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Talking Points:

  • Dollar Hits 12-Month High Versus Euro, S&P 500 Crosses 2000
  • Euro Sinks as Market Rate Slides to Record Low
  • USDJPY Climbs for a Seventh Straight Day

Dollar Hits 12-Month High Versus Euro, S&P 500 Crosses 2000

Where were the balloons? The S&P 500 marked yet another milestone in its line of records by closing above the 2,000-mark for the first time. Yet, the same doubts over conviction behind this speculative benchmark’s bull run were plainly showing through. Volume supporting this landmark advance was the lowest non-holiday turnover in over a decade. Meanwhile, the traditionally safe-haven US Dollar extended its own progress. The Dow Jones FXCM Dollar Index (ticker = USDollar) set a new six-month high while EURUSD has slid further down to 12-month lows. Which is the better gauge of investor conviction? The positive correlation between the world’s most liquid currency and one of its premier measures of investor appetite reflect neither a faulty gauge nor a strong rise or fall in sentiment. Rather, it is a sign that speculative conviction is absent. Unmoored by a strong demand for return or flight to haven, complacency and secondary themes take control.

For EURUSD, volume is in fact trending higher – the 20-day average is at its highest level for 2014. While this pair is especially sensitive to a potential shift and engagement in risk trends (due to the capital inflows into Eurozone assets after its crisis waned), the disparity in interest rate expectations has taken up the pair’s cause. That said, the rate outlook for the Fed and dollar seem to be running hot. Fed Fund futures, Treasuries and other yield products are far behind the USD in terms of hawkish pricing. Will rate hopes or the dollar close the gap?

Euro Sinks as Market Rate Slides to Record Low

While selling momentum is not exactly extreme, the bear trend is still distinctly in control. The Eurozone docket wasn’t feeding the currency’s burn, but it wouldn’t be necessary. Leading the actual increase in the ECB’s balance sheet – increase in stimulus when the first Targeted-LTRO program takes effect next month – Euro-area rates are dropping to new lows. In fact, the three-month Euribor is currently at 0.175 percent, its lowest level on record. As the market works off the perceived policy advantage the Euro built up through the central bank allowed its balance sheet to shrink with the original LTRO repayments, many are waiting for ‘the next shoe to drop’. Approving an asset purchase program would be just one bearish development. A turn in sovereign bond yields or reversal in capital inflows could prove even more damaging.

USDJPY Climbs for a Seventh Straight Day

Another sign that the appetite for yield is uneven, the Japanese Yen crosses were a mixed bag this past session. AUDJPY and CADJPY managed gains while the rest were either little changed or in retreat. USDJPY was a story unto itself. With a modest advance for the day, the pair has secured a seventh consecutive advance for one of the strongest runs in years - some may draw comparisons to October 2012 when the larger bull wave began. However, in this phase, we have neither an undervalued carry nor the expectations of a BoJ ‘bazooka’ stimulus.

British Pound The Worst Performing Major on the Day

The Sterling slipped against all of its major counterparts Tuesday. The only data on the docket this past session was the BBA lending figures for July. While the slip in the booming housing sector – which both BoE Governor and Prime Minister warned could be pose a threat if it collapsed – is fundamentally noteworthy, it was not a serious adjustment. Meanwhile, both 2-year government bond yields and 3-motnh Libor rates are up.

Canadian Dollar Top Performer as Market Considers Mergers

‘Tax Inversions’ were already gaining traction in the financial headlines, but they have just recently found a big push – alongside USDCAD – with the news that American firm Burger King was looking to purchase Canadian chain Tim Hortons for $11.4 billion. From an FX perspective, the merger accounts for a hefty FX tab. From a financial perspective, governments like that in the US are paying closer attention to companies looking to move their headquarters in different countries in order to reduce their tax bills. As corporate profits continue to outpace consumer incomes in the developed world, this theme will build interest – long after the M&A FX impact is long passes.

Emerging Markets Advance to 3-Year Highs, Confidence Doesn’t Immediately Follow

Keeping on the coattails of US equities, the MSCI Emerging Market ETF advanced 0.6 percent Tuesday to close at its highest level since August 2011. Yet, conviction was once again lacking. Volume for the capital market measure did pick up, but was far off levels earlier in the year when the advance began. Looking more closely at participation behind the move, interest in the ETF is still well below the 2013 peak and 2012 peak before it – a considerable divergence in price and involvement. In the FX rankings, performance was split compared to Monday’s uniform EM selling. The Brazilian Real stood out with a hearty 1.2 percent rally versus the dollar. Meanwhile, the South African Rand mustered only a modest 0.3 percent advance a 2Q GDP figures fell short of the growth expected. Indian and Brazilian GDP data is due Friday.

Gold Breaks Higher But Is Unable to Hold Onto Gains

As expected with price activity measures fading rapidly, gold was led to a meaningful jump in volatility this past session. However, as often happens when the market is backed into a technical corner and doesn’t have a strong fundamental prop to stand on, the metal was unable to hold onto much of its gains by the end of the day. Spot gold closed out Wednesday with a 0.3 percent advance, but was up as much as 1.1 percent through the European session. To upgrade a speculative break into a lasting trend, one of three major themes would be useful in building momentum: financial instability, a surge in inflation expectations or a broad distaste for ‘fiat’ assets. None of these themes were in evidence this past session. Volume on continues to deflate and interest in the SPDR Gold ETF is near the lost in over five years.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

01:30

AUD

Construction Work Done (2Q)

-0.50%

0.30%

The largest expansion in the last two years in construction activity was in 3Q of 2013 (3.1%)

01:45

CNY

Westpac-MNI Consumer Sentiment (AUG)

114.80

Consumer sentiment has fallen from its 2 year high of 124.9 in Dec 2013

06:00

EUR

German Import Price Index YoY (JULY)

-1.40%

-1.20%

YoY import prices in Germany have consistently contracted since the beginning of 2013

06:00

EUR

German Import Price Index MoM (JULY)

-0.10%

0.20%

06:00

EUR

German GfK Consumer Confidence Survey (SEP)

8.90

9.00

Consumer conf. has seen a strong rise since early 2013

06:00

CHF

UBS Consumption Indicator (JULY)

2.06

Showing an improving trend of consumption since late 2013, has a lead time of 3 months on official figures

11:00

USD

MBA Mortgage Applications (AUG 22)

1.40%

An alternate rise and fall in applications have been seen in the last 7 weeks

14:30

USD

DOE U.S. Crude Oil Inventories (AUG 22)

-4474K

Crude oil inventory fell again for the fifth time in the last six weeks in the last report. Large fluctuations in crude oil inventories can impact prices due to supply constraints/excess supply

14:30

USD

DOE Cushing OK Crude Inventory (AUG 22)

1755K

14:30

USD

DOE U.S. Distillate Inventory (AUG 22)

-960K

14:30

USD

DOE U.S. Gasoline Inventories (AUG 22)

585K

23:50

JPY

Japan Buying Foreign Bonds (Yen) (AUG 22)

¥659.8B

A large jump in Japanese bond purchases is seen during times of geopolitical unrest as investors flock to safe havens

23:50

JPY

Japan Buying Foreign Stocks (Yen) (AUG 22)

¥262.6B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (AUG 22)

¥87.7B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (AUG 22)

¥223.7B

GMT

Currency

Upcoming Events & Speeches

9:30

GBP

UK to Sell £900 Mln in 26-Year Inflation Bonds

15:30

USD

US to Sell $13 Bln in 2-Year Floating Rate Notes

17:00

USD

US to Sell $35 Bln in 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

13.5800

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.3250

2.3000

11.8750

7.8075

1.3250

Resist 1

7.3285

5.8475

6.3145

Spot

13.0707

2.1529

10.5535

7.7507

1.2463

Spot

6.8573

5.5796

6.1569

Support 1

12.8350

2.0700

10.2500

7.7490

1.2000

Support 1

6.7750

5.3350

5.7450

Support 2

12.6000

1.7500

9.3700

7.7450

1.1800

Support 2

6.0800

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

1.3435

1.6781

103.17

0.9123

1.0969

0.9386

0.8543

137.87

1329.49

Res 2

1.3417

1.6757

103.00

0.9110

1.0953

0.9369

0.8527

137.64

1325.18

Res 1

1.3399

1.6733

102.83

0.9096

1.0936

0.9352

0.8510

137.41

1320.87

Spot

1.3362

1.6684

102.49

0.9069

1.0904

0.9319

0.8476

136.95

1312.25

Supp 1

1.3325

1.6635

102.15

0.9042

1.0872

0.9286

0.8442

136.49

1303.63

Supp 2

1.3307

1.6611

101.98

0.9028

1.0855

0.9269

0.8425

136.26

1299.32

Supp 3

1.3289

1.6587

101.81

0.9015

1.0839

0.9252

0.8409

136.03

1295.01

v

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