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Forex pairs in this Article » USDOLLAR, GOLD, USD/JPY, EUR/JPY, GBP/JPY, EUR/JPY, NZD/USD, EUR/USD, GBP/USD
  • Dollar Inactivity Seen as Breakout Risk, Not Tranquility
  • Japanese Yen Crosses Dropping as Nikkei Drops
  • Euro Suffers as ECB Splits on Rate Cut Options, Italian Markets Plunge
  • British Pound Returns from Holiday to Speculation on BoE Moves
  • Emerging Markets Taking Clearer Steps Towards Outright FX Wars
  • New Zealand Dollar Rebound Stymied by Shaky Risk Trends
  • Gold Overtakes $1,400 but Intraday Volatility Concerning
Dollar Inactivity Seen as Breakout Risk, Not Tranquility

The Dow Jones FXCM Dollar Index closed out Monday’s session virtually unchanged, which was virtually a repeat of the inactivity on Friday. To some, this quiet following the rebound from two-month lows at 10,650 last week is a relief. In the context that the greenback is holding up while equities have forged a rebound, this can be viewed as intrinsic strength counteracting and overriding an otherwise elemental fundamental theme. However, this can also be viewed as complacency for both currency and capital markets which invariably disregards an inevitable resolution to more elemental market theme. Looking at the USDollar’s chart, there is less than 90 points of room in the past three weeks worth of trade; and the average daily range is approximately 50 points. It isn’t difficult to force a break in these conditions. Furthermore, the S&P 500 has stalled in its recovery effort against August 15th's tumble. There is plenty of ‘justification’ to see equities dive into a deeper correction and thereby drive the dollar higher – a wind down of record levels of leverage, closing a fundamental gap to a markets rate version of fair value, a peak in earnings growth, growth moderation, etc – but until the masses position for these concerns, it should not be considered an active market adjustment. Taper speculation is still seen as the most prominent possible catalyst for a market-wide move, but we need actual fear to evolve from these them rather than just interest rate adjustment. Today, a consumer confidence, home inflation and Fed official commentary may help.

Japanese Yen Crosses Dropping as Nikkei Drops

Most of the yen crosses slid through the opening session of the week; and with a renewed push from Tokyo through early Tuesday trading, we find the Japanese currency significantly higher across the board. Through the session’s open, we witnessed a bearish gap from the Nikkei 225 that speaks to both curbed risk appetite (important for carry trade) and foreign appetite for local assets. We have seen fluctuation on risk trends, but no committed risk aversion theme to significantly undermine the expensive, low-yielding carry build up that has been built up over the past year. Headline-watchers are keeping an eye on the discussion on the sales tax increase, but official comment won’t come until the weekend.

Euro Suffers as ECB Splits on Rate Cut Options, Italian Markets Plunge

Though its losses were relatively modest – in line with the pace of the broader FX market – it was hard to miss the fact that the euro was nevertheless lower against all of its major counterparts. Amidst a relatively quiet day, two themes boiled over Monday. A 2.1 percent drop in the Italian equity markets reflected concern over the threat of Silvio Berlusconi’s political party to bring down the coalition government if they tried to remove the former Prime Minister from his post. In other news, the market took note of the mixed remarks amongst ECB officials over the possibility of future rate cuts. Further easing would likely do little for the economy, but it would undermine the currency’s yield.

British Pound Returns from Holiday to Speculation on BoE MovesLondon markets were closed this past session for the Summer Bank holiday. For the occasion, the sterling was little changed against its major counterparts – GBPUSD closed a mere 7 pips higher than Friday’s settle. The absence of UK traders is not the only reason for the pound’s restraint. There has been plenty of talk about Bank of England (BoE) Governor MarkCarney’s speech scheduled for Wednesday in both the financial news and in trading circles. The central banker’s first official policy address, this speech can offer up guidance on what the group plans to do with forward guidance as well as keeping further quantitative easing open as an option. Deputy Governor Charlie Bean remarked in Jackson Hole that more stimulus was “always an option”. If debate of further gilts purchases remains, it could curb the pounds rally.

Emerging Markets Taking Clearer Steps Towards Outright FX Wars

Brazil’s central bank last week announced a $60 billion program aimed at putting a stopper in the currency’s incredible 26 percent depreciation against the US dollar over the past 5 months. The intervention program would use this capital through swaps and repurchasing agreements through $500 million bites Monday through Thursday and $1 billion on Fridays through the end of the year in order to prevent panicked dollar buying on assumption of its scarcity. This exchange rate pressure is mirrored throughout the Emerging Market as investors – frightened by the Fed’s warning of its Taper plans – work to unwind exposure in risky regions as the cheap loans availability dries up. This is yet another move in a currency war that global policy officials will not officially label a ‘currency war’. And, while Friday’s massive 3.6 percent USDBRL drop reflects belief that this effort will gain traction, it is worth noting that the pair advance 1.3 percent Monday…

New Zealand Dollar Rebound Stymied by Shaky Risk Trends

A July trade report from New Zealand – reported early Monday in Wellington – stirred the New Zealand dollar. The NZ$744 million deficit was substantially larger than the modest NZ$16 million gap projected by Bloomberg’s consensus forecast. In fact, that was the largest ‘miss’ in the series’ history (though the forecasts were spotty before 2005). The kiwi responded with a drop, but the currency move was hardly incredible. NZDUSD dropped a mere 30 pips before returning to opening congestion. As important as trade is to the New Zealand economy, the currency’s appeal as an investment in the FX world carries more weight on current price action. In that context, last week’s sharp drop following the RBNZ’s loan restrictions move is pressuring a bullish correction. That rebound though is fully dependent on risk trends cooperating.

Gold Overtakes $1,400 but Intraday Volatility Concerning

If we skipped to Monday’s close, gold looked like it carved out a respective opening day for this new trading week. A $7 (0.5 percent) advance marks the third consecutive advance for the precious metal and the first official close above the $1,400-mark since June 6th. Yet, for those watching intraday price action, there was unusual activity afoot. Towards the very open of Monday’s trading session, spot trading showed a sharp $10 rally followed by an aggressive and quick $15 reversal. Even more remarkable, during that hour-long swing, there were 10-minute candles that produced incredible $6 ‘tails’. That is exceptionally erratic and volatile price action. Futures trading was much the same with the active December 2013 CME contract posting multiple, sharp intraday reversals including an $8 swing during Secretary of State John Kerry’s remarks on Syria. Volume during these swings was particularly low and the CBOE’s Volatility Index remains relatively stable. However, these are conditions are very unusual and should be attended closely with an eye kept to the dollar as well as international hot spots.

**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

1:30

CNY

Industrial Profits YTD (YoY) (JUL)

11.10%

This index has seen double digit growth in the last 4 months.

5:00

JPY

Small Business Confidence (AUG)

49.4

Earlier this year, the index reached its highest level since March 2007.

8:00

EUR

German IFO - Business Climate (AUG)

107

106.2

Because Germany is the Eurozone’s largest economy, positive readings on German business sentiment could translate to higher economic activity on the continent. However, expectations have not seen much change in the last three months.

8:00

EUR

German IFO - Current Assessment (AUG)

111

110.1

8:00

EUR

German IFO - Expectations (AUG)

103.1

102.4

13:00

USD

S&P/CS 20 City s.a. (MoM) (JUN)

1.00%

1.10%

In June, consumer confidence reported its highest level since January 2008. Higher levels could drive higher consumption that leads to more economic activity.

13:00

USD

S&P/Case-Shiller Composite-20 (YoY) (JUN)

12.10%

12.20%

13:00

USD

S&P/Case-Shiller Home Price Index (JUN)

159.4

156.14

13:00

USD

S&P/Case-Shiller US Home Price Index (2Q)

136.7

13:00

USD

S&P/Case-Shiller US Home Price Index (YoY) (2Q)

10.20%

14:00

USD

Consumer Confidence (AUG)

79

80.3

14:00

USD

Richmond Fed Manufacturing Index (AUG)

0

-11

GMT

Currency

Upcoming Events & Speeches

-:-

JPY

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

03:45

JPY

Japan to Sell 20-Year Bonds

10:50

USD

Fed's Williams Speaks on Monetary Policy in Sweden

11:00

EUR

ECB's Coeure Speaks In Gothenburg, Sweden

16:30

CAD

Bank of Canada Deputy Governor Murray Speaks at CABE

17:00

EUR

ECB’s Asmussen Speaks in Dauthetal-Buchenau, Germany

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

2.0500

10.7250

7.8165

1.3650

Resist 2

13.5900

2.0500

10.7250

Resist 1

13.4800

2.0000

10.5000

7.8075

1.3250

Resist 1

13.4800

2.0000

10.5000

Spot

13.2247

2.0079

10.3551

7.7562

1.2821

Spot

13.2247

2.0079

10.3551

Support 1

12.8900

1.9075

9.3700

7.7490

1.2000

Support 1

12.8900

1.9075

9.3700

Support 2

12.6000

1.8515

8.9500

7.7450

1.1800

Support 2

12.6000

1.8515

8.9500

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

1.3487

1.5698

99.55

0.9313

1.0601

0.9100

0.7928

133.08

1432.69

Res 2

1.3459

1.5665

99.22

0.9290

1.0579

0.9071

0.7902

132.66

1424.03

Res 1

1.3431

1.5633

98.90

0.9266

1.0557

0.9043

0.7876

132.24

1415.37

Spot

1.3375

1.5568

98.25

0.9218

1.0514

0.8985

0.7824

131.40

1398.05

Supp 1

1.3319

1.5503

97.60

0.9170

1.0471

0.8927

0.7772

130.56

1380.73

Supp 2

1.3291

1.5471

97.28

0.9146

1.0449

0.8899

0.7746

130.14

1424.03

Supp 3

1.3263

1.5438

96.95

0.9123

1.0427

0.8870

0.7720

129.72

1432.69

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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