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Talking Points:

  • Dollar Fails to Leverage Key EURUSD Break
  • British Pound Retreats after BoE Minutes, Carney Comments
  • New Zealand Dollar Tumbles…After a Rate Hike

Dollar Fails to Leverage Key EURUSD Break

The day after EURUSD – the world’s most liquid currency pair – marked a key break below 1.3500, the pair carved out a trading range of just 19 pips. This is only the second time in the Euro’s history that this pair has settled on a range of less than 20 pips (the other instance was April 18 of this year). This, of course, is a reflection of a more general malaise that sees the average daily range for this key pair falling to record lows alongside the FX volatility readings. Market conditions where participation and volatility are drained is a great equalizer for fundamental and technical developments. The key to seeing the dollar and broader financial markets return to trend – bullish or bearish – is seeing the masses return and reestablish a level of commitment. Can the combo of NFPs, FOMC decision and 2Q US GDP net week do it?

British Pound Retreats after BoE Minutes, Carney Comments

The data on the UK docket this past session were encouraging. The home loans filed with the BBA for June unexpectedly increased and the CBI’s retail sales survey for the current month posted an unexpected acceleration in growth. Yet, neither of these carries much weight for what is truly capturing sterling traders’ attention: interest rate speculation. The BoE minutes and Governor Carney speech more than compensated however. The Governor’s comments were noncommittal between surprise that capacity was diminishing quickly at the same time he was voicing concerns of headwinds. From minutes, we learned that the vote to hold rates was still 9-0 to, the second half growth outlook cooled slightly and some feared an early rate hike could shock the system. This doesn’t stop the first hike.It tames the pace of subsequent moves.

New Zealand Dollar Tumbles…After a Rate Hike

That is not what we expect to happen after a rate hike. The theory goes that – everything else being equal – an increase in interest rates should bolster the value of the target currency. Yet, when the Reserve Bank of New Zealand (RBNZ) announced that it was raising its benchmark lending rate for its fourth consecutive meeting to 3.50 percent (a 25bp increase), the currency dropped against all of its counterparts…sharply. This affront to efficient market theory reflects the heavy impact that speculation can have. Traders had already priced in the hike for this particular meeting. Realizing it simply met expectations. What was unknown and the source of the next move was whether the RBNZ would keep pace with the tightening. According to the statement released alongside the event, the central bank wants to assess the impact that monetary policy tightening to date. Pausing rates has real-world influence on FX where their forecasts for the currency do not.

Australian Dollar Extends Gains Following Rising Inflation Pressures

Compared to the RBNZ hike, Australian inflation figures are a significant downgrade for actively shaping interest rate expectations. Nevertheless, where the Kiwi was had the wind knocked out of it, the Aussie dollar extended its drive through this past session in the wake of the firmer core 2Q CPI figures. The difference in performance arises from expectations. While this data is still far removed from the fist RBA rate hike, the market was not pricing in a positive yield curve. With a forward looking bias, this particular piece of data puts the possibility of higher yields back on the map. Adding to this, New Zealand’s Finance Minister hinted at plans for investing in Australia.

Euro Traders Look to July PMI Figures to Benchmark Growth Forecast

There are three major fundamental loose ends for the Euro, but the market is not actively trying to unravel them. This past session, the second most liquid currency in the world played the pliable counterpart to more active peers. On the docket, the growth and sovereign debt concerns seemed to abate with periphery bond yields shying away from the tentative rebound from multi-year and record lows. Draining some of the market-moving impact of next week’s Spanish 2Q GDP reading, the Bank of Spain reported an uptick in last quarter’s pace to 0.5 percent growth – their numbers generally fall in-line with the official stats. Ahead, we will see the growth story amplified as we take in German and Eurozone activity surveys (manufacturing, services and composite). Modest declines are expected and bigger misses will spark drive.

Emerging Market Currencies Gain on Yield Appetite

While the Emerging Market capital benchmarks were not showing much progress to Tuesday’s 18-month highs – the MSCI ETF was little changed on the day with a 0.1 percent advance – the FX players were looking at consistent gains. Leading the pack of broad gains, the Turkish Lira advanced 0.8 percent for a fourth consecutive day’s climb and the South African Rand ran 0.6 percent higher on a similar string of daily gains. Even the Russian Ruble – facing increasing financial and economic pressure after the MH17 flight incidence – has advanced a second day by 0.4 percent. We’ll see if the currency can maintain this strength with Norway’s SWF withdrawing $8 billion in Russian investment.

Goldman Sachs Updates Gold Forecast, Still Below Spot

Against the backdrop of a quiet dollar, inconsistent risk backdrop and a few updates to firm broader monetary policy expectations; it comes as little surprise that gold was under pressure this past session. Yet, as much as the picture is leaning towards a deleveraging of the metal – known ETF holdings at 55.90 million ounces are still double what it was at the beginning of 2008 – the metal maintained its balance and put in for little movement on the day. In the void, a few noteworthy forecasts were issued for the commodity’s projected path. A Reuters poll of analysts and traders projected an average $1,270 target for the third quarter and $1,255 through the final three month period. Meanwhile, Goldman Sachs admitted that its forecast at the start of the year was a little too aggressive. The bank’s research group raised its long-term forecast from $1,066 to $1,200. As usual, swings in expectations are bigger than prices for gold.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

1:35

JPY

Markit/JMMA Purchasing Manager Index Manufacturing (JUL P)

51.5

PMI data indicates an expansion/contraction in the sector for which it is reported

1:45

CNY

HSBC Purchasing Manager Index Manufacturing (JUL P)

51.0

50.7

Is a significant mover of the Australian Dollar as China is Australia’s largest trader partner

7:00

EUR

Markit French Purchasing Manager Index Manufacturing (JUL P)

48.1

48.2

Important indicators that are being tracked by the ECB as it tries to prevent deflation in the Eurozone economy.

7:00

EUR

Markit French Purchasing Manager Index Services (JUL P)

48.2

48.2

7:00

EUR

Markit French Purchasing Manager Index Composite (JUL P)

48.0

48.1

7:30

EUR

Markit German Purchasing Manager Index Manufacturing (JUL P)

52.0

52

7:30

EUR

Markit German Purchasing Manager Index Services (JUL P)

54.4

54.6

7:30

EUR

Markit German Purchasing Manager Index Composite (JUL P)

53.8

54

8:00

EUR

Markit Euro-Zone Purchasing Manager Index Manufacturing (JUL P)

51.7

51.8

8:00

EUR

Markit Euro-Zone Purchasing Manager Index Services (JUL P)

52.6

52.8

8:00

EUR

Markit Euro-Zone Purchasing Manager Index Composite (JUL P)

52.7

52.8

8:00

EUR

Italian Retail Sales s.a. (MoM) (MAY)

0.4%

Policy makers will be hoping for an increase in total retail sales because it shows a recovering consumer market

8:00

EUR

Italian Retail Sales (YoY) (MAY)

2.6%

8:30

GBP

Retail Sales ex Auto (MoM) (JUN)

0.3%

-0.5%

Reflection of consumer confidence in the UK, important mandate of Bank of England.

8:30

GBP

Retail Sales ex Auto (YoY) (JUN)

4.6%

4.7%

8:30

GBP

Retail Sales inc Auto (MoM) (JUN)

0.2%

-0.5%

8:30

GBP

Retail Sales inc Auto (YoY) (JUN)

3.9%

3.9%

9:00

EUR

Italian Consumer Confidence Index s.a. (JUL)

105.7

Consumer Confidence is currently being closed followed in the Eurozone

12:30

USD

Initial Jobless Claims (JUL 19)

302K

Unemployment is an important factor driving the Fed’s monetary policy and is closely watched by the FOMC.

12:30

USD

Continuing Claims (JUL 12)

2507K

13:45

EUR

Markit Purchasing Manager Index Manufacturing (JUL P)

57.5

57.3

Significant data release tracked to determine expansion or contraction in the Eurozone’s manufacturing sector.

14:00

USD

New Home Sales (JUN)

480K

504K

The housing market is an important sector tracked by economists to determine a broader recovery

14:00

USD

New Home Sales (MoM) (JUN)

-4.8%

18.6%

15:00

USD

Kansas City Fed Manufacturing Activity (JUL)

6

Accumulated results are used to determine longer term trends in the manufacturing sector

23:01

GBP

Hometrack Housing Survey (MoM) (JUL)

0.3%

The Bank of England has recently focused on curbing a sharp increase in UK housing prices.

23:01

GBP

Hometrack Housing Survey (YoY) (JUL)

6.0%

23:30

JPY

National Consumer Price Index (YoY) (JUN)

3.5%

3.7%

Inflation is currently the most important mandate of the Bank of Japan as the country has been trying to fight deflation. Figures are likely to drive monetary policy expectations.

23:30

JPY

National Consumer Price Index ex-Fresh Food (YoY) (JUN)

3.3%

3.4%

23:30

JPY

National Consumer Price Index ex Food, Energy (YoY) (JUN)

2.3%

2.2%

23:30

JPY

Tokyo Consumer Price Index (YoY) (JUL)

2.8%

3.0%

23:30

JPY

Tokyo Consumer Price Index ex-Fresh Food (YoY) (JUL)

2.7%

2.8%

23:30

JPY

Tokyo Consumer Price Index ex Food, Energy (YoY) (JUN)

2.0%

2.0%

23:50

JPY

Corporate Service Price (YoY) (JUN)

3.6%

3.6%

Tracks change in prices of goods sold by corporations, is a leading indicator of CPI

23:50

JPY

Japan Buying Foreign Bonds (Yen) (JUL 18)

¥671.5B

Provides direction of flow of capital. More significant in emerging economies where Foreign Investment is a significant driver of economy.

23:50

JPY

Japan Buying Foreign Stocks (Yen) (JUL 18)

¥71.9B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (JUL 18)

-¥160.9B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (JUL 18)

-¥2.9B

GMT

Currency

Upcoming Events & Speeches

15:45

JPY

Bank of Japan Governor Kuroda Speaks in Thailand

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

13.1500

2.3000

11.8750

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.9418

2.1289

10.6645

7.7501

1.2466

Spot

6.6888

5.4511

6.1665

Support 1

12.8350

2.0700

10.2500

7.7490

1.2000

Support 1

6.0800

5.3350

5.7450

Support 2

12.6000

1.7500

9.3700

7.7450

1.1800

Support 2

5.8085

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

1.3750

1.7247

102.19

0.8930

1.0692

0.9524

0.8822

139.83

1345.75

Res 2

1.3732

1.7223

102.04

0.8917

1.0679

0.9508

0.8806

139.61

1340.98

Res 1

1.3714

1.7199

101.89

0.8904

1.0665

0.9492

0.8789

139.40

1336.21

Spot

1.3679

1.7152

101.59

0.8878

1.0639

0.9460

0.8756

138.97

1326.67

Supp 1

1.3644

1.7105

101.29

0.8852

1.0613

0.9428

0.8723

138.54

1317.13

Supp 2

1.3626

1.7081

101.14

0.8839

1.0599

0.9412

0.8706

138.33

1312.36

Supp 3

1.3608

1.7057

100.99

0.8826

1.0586

0.9396

0.8690

138.11

1307.59

v

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