- Dollar Climbs after FOMC Minutes Confirm September Taper
- Euro May Not Hold 1.3300 if PMI Figures Point to Growth Troubles
- Japanese Yen: Will BoJ Governor Kuroda Talk Stimulus at Jackson Hole?
- Emerging Market Currencies Suffer Another Heavy Tumble to Record Lows
- British Pound Steady Strength Unable to Push GBPUSD Above 1.5700
- New Zealand Dollar Suffers Biggest Three-Day Loss in 17 Months
- Gold Finds No Relief in Fed’s Minutes, Path to QE Wind Down
Though some may lament the level of volatility and trend development that followed this past session’s top fundamental release – the FOMC minutes – the event nevertheless proved bullish for the dollar and bearish for US equities. That is the kind of outcome that promotes the return of the market’s most prolific fundamental theme: risk-defined positioning. We have seen a positive correlation persist between the FX market’s favored reserve currency and the benchmark risk asset (US equities) throughout 2013. This presents a backdrop where the naturally-derived balance between fear and greed has softened while the distortion caused by the central bank’s stimulus program leverages its influence on capital allocation. Yet, as the Taper nears, we not only return to elemental sentiment; the market recognizes its risk exposure.
From the Fed’s record of discussion points from the July 31 policy meeting, we were given further evidence that the central bank will move to reduce its monthly stimulus purchases at the September gathering. This is not a revelation, rather it slowly increases the probability that the first step in a full-scale stimulus withdrawal will begin next month. And, the more likely the event, the heavier the positioning becomes to precede its outcome. The revelations from these minutes were that “almost all participants” confirmed they supported the Taper timeline that Chairman Bernanke laid out after the June rate decision. Elsewhere, the transcript showed “a few” were calling for patience before changing the pace of stimulus while “a few” suggested the need to move was close at hand. Before we consumed this report, we had already seen 65 percent of economists call a Taper in September while sharp moves from the likes of Treasury yields have indicated market complicity for weeks. The next phase of Taper speculation is for full scale risk aversion in deleveraging to strike. But it is unclear what escalates this fear.
Euro May Not Hold 1.3300 if PMI Figures Point to Growth Troubles
When we exclude the proactive moves being made by the dollar and pound, the Euro performed well this past session. However, having to exclude these exceptions is an indication that the currency wasn’t under much power on its own. The market backdrop was certainly significant. The Euro Stoxx extended an substantial reversal that has developed following the two-month long 14.5 percent rally while Spanish and Greek 10-year government bond yields extended their respective rebounds. From the newswires, ECB Member Asmussen tried to play down German Finance Minister Schaeuble’s warning that Greece would need a third rescue – though he did not seem to deny it. Moving forward, we will look for a fundamental spark to generate momentum for the euro. On deck, we have the Euro-area PMI figures for August. These are timely measures of economic activity for the region, and can thereby give a growth view for investors.
Japanese Yen: Will BoJ Governor Kuroda Talk Stimulus at Jackson Hole?
Given the bearish close for US equities and the 10-month low in the Deutsche Bank carry index, we would expect the yen crosses to continue their retreat. That was not the case however as USDJPY, EURJPY and other pairings instead maintained congestion. If there were a withdrawal of capital from expensive, yield-bearing positions; these pairs would be exposed. Perhaps there is some hesitation on risk aversion or expectations for BoJ Governor Kuroda’s upcoming talk at the Jackson Hole Economic Symposium. It’s unlikely he lifts stimulus.
Emerging Market Currencies Suffer Another Heavy Tumble to Record LowsThe bleeding of capital doesn’t stop for the Emerging Markets. This past session, the South African rand dropped 2.2 percent, the Brazilian Real lost 1.7 percent and Indian rupee caved 1.4 percent against the benchmark dollar. Not only are some of these currencies pushing further into record low territory, but they are gaining momentum along the way. Such a disorderly outflow of investment capital from these high return / high risk regions was exacerbated by the FOMC minutes. With the Fed planning to curb cheap funds, risk assessments will be more fastidious.
British Pound Steady Strength Unable to Push GBPUSD Above 1.5700
Though trailing the US dollar, the British pound was one of the strongest of the majors this past session. The strength wasn’t particularly stirred by specific catalysts from the past day’s docket. The BoE’s Weale had actually suggested further QE was an option and the UK reported its first July deficit since 2010. However, the backdrop for fundamentals is more reassuring. Given the steady rebound in economic health and the trend away from escalating stimulus efforts, the pound can continue to work of bearish positioning. Yet, that passive push can’t offset an active USD.
New Zealand Dollar Suffers Biggest Three-Day Loss in 17 Months
Through Wednesday’s close, NZDUSD dropped a cumulative 257 pips through the week. That is thebiggest three-day slide for the pair since March 6, 2012. Looking back at similar, statistical performances; there are times we have seen such moves call reversals as an exhaustion move by the market. However, direction and momentum are generally more reliant on the conditions behind the market as well as fundamentals unique to the pair. As for the market backdrop, this drop has occurred within a broad range that has been in place for nearly three months. Shifting the balance to a decisive trend has proven out of reach for carry appetite and risk trends – much less this pawn of those themes. Much of the tumble for NZDUSD comes at the hands of a kiwi selloff instigated by the RBNZ’s announcement of new loan restrictions and Governor Wheeler’s broken record assessment that the currency is still too high. This drive will burn off tough. We need risk aversion to supplement.
Gold Finds No Relief in Fed’s Minutes, Path to QE Wind Down
Like equities and the dollar, gold was moved by the FOMC minutes this past session; but there was a definable trend and momentum awaiting us after the dust settled. Having played out a bear wave since last October and sliding another 13-plus percent after the June Fed meeting, it is fair to say that some measure of the Taper outlook is currently priced into the precious metal. That doesn’t necessarily mean that there isn’t further anti-currency premium to work off from the metal’s current level, but it will likely take more than the soft reassurance of a consensus time frame for slowing the Fed’s pace of stimulus expansion to upset gold. The market has solidified the $1,380 to $1,355 range established following last week’s rally; while ETF holdings level off, CBOE Gold Volatility Index has steadied and derivative volume is settling.
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
|0:00||AUD||Conference Board Leading Index (JUN)||0.00%||PMI expected to increase for the first time since March. Gauges measuring developments in China as well as domestic growth in Australia will encourage RBA speculation. |
|1:45||CNY||HSBC/Markit Flash Manufacturing PMI (AUG)||48.2||47.7|
|6:00||JPY||Machine Tool Orders (YoY) (JUL F)||-12.10%||Changes in machine orders year-over-year have been negative since April of 2012. However, the rate has been picking up since December 2012.|
|6:00||CHF||Trade Balance (Swiss franc) (JUL)||2.60B||2.82B||Last month, the Swiss trade balance increased to its highest level since November 2011. Higher exports could indicate favorable conditions for economic growth. |
|6:00||CHF||Exports (MoM) (JUL)||2.30%|
|6:00||CHF||Imports (MoM) (JUL)||-3.20%|
|7:00||EUR||French PMI Manufacturing (AUG P)||50.2||49.7||The German manufacturing sector has been recovering since July 2012 and marked its highest PMI since January 2012 last month. It is expected to continue improving this month. The Euro-zone as a whole has also seen recent improvements in output. Last month, its composite PMI reported above the expansionary mark of 50 for the first time since the beginning of last year.|
|7:00||EUR||French PMI Services (AUG P)||49.2||48.6|
|7:30||EUR||German PMI Manufacturing (AUG A)||51.1||50.7|
|7:30||EUR||German PMI Services (AUG A)||51.7||51.3|
|8:00||EUR||Euro-Zone PMI Composite (AUG A)||50.9||50.5|
|8:00||EUR||Euro-Zone PMI Manufacturing (AUG A)||50.7||50.3|
|8:00||EUR||Euro-Zone PMI Services (AUG A)||50.2||49.8|
|12:30||CAD||Retail Sales (MoM) (JUN)||-0.40%||1.90%||In May, retail sales grew the most month-over-month since March 2010. However, this past Tuesday’s disappointing wholesale sales figure could indicate the direction of the retail sector. |
|12:30||CAD||Retail Sales Less Autos (MoM) (JUN)||0.00%||1.20%|
|12:30||USD||Initial Jobless Claims (AUG 17)||330K||320K||In yesterday’s FOMC minutes, the committee showed broad support for a reduction in QE later this year. Strong jobs and housing data will be read as evidence for the Fed to maintain its course. |
|12:30||USD||Continuing Claims (AUG 10)||2965K||2969K|
|12:58||USD||Markit US PMI Preliminary (AUG)||54.2|
|13:00||USD||House Price Index (MoM) (JUN)||0.60%||0.70%|
|13:00||USD||House Price Purchase Index (QoQ) (2Q)||2.00%|
|14:00||USD||Leading Indicators (JUL)||0.50%||0.00%|
|14:30||USD||EIA Natural Gas Storage Change (AUG 16)||71||65|
|15:00||USD||Kansas City Fed Manf. Activity (AUG)||6||6|
|GMT||Currency||Upcoming Events & Speeches|
|USD||Fed Economic Symposium in Jackson Hole, Wyoming |
|0:30||AUD||Australia to Sell A$1 Billion Bills Due November 2013|
|14:00||USD||API Monthly Statistical Report|
|15:00||USD||U.S. Fed to Purchase $1,25-1,75 Billion Notes|
|17:00||USD||U.S. To Sell $16 Billion 5-Year TIPS Reopening|
|18:00||USD||Fed's Fisher Speaks in Orlando, Florida|
|20:00||USD||Treasury Secretary Lew Speaks in Mountain View, California|
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|
|Resist 2||13.5900||2.0500||10.7250||7.8165||1.3650||Resist 2||7.5800||5.8950||6.5135|
|Resist 1||13.4800||2.0000||10.5000||7.8075||1.3250||Resist 1||6.8155||5.8475||6.2660|
|Support 1||12.8900||1.9075||9.3700||7.7490||1.2000||Support 1||6.0800||5.5720||5.8700|
|Support 2||12.6000||1.8515||8.9500||7.7450||1.1800||Support 2||5.8085||5.4440||5.7400|
--- Written by: John Kicklighter, Chief Strategist for DailyFX.com
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