

2.2

The print has recovered since being in the negative 40 region last year at this time.

9:00

EUR

Euro-Zone Construction Output s.a. (MoM) (MAY)

2.0%

European data points like these may not move the market as the main event risk will be Bernanke on the hill, but missed estimates will be noted as the Euro enjoys a brief rebound on a USD correction.

9:00

EUR

Euro-Zone Construction Output w.d.a. (YoY) (MAY)

-6.6%

9:00

EUR

Italian Current Account (euros) (MAY)

854M

11:00

USD

MBA Mortgage Applications (JUL 12)

-4.0%

A lower print here will raise fears about the impact of higher rates with any QE taper from the Fed.

12:30

CAD

International Securities Transactions (C$) (MAY)

14.91B

Capital inflow previous month was one of the highest in recent years

12:30

USD

Housing Starts (JUN)

950K

914K

Severe declines will be noted as mortgage rates have climbed to upwards of 4.5% in recent weeks.

12:30

USD

Housing Starts (MoM) (JUN)

3.9%

6.8%

12:30

USD

Building Permits (MoM) (JUN)

1.5%

-3.1%

14:00

CAD

Bank of Canada Interest Rate Decision

1.00%

1.00%

No change in rates expected rather markets will look for guidance.

14:30

USD

DOE U.S. Crude Oil Inventories (JUL 12)

-9874K

Oil traders will look towards incoming data as low inventory levels have assisted in driving energy prices up in recent weeks.

14:30

USD

DOE U.S. Distillate Inventory (JUL 12)

3038K

14:30

USD

DOE U.S. Gasoline Inventories (JUL 12)

-2634K

22:00

NZD

ANZ Job Advertisements (MoM) (JUN)

-1.7%

The print has not deviated more than 5% up or down since spring of 2011.

GMT

Currency

Upcoming Events & Speeches

EUR

Greek Parliament due to Vote on Omnibus Bills

8:30

GBP

Bank of England Meeting Minutes

11:00

GBP

UK Debt Mngmnt Office Stheeman Speaks on Managing Gilt Mkts

11:00

USD

US 2Q Earnings - Bank of America

14:00

USD

Fed Chairman Ben Bernanke Humphrey-Hawkins Testimony

15:15

CAD

BoC Governor Stephen Poloz Holds Press Conference

16:00

USD

Fed's Raskin Speaks

17:00

USD

Fed's Sarah Bloom Raskin Speaks on Regulation

18:00

USD

Federal Reserve Releases Beige Book

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

13.4800

2.0000

10.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.2000

1.9500

10.2500

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.6196

1.9207

9.8316

7.7577

1.2613

Spot

6.6037

5.6746

5.9984

Support 1

12.6000

1.9100

9.3700

7.7490

1.2000

Support 1

6.0800

5.6075

5.9365

Support 2

12.0000

1.6500

8.9500

7.7450

1.1800

Support 2

5.8085

5.4440

5.7400

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Gold

Res 3

1.3262

1.5263

100.79

0.9517

1.0475

0.9353

0.7985

132.36

152.14

1321.95

Res 2

1.3232

1.5227

100.44

0.9492

1.0453

0.9324

0.7959

131.92

151.67

1314.12

Res 1

1.3202

1.5191

100.09

0.9467

1.0431

0.9294

0.7933

131.48

151.19

1306.28

Spot

1.3142

1.5118

99.39

0.9417

1.0388

0.9235

0.7880

130.61

150.25

1290.61

Supp 1

1.3082

1.5045

98.69

0.9367

1.0345

0.9176

0.7827

129.74

149.30

1274.94

Supp 2

1.3052

1.5009

98.34

0.9342

1.0323

0.9146

0.7801

129.30

148.83

1314.12

Supp 3

1.3022

1.4973

97.99

0.9317

1.0301

0.9117

0.7775

128.86

148.36

1321.95

v

--- 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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