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Forex pairs in this Article » USDOLLAR, EUR/USD, GBP/USD, USD/JPY, NZD/USD, EUR/JPY
  • Dollar Unable to Climb on Biggest Drop in Equities in Two Months
  • British Pound Positioned for Breakouts, Volatility on Carney Speech
  • Japanese Yen Surges Higher as Carry Falls to 12-Month Low
  • Emerging Markets Plunge Yet Again, Brazil Rate Decision Ahead
  • Euro Steady Despite Equities Plunge, Periphery Yields Climb
  • New Zealand Dollar’s Interest Rate Outlook Fading
  • Gold’s Recovery Now 20 Percent Strong, Global Risks Offset Taper
Dollar Unable to Climb on Biggest Drop in Equities in Two Months

Global equities took a tumble Tuesday with the S&P 500 suffering its biggest drop since June 20theday after the Fed announced it was starting the countdown to the Taper. Yet, despite this seemingly immense ‘risk off’ move, the safe haven dollar was little changed against most of the majors. Once again, we are left to wonder whether the greenback is no longer a safe haven player or whether risk trends run as deep at the stock move would suggest. In the past three months, the Dow Jones FXCM Dollar Index (ticker = USDollar) has maintained its bullish bearing despite stubborn speculative positioning in the capital markets likely on the premise that the Federal Reserve’s plans to moderate stimulus would bolster local yields and thereby confer significant benefit to the currency. This has given the dollar buoyancy and moved it out of the ‘oversold’ territory in which fellow safe haven Japanese yen still finds itself. That does not mean, however, that the currency has lost its reserve properties. The more traction global risk aversion gains – on Syria, stimulus or growth concerns – the dollar will likely rally.

British Pound Positioned for Breakouts, Volatility on Carney Speech

Technical traders will recognize highly unstable technical patterns for various pound-based pairs. Knowing that we have key event risk for the sterling in the upcoming London session, we know that there is considerable risk (opportunity) of either a series of breakouts or reversals. The fundamental milestone that we must watch on the horizon is BoE Governor Mark Carney’s monetary policy speech in Nottingham. This is the central banker’s first official policy address; and given the changes from the group over the past two months, there is a lot of potential weight to his remarks. Having introduced forward guidance as a tool and a commitment to low rates until 7.0 percent unemployment is reached, there has been a moderation of stimulus expectations – and thereby a sterling rally. Yet, fear that the BoE would water down the pound (a big driver through the first quarter) has retraced significantly in past weeks. What happens if Carney says QE is still an option…

Japanese Yen Surges Higher as Carry Falls to 12-Month Low

The Japanese yen was the best performing of the majors this past session. It is telling that its most severe gains were posted against the high-yield / investment currencies – though USDJPY was also down 1.5 percent on the day. Risk aversion may not be to the extreme were liquidity is the first and only concern on investors’ minds, but it is still tangible enough to undermine carry crosses that offer poor return. While the BoJ’s efforts to devalue their currency carries substantial and lasting weight in the FX market, keeping up these pairs when the backdrop for risk appetite and yield potential is thin is difficult. In fact, carry for AUDJPY is near record lows while the short-term rate differential for EURJPY is still negative. With that in mind, the Deutsche Bank carry index’s drop to 12-months lows presents certain fundamental adjustment needs.

Emerging Markets Plunge Yet Again, Brazil Rate Decision AheadThe emerging markets are taking a beating. For the group, the MSCI Emerging Market Index dropped 2.3 percent on heavy volume through Tuesday. This morning, the situation seems to be worsening. At the forefront of the combustion today is the Indian Rupee. The currency is down an incredible 2.1 percent against the US dollar this morning. In the past three days, this currency has plunged 6.7 percent. In the last month, the tumble has amounted to 14.7 percent. This is an incredible pace that speaks to a dual catalyst: Fed Taper fears unwinding dangerous carry trades and general deleveraging through risk aversion. For India (and other emerging market) policy authorities, the Brazilian real’s stability these past days will look enticing. The $60 billion intervention plan announced last week seems to have stemmed the bleeding. Will others follow? Meanwhile, Brazil’s central bank is expected to hike rates today.

Euro Steady Despite Equities Plunge, Periphery Yields Climb

While the euro itself proved surprisingly stable this past session, the European capital markets were anything but stable. A benchmark for equities, the Euro Stoxx index plunged 2.6 percent – again the biggest slide since the Fed’s Taper warning. Meanwhile, the safety bid was also reflected in the sovereign debt market. Yields on the periphery 10-year bonds (Ireland, Spain, Portugal, Greece) climbed. That said, the flight to quality didn’t necessarily drive capital outside the region’s boarders as we saw demand for German, Finnish and Dutch (AAA-rated Eurozone members) debt climb. Headlines such as German Finance Minister Schaeuble suggesting Greece may need up to another €11 billion in aid and ECB’s Asmussen forecasting a weaker 3Q GDP for Germany were unflattering, but it isn’t undermining the appeal of the EU’s stability.

New Zealand Dollar’s Interest Rate Outlook Fading

With an uneven risk aversion move developing this past session, it wasn’t surprising to see the carry-based New Zealand dollar flashing red against all of its major counterparts. The heaviest move would come from the favored yield pair, NZDJPY, which dropped 2.3 percent – the biggest single-day decline since June 11. It is difficult to assess with the overbearing risk theme – and certainly if this trend continues to develop it should be every kiwi trader’s primary focus – but there is also a local fundamental concern contributing to this move. The New Zealand dollar has balked at risk aversion flows and experienced considerable gains against fellow ‘risk’ currencies (AUDNZD) due in part to its robust rate forecast. Yet, the 86 bps of total rate hikes over 12 months expected from the RBNZ through last Monday is now 18 bps lower.

Gold’s Recovery Now 20 Percent Strong, Global Risks Offset Taper

Since setting the three-year low on June 28, gold has advanced a hearty 20 percent. That is significant progress and under most definitions evidence of a bull trend. Yet, when we put this strength in context – specifically that the two-month rebound is only a third of plunge from last October – there is reason to be cautious. The precious metal’s most recent push beyond $1,400 brings the tally to a four-day climb. We have seen a number of runs of this magnitude in the past year (10 to be precise) and most of them have ended in a revived bear trend. The difference this time is that momentum has changed hands to the bulls in the short-term. The fundamental drive in this move is a combination of market-wide uncertainty in the financial markets seen in the high-correlation drop in global stocks alongside hesitation from the greenback. If the Syrian tensions further add to fear and the dollar doesn’t play the reserve card, gold may return to $1,500 within a week.

**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

0:00

AUD

CBAHIA House Affordability (2Q)

69.7

Housing affordability has been rising since the second quarter of 2010.

1:30

AUD

Construction Work Done (2Q)

1.00%

-2.00%

6:00

CHF

UBS Consumption Indicator (JUL)

1.44

The index seems to be approaching its long-term average of 1.50.

6:00

EUR

German GfK Consumer Confidence Survey (SEP)

7.1

7

Consumer confidence has been rising since hitting a record low of 1.5 in September 2008. This month, the index reached its highest level since September 2007.

6:00

EUR

German Import Price Index (MoM) (JUL)

0.30%

-0.80%

6:00

EUR

German Import Price Index (YoY) (JUL)

-2.50%

-2.20%

8:00

EUR

Euro-Zone M3 s.a. (3M) (JUL)

2.40%

2.80%

8:00

EUR

Euro-Zone M3 s.a. (YoY) (JUL)

2.00%

2.30%

10:00

GBP

CBI Reported Sales (AUG)

20

17

In May, the index reported the lowest sales volume since January 2012. Sales volume has risen since then.

11:00

USD

MBA Mortgage Applications (AUG 23)

-4.60%

Weekly mortgage applications have not seen meaningful growth since posting a 5 percent increase during the week of June 7.

12:30

CAD

CAD Average Weekly Earnings (YoY) (JUN)

2.50%

Changes in weekly earnings have decreased since reaching a two-year high in 2012.

14:00

USD

Pending Home Sales (YoY) (JUL)

7.90%

9.10%

Recent housing data has shown a slight uptick in existing home sales but a slowdown in new ones. Performance in the housing sector is generally correlated with the health of the economy overall.

14:00

USD

Pending Home Sales (MoM) (JUL)

0.00%

-0.40%

14:30

USD

DOE Cushing OK Crude Inventory (AUG 23)

-1090K

14:30

USD

DOE U.S. Crude Oil Inventories (AUG 23)

700K

-1428K

14:30

USD

DOE U.S. Distillate Inventory (AUG 23)

500K

871K

14:30

USD

DOE U.S. Gasoline Inventories (AUG 23)

-1250K

-4029K

23:50

JPY

Japan Buying Foreign Bonds (Yen) (AUG 23)

-¥903.8B

Japanese purchases of foreign assets have decreased dramatically since reaching the highest level since 2010 two weeks ago. Growth in large retailers’ sales has been improving since reaching a low in November 2009.

23:50

JPY

Japan Buying Foreign Stocks (Yen) (AUG 23)

-¥3.0B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (AUG 23)

¥38.7B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (AUG 23)

¥47.9B

23:50

JPY

Retail Trade s.a. (MoM) (JUL)

-1.00%

-0.20%

23:50

JPY

Retail Trade (YoY) (JUL)

-0.30%

1.60%

23:50

JPY

Large Retailers' Sales (JUL)

-0.50%

3.50%

23:50

JPY

Loans & Discounts Corp (YoY) (JUL)

1.70%

GMT

Currency

Upcoming Events & Speeches

-:-

JPY

Japanese Economic Panel Meets on Sales Tax Increase (26-31)

1:00

AUD

Australia Plans to Sell A$800 Million 1.75% Bonds Due 2024

5:00

JPY

BoJ Deputy Governor Iwata Speak at Kyoto Chamber of Commerce

12:45

GBP

Bank of England Governor Carney to Speak on U.K. Economy

15:00

USD

Fed to Purchase $2.75-3.50 Billion Notes

17:00

USD

U.S. To Sell $35 Billion 5-Year Notes

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

13.5900

2.1000

10.7250

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.4800

2.0500

10.5000

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

13.2735

2.0448

10.4310

7.7563

1.2820

Spot

6.4824

5.5714

6.0115

Support 1

12.8900

1.9750

9.3700

7.7490

1.2000

Support 1

6.0800

5.5600

5.8700

Support 2

12.6000

1.9075

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

Gold

Res 3

1.3505

1.5669

98.38

0.9273

1.0572

0.9059

0.7899

131.70

1453.65

Res 2

1.3476

1.5635

98.05

0.9249

1.0551

0.9030

0.7872

131.27

1444.78

Res 1

1.3448

1.5602

97.73

0.9225

1.0529

0.9001

0.7846

130.84

1435.91

Spot

1.3390

1.5535

97.07

0.9177

1.0486

0.8942

0.7793

129.97

1418.17

Supp 1

1.3332

1.5468

96.41

0.9129

1.0443

0.8883

0.7740

129.10

1400.43

Supp 2

1.3304

1.5435

96.09

0.9105

1.0421

0.8854

0.7714

128.67

1444.78

Supp 3

1.3275

1.5401

95.76

0.9081

1.0400

0.8825

0.7687

128.24

1453.65

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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