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Talking Points:

  • Dollar May Find Real Traction if EURUSD Collapses
  • Euro Traders Look for Same Volume, Volatility as Pound on Eurozone GDP
  • British Pound Suffers Biggest Drop in 7 Months, Heaviest Volume in a Year

Dollar May Find Real Traction if EURUSD Collapses

A look at the chart shows us the Dow Jones FXCM Dollar Index (ticker = USDollar) made progress this past session. A push higher has led the greenback benchmark to its highest level in 5 months; and to some eager bulls, it looks like a technical break. However, between the uneven bid for the currency and the lack of a fundamental motivation accompanying this performance, a healthy amount of skepticism is warranted. While the USDollar may have marked progress, its advance was modest – around half the average daily range of the past trading month. Furthermore, a single dollar pairing was responsible for the bulk of this move: GBPUSD. The ‘Cable’ dropped 0.7 percent Wednesday under heavy trading conditions. This move was the responsibility of the sterling, not the dollar. That becomes immediately evident when we see the lack of progress for other majors and the lost ground booked against the traditional carry currencies – Aussie, Kiwi and Loonie dollars.

For the dollar’s own performance, there has been little to facilitate a change in its own appeal. The docket this past session offered up July retail sales that missed expectations on both headline (0.0 versus 0.2 percent consensus) and core (0.1 versus 0.4 percent consensus) readings. Meanwhile, New York Fed President William Dudley remarked that serious flaws in the financial system had developed in the recent years. Neither data nor warning though would spur a serious aversion to risky assets. The market’s confidence in timely Fed hikes though did further retreat however with both 2-year Treasury yields and Fed Fund futures lowering their respective projections. Ahead, import inflation and Bloomberg’s economic survey are worth noting, but are unlikely to spur a heavy move. Rather than awaiting a capital market surge though, the dollar may instead find its motivation elsewhere. A big EURUSD move on local GDP figures can amplify interest building out of GBPUSD.

Euro Traders Look for Same Volume, Volatility as Pound on Eurozone GDP

Top event risk through Thursday’s trading session goes to the round of Euro-area GDP figures penciled for release. Traders anxious for opportunity out of volume are no doubt watching for a market reaction similar to the pound’s reaction to the BoE’s report. The short-term reaction to the data will likely struggle to hit that timbreas the quality of the event risk isn’t as decisive as what the sterling reacted to. That said, the growth figures can tap far deeper interests for the Euro. The region’s currency and financial markets have enjoyed an incredible recovery in the two years through May thanks to a delicate balance of circumstances and a heavy appetite for yield. Capital has flowed into the Eurozone looking to take advantage of depressed assets and high returns. Yet, those returns have deflated and the market is swollen. If growth starts to waver, it can lift Eurozone yields and break the dam on a capital reversal. See how the GDP release can impact the Euro in the Trading Video.

British Pound Suffers Biggest Drop in 7 Months, Heaviest Volume in a Year

By far the worst performer for the day, the British Pound dropped between 0.4 and 1.2 percent (versus the Yen and Aussie Dollar respectively) this past session. Though the July employment data printed worst than expected, the real catalyst for the day was the Bank of England’s Quarterly Inflation Report (QIR). One of the few opportunities to see what the central bank is considering for monetary policy – as regular rate decisions offer no guidance when no change is made – this assessment offered speculators a very tangible dovish shift. While the group still seems on path for a hike in the first or second quarter of 2015, certainty has been moderated with wage growth causing concern with its forecast halved by the group. Pound, Gilt yields and swaps all suggest hawkish conviction has been tripped up. And it can fall further.

Yen Crosses See Record Low Expected Volatility Levels as Range Matures

Realized volatility on USDJPY for the past three-month period has dropped to 4.2 percent – the lowest level on record. While that isn’t particularly remarkable in current FX and financial market conditions, congestion for the pair through 2014 and its sensitivity to speculative shifts tell us this is a booming quiet. Expected (‘implied’) volatility readings have begun to turn higher recently – indicating a growing concern. Another flush by capital markets is likely to carry the Yen crosses with it.

New Zealand Dollar: Carry Trade Is Rising

Over the past month, the New Zealand dollar has dropped between 1.6 and 4.0 percent (versus the Pound and Dollar respectively). This uniform slide is large part borne of the realization that the RBNZ isn’t going to hike rates for a fifth consecutive meeting – though it is still likely to pursue tightening. Speculators had over-estimated their rate forecasts at a time when carry trade is still historically low. But carry interest is still rising. We saw that in New Zealand data this morning which showed foreign holdings of NZ bonds rose to 65.1 percent last month – a 10 month high.

Emerging Market Currencies Split as Volatility Measure Stubbornly Buoyant

The MSCI Emerging Market ETF rose a fourth straight session through Wednesday (0.5 percent), but momentum is still lacking. In the currency tables, we find the field still mixed as there is little consistent and market-wide drive to capture the segment’s higher returns. However, there is still very much a lingering fear. The JPMorgan EM volatility index is still well above its one and three-month average.

Gold Volume and Volatility Levels Succumbing to Price Range

Gold put in for another quiet trading session Wednesday. While the 0.3 percent advance was the biggest move in a week, the day’s range was still a miserly $10.20. This commodity is stuck in congestion and looking for a spark that can actually carry it through a breakout. Meanwhile, volume on futures and ETFs are shrinking while the CBOE’s volatility index is losing hope that a serious swing can be mustered.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

03:00

NZD

Non Resident Bond Holdings (JUL)

64.2%

Treasury bills held by foreigners saw a 16% sell off in June

05:30

EUR

French Gross Domestic Product (QoQ) (2Q P)

0.1%

0.0%

Growth in the two largest economies in the Eurozone will be in focus as better or worse than expected results are likely to drive expectations of stimulus from the ECB. The ECB, after further easing its policy in June, is likely to wait after its efforts takes effect in September

05:30

EUR

French Gross Domestic Product (YoY) (2Q P)

0.3%

0.7%

06:00

EUR

German Gross Domestic Product s.a. (QoQ) (2Q P)

-0.1%

0.8%

06:00

EUR

German Gross Domestic Product w.d.a. (YoY) (2Q P)

1.4%

2.3%

06:00

EUR

German Gross Domestic Product n.s.a. (YoY) (2Q P)

1.3%

2.5%

07:15

CHF

Producer & Import Prices (MoM) (JUL)

0.0%

0.0%

Import prices have consistently fallen in 2014 compared to 2013

07:15

CHF

Producer & Import Prices (YoY) (JUL)

-0.8%

-0.8%

8:30

EUR

Cyprus GDP (2Q P) (QoQ)

-0.7%

9:00

EUR

Portugal GDP (2Q P) (QoQ)

0.5%

-0.6%

09:00

EUR

Euro-Zone GDP Product s.a. (QoQ) (2Q A)

0.1%

0.2%

The Eurozone’s GDP output has shown an uptrend after the area’s economy contacted 1.1% in March 2013

09:00

EUR

Euro-Zone Gross Domestic Product s.a. (YoY)

0.7%

0.9%

09:00

EUR

Euro-Zone Consumer Price Index (MoM)

-0.6%

0.1%

The major YoY CPI figure release is the revision of a primary figure and is unlikely to drive bets on ECB policy expectations

09:00

EUR

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

0.4%

0.4%

09:00

EUR

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

0.8%

0.8%

12:30

USD

Import Price Index (MoM) (JUL)

-0.4%

0.1%

The YoY import prices have shown a gradual rise since January of this year

12:30

USD

Import Price Index (YoY) (JUL)

0.9%

1.2%

12:30

USD

Initial Jobless Claims (AUG 9)

295K

289K

Initial claims have slowly fallen after hitting a high of 351K in February this year

12:30

USD

Continuing Claims (AUG 2)

2500K

2518K

12:30

CAD

New Housing Price Index (YoY) (JUN)

1.5%

Housing prices in Canada have not fallen since early 2010 on a yearly and monthly basis

12:30

CAD

New Housing Price Index (MoM) (JUN)

0.1%

0.1%

14:30

USD

EIA Natural Gas Storage Change (AUG 8)

82.00

Natural Gas sees higher storage in summer as it is more frequently used in winter for heating purposes

14:30

USD

EIA Natural Working Gas Implied Flow/U (AUG 8)

82.00

GMT

Currency

Upcoming Events & Speeches

01:40

AUD

RBA Senior Manager Hancock Speaks On Panel

07:30

EUR

EU Agriculture Experts Discuss Russian Ban on EU Products

08:00

EUR

ECB Publishes Monthly Report

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

13.2247

2.1418

10.7169

7.7500

1.2479

Spot

6.8969

5.5678

6.2834

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

1.3468

1.6986

103.53

0.9144

1.0977

0.9377

0.8580

138.62

1304.30

Res 2

1.3449

1.6960

103.35

0.9130

1.0960

0.9359

0.8562

138.38

1299.11

Res 1

1.3429

1.6935

103.18

0.9116

1.0944

0.9342

0.8544

138.15

1293.92

Spot

1.3391

1.6884

102.82

0.9088

1.0911

0.9306

0.8507

137.68

1283.53

Supp 1

1.3353

1.6833

102.46

0.9060

1.0878

0.9270

0.8470

137.21

1273.14

Supp 2

1.3333

1.6808

102.29

0.9046

1.0862

0.9253

0.8452

136.98

1267.95

Supp 3

1.3314

1.6782

102.11

0.9032

1.0845

0.9235

0.8434

136.74

1262.76

v

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