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Talking Points:

  • Dollar Torn Between Revived Volatility and Fading Rate Forecasts
  • Euro’s Troubles Build as Sovereign and Financial Stability Concerns Revived
  • British Pound: Hike Hopes Face True Test Next Week on CPI, Jobs

Dollar Torn Between Revived Volatility and Fading Rate Forecasts

Once again, the Dollar’s two primary fundamental guide-lines were pulling the currency in two different directions. But, traders chose which current they would follow – and in doing so reinforced which will take the reins when push comes to shove. For performance, the Dow Jones FXCM Dollar Index rose this past session – the first time in five trading days – by a modest 0.1 percent. This was an advance in principal, but hardly signaling the birth of a new bull wave. In the greenback’s performance versus its major counterparts, we can derive the fundamental tides of the session. Where the dollar gained against most counterparts USDJPY posted a notable drop and USDCAD was slightly lower. This is the mix we would expect from a ‘risk’ responsive market where the currency is a safe haven versus most except the Japanese yen (a funding currency) and speculative appetite offers little pull for trade partners as intimate as the US and Canada.

Holding greater sway over the US currency this past session, speculative interests soured this past session. Another global slide in equities drug volatility measures meaningfully higher. The equities-based VIX Index rose off its multi-year range low and closed above 12.0 for the first time in over two weeks. From the FX market, short-term (one-week) implied volatility measures advanced for a third day and finally overtook the 5.0 mark. Financial media attributed the pain to trouble with a Portuguese bank (more on that below). While a placid financial plane amplifies such ripples, the impact here looks to be more a development of necessity rather than a true response to the headline. If that is the case, a rebound in volatility is likely to be more substantial as we revert to some historical norm.

As for the other major FX theme – interest rate forecasts – there was an active backdrop even if it couldn’t overpower the speculative focus. Both short-term Treasury yields and Fed Funds futures showed a further retreat in rate hike premiums. The economic docket was light, but two Fed speakers would stand out. Esther George reiterated her view that rate hikes were possible in 2014 if they used regular formulas – not a popular opinion with the FOMC. The bigger unknown was Vice Chairman Stanley Fischer’s commentary as this was his first talk after his appointment and his bias isn’t clear. He would avoid giving a clear read however. Ahead, we have Plosser, Evans and Lockhart on deck.

Euro’s Troubles Build as Sovereign and Financial Stability Concerns Revived

European capital markets were hit hard this past session. And, given the support that foreign capital inflow has afforded the currency since it bottomed on July 24, 2012, this is a serious matter. Equities indexes across the Eurozone were deep red with Portugal’s benchmark PSI 20 leading the way with a painful 4.2 percent drop. The intensity of the particular country’s tumble developed out of troubles surrounding one the nation’s largest lenders – the Espirito Santo Group. Trading in shares of Banco Espirito Santo – which the Group is the largest shareholder of – was suspended after the stock plunged another 17 percent. The depth of the issue is still unknown, and the uncertainty comes at a troubling time when the banking sector of the region’s Euro Stoxx has dropped as much as 14 percent this past month. Meanwhile, the market may have drawn a line in the sand for confidence in the EZ’s recovery. A bond auction by Greece came up short of expectations for three-year bonds.

British Pound: Hike Hopes Face True Test Next Week on CPI, Jobs

Rate speculation surrounding the timing and intensity of the first BoE hike has grown volatile. That in turn has curbed the sterling’s incredible progress after 12 months of climb. Through the past session, the central bank rate offered little-to-no influence on market expectations. With no change in policy, no material update in forecast was given. Next week, however, we will be offered milestones that definitively shape rate forecasting. The June CPI and employment figures are key data points while BoE Governor Carney is due to testify Tuesday.

Canadian Dollar Traders Ready for Jobs Data Volatility

In a rather quiet end to the week, the Canadian calendar carries the most prominent scheduled event risk. The June employment figures regularly ‘surprise’ with deviations from forecasts and the data regularly generates market response. The question is how deep the impact goes as the loonie is still under the sway of a dovish BoC bearing. The central bank will deliberate on policy next week.

Chinese Yuan: Officials Say Intervention to Continue, 2Q GDP Ahead

Out of high-level trade talks between China and the US, the Finance Ministry officials from the former stated clearly that it would not concede its current controls over exchange rates as they attempt to balance growth with a need to curb excessive lending. What state is the Chinese economy in? We will find out next week with the release of the 2Q GDP reading next Wednesday.

Emerging Market Currency Drug Lower by Capital Market Retreat

The day started off much worse than it close Thursday for the Emerging Markets. The MSCI capital market ETF gapped down 1.5 percent on the open, but managed to retrace two-thirds of the decline through the day. Amongst the currencies, the group was mostly red, though the most liquid were restrained to modest declines. Meanwhile, EM volatility readings are still scraping along multi-year lows…

Gold Miners Leads Spot but Breakout Not Trend Material

It seems the swell in the GDX gold miners ETF would indeed lead a similar move from the metal itself. However, the 1.1 percent rally – the biggest in three weeks – to more than three month highs falls short of the immediate fundamental litmus test for follow through. This isn’t a need for an alternative to currencies, nor an inflation hedge demand. If this is a financial stability need, the dollar will play the better haven.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

1:30

AUD

Home Loans (MAY)

-0.5%

0.0%

Home and investment lending has continued to increase in absolute terms even as growth rates have been volatile.

1:30

AUD

Investment Lending (MAY)

2.3%

1:30

AUD

Value of Loans (MoM) (MAY)

1.4%

3:00

NZD

Non Resident Bond Holdings (JUN)

64.6%

Non-resident holdings are its highest levels this year.

6:00

EUR

German Consumer Price Index (MoM) (JUN F)

0.3%

0.3%

German inflation nears its 4 year lows, raising deflationary concerns. It is also much lower the 2% that the ECB considers necessary to ensure price stability.

6:00

EUR

German Consumer Price Index (YoY) (JUN F)

1.0%

1.0%

6:00

EUR

German CPI - EU Harmonised (MoM) (JUN F)

0.4%

0.4%

6:00

EUR

German CPI - EU Harmonised (YoY) (JUN F)

0.4%

1.0%

6:45

EUR

French Current Account Balance (MAY)

-1.6B

The trade balance announced earlier this week came in surprisingly worse than expected. That figure could be an indicator for the current account balance release

8:30

GBP

Construction Output s.a. (MoM) (MAY)

0.9%

1.2%

Although growth in construction output has been slowing, UK construction PMI has been in expansionary territory for 14 consecutive months.

8:30

GBP

Construction Output s.a. (YoY) (MAY)

5.6%

4.6%

12:30

CAD

Net Change in Employment (JUN)

20.0K

25.8K

The unemployment rate has continued to trend lower but has coincided with a falling labor force participation rate.

12:30

CAD

Unemployment Rate (JUN)

7.0%

12:30

CAD

Full Time Employment Change (JUN)

-29.1

12:30

CAD

Part Time Employment Change (JUN)

54.9

12:30

CAD

Participation Rate (JUN)

66.1

18:00

USD

Monthly Budget Statement (JUN)

$100B

This figure is the difference between government revenues and expenditure, and can be volatile from month to month.

GMT

Currency

Upcoming Events & Speeches

9:00

GBP

Bank of England Publishes Consultation Paper on Leverage Ratio

10:00

EUR

ECB Announces 3-Year LTRO Repayment

-:-

EUR

Ukraine, EU and Russia Discuss Trade Pact

12:00

USD

** US Earnings - Wells Fargo

15:15

USD

Fed's Plosser to Speak on U.S. Economy

19:00

USD

Fed's Evans to Speak on Monetary Policy

19:00

USD

Fed's Lockhart to Speak 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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