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Talking Points:

  • Dollar Run Drives EURUSD to Key Support, Next Step Difficult
  • British Pound, Yields Unable to Rally on Strong Jobs Data
  • Euro Falls Despite European Capital Market Bounce

Dollar Run Drives EURUSD to Key Support, Next Step Difficult

Despite a limited economic calendar, the US dollar put up an impressive performance this past session. The question is whether the fundamentally-deficient drive can sustain itself. With the Dow Jones FXCM Dollar Index (ticker = USDollar) facing a larger trend reversal and EURUSD stationed at key support of 1.3500, progress would carry a substantial implication of trend development. In an environment of low volatility and tepid trend generation, a rogue move from such a big player is difficult to generate. Therefore, the probability is that either bulls’ conviction flags or a fundamental driver steps in to take the helm.

The more tangible line to follow for scheduled event risk moving forward, are interest rate expectations. This past session, Fed Chair Janet Yellen conducted her second round of testimony before Congress (this time in the House of Representatives). The content of her remarks didn’t change materially from what was said – and insinuated – the first day, yet the performance for currency and yields was more intense. Gauging the market’s rate forecasts, the two-year Treasury yield advanced a third day (to 0.484 percent) and Fed Funds futures saw the curve lifted. Reiteration of an optimistic growth outlook and the suggestion of an ‘exit plan’ for stimulus by yearend reinforces known forecasts rather than illuminates new avenues. With June housing data and St. Louis Fed President Bullard on tap tomorrow, there isn’t much rate fodder.

Another interesting line of question-and-answer in Yellen’s testimony tapped into the dollar’s other typical fundamental driver: the balance of yield reach versus haven and hedge demand. In response to concerns about over-extended capital markets, the central bank head said that she didn’t see markets’ current level as excessive but acknowledged the Fed’s effects in the system and said risks to stability were ‘moderate’. This is far more moderate than Richmond Fed President Fisher’s own remarks Wednesday that prices are “rich” by almost any measure, but it shows a growing appreciation of this important factor. Meanwhile, we’ll watch the FX volatility measures to see if fear will lift the USD again.

British Pound, Yields Unable to Rally on Strong Jobs Data

Pound traders have had two rounds of positive event risk to feather interest rate expectations. And yet, the sterling was unable to mark the critical progress that would see crosses like GBPUSD scale 1.7200 and new multi-year highs. The combination of the bigger-than-expected jump in inflation readings reported Tuesday and the downtick in unemployment rate to a five-and-a-half year low just this past session offers a material improvement in the central bank’s policy focal points. And yet, Gilt (government bond) yields and swaps failed to add buoyancy to rate speculation. Such reservations are a concern for bulls and suggest the markets have already fully priced in the early first rate hike by the BoE. Moving up the time frame may not be enough. The pace of tightening after the first may be new frontier for speculation.

Euro Falls Despite European Capital Market Bounce

Though most FX traders were focused on event risk in other corners of the market, a bullish lean for the US Dollar and British Pound would draw a notable enough contrast to the Euro’s situation to see the currency down. On the docket, the ZEW investor sentiment survey for July showed the outlook for the Eurozone dropped to its lowest level in 11 months while Germany’s own forecast hit a 19-month trough. While still high historically, the measures are sliding dangerously fast. Furthermore, we see the markets themselves are starting to shudder. European equity indexes were down once again and periphery bonds were slowly bleeding as well. As the saying goes, ‘follow the money’.

Canadian Dollar Best Performer after BoC Offers Neutral Policy Stance

The Bank of Canada kept its benchmark lending rate unchanged at 1.00 percent, but what traders were really watching was the tone the group and its Governor Stephen Poloz took on the forecast. Overall, it was conspicuously dovish. The central bank downgraded its 2014 and 2015 GDP forecasts (2.2 and 2.4 percent) and assessed that a recent swell in inflation was transitory. Government bond yields seemed to take the news at face value with the 10-year hitting a 13-month low. And yet, USDCAD finished down on the day.

New Zealand Dollar: Will Tepid Inflation Pressures Cancel Next Rate Hike?

Where the market response to the UK, US and Canadian monetary policy updates over the past 24 hours was either muted or contradictory; the New Zealand Dollar’s reaction to the country’s 2Q CPI release has seen NZDUSD reverse from its multi-decade high close last week. While this is the only major engaged in hikes, concern of a postponed RBNZ move next week may exact a heavy toll on the currency.

US Oil Attempts Bullish Reversal on Heavy Supply-and-Demand Shift

Oil’s fundamental motivations wax and wane with little pattern. This past session though, it seemed traditional supply and demand was taking in the driver’s seat. The weekly US Department of Energy statistics showed a drop in inventories three times the forecast (7.5 million barrels) while implied demand rose to a record (17.1 million barrels/day). Add to that a mild risk appetite run and upgraded Russia sections by the west…

Gold: A Drop in Volume Curbs Bear Trend Without Giving Bulls Hope

Where a rise or fall in volatility has a distinct directional consideration for some markets – like US equities and Yen crosses – gold generally has an agnostic response, losing momentum regardless of our prevailing direction. With volume dropping this past session and the CBOE’s volatility measure holding below 15 percent, this week’s hefty gold tumble below $1,300 stalled. **Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:00

AUD

Conference Board Leading Index (MAY)

-0.10%

Westpac’s index showed little move

1:00

NZD

ANZ Consumer Confidence Index (JUL)

131.9

The effort to return to seven-year high levels of confidence (set last year) has cooled materially

1:00

NZD

ANZ Consumer Confidence (MoM) (JUL)

3.40%

1:30

AUD

NAB Business Confidence (2Q)

6

Business confidence has leveled off, tracking export, domestic concerns

1:30

AUD

RBA FX Transaction (Australian dollar) (JUN)

489M

A measure of capital flows through RBA FX funds – this is not an intervention or particularly market moving series

1:30

AUD

RBA Foreign Exchange Transaction- Government (JUN)

-524M

1:30

AUD

RBA Foreign Exchange Transaction- Other (JUN)

55M

9:00

EUR

Euro-Zone Construction Output s.a. (MoM) (MAY)

0.8%

Year-over-year, the Euro-area’s construction output has hit its fastest pace since 2007

9:00

EUR

Euro-Zone Construction Output w.d.a. (YoY) (MAY)

8.0%

9:00

EUR

Euro-Zone Consumer Price Index (MoM) (JUN F)

0.1%

-0.1%

As a final reading, expectations will be muted; but any meaningful changes will find market response

9:00

EUR

Euro-Zone Consumer Price Index (YoY) (JUN F)

0.5%

0.5%

9:00

EUR

Euro-Zone Consumer Price Index - Core (YoY) (JUN F)

0.8%

0.8%

9:00

EUR

Italian Current Account (euros) (MAY)

2033M

A broader trade reading with capital flows

12:30

CAD

International Securities Transactions (C$) (MAY)

10.13B

Capital inflows hit a 12-month high in April

12:30

USD

Initial Jobless Claims (JUL 12)

310K

304K

It is important to recognize the multi-year trend of steady decline but also appreciate the cutoff of long-term filings

12:30

USD

Continuing Claims (JUL 5)

2584K

12:30

USD

Housing Starts (MoM) (JUN)

1.9%

-6.5%

While many other countries are facing housing bubbles, US authorities are still concerned that the sector is struggling. Starts is closer to GDP creation while price figures are rising far faster

12:30

USD

Housing Starts (JUN)

1020K

1001K

12:30

USD

Building Permits (MoM) (JUN)

4.0%

-6.4%

12:30

USD

Building Permits (JUN)

1045K

991K

13:45

USD

US Economic Expectations - Bloomberg (JUL)

As a proprietary reading, carries limited market impact; but it is a good read

14:00

USD

Philadelphia Fed. (JUL)

16.0

17.8

New York’s reading beat substantially

GMT

Currency

Upcoming Events & Speeches

1:55

AUD

RBA’s Edey Speaks on Panel in Sydney

7:45

GBP

Deputy Governor Jon Cunliffe Speaks in London

8:30

EUR

Spain to Sell Bonds

9:30

EUR

UK to Sell £1.5 Bln in 10-Year Indexed Bonds

9:30

EUR

France to Sell 4, 7 and 10-Year Indexed Bonds

10:00

EUR

Portugal Economic Survey Report

17:35

USD

Fed's James Bullard Speaks on Monetary Policy

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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