Talking Points:
Dollar Traders Look Ahead to a Rebound in Liquidity and Pick Up in Data
Euro Economic Health Fades Further, Investors More Expectant of ECB
Australian Dollar Confronts an RBA Decision with Heavy Speculation
Dollar Traders Look Ahead to a Rebound in Liquidity and Pick Up in Data
As far as holiday trading conditions go, Monday’s turnover was exceptionally light for the majors – as expected. Yet, despite the anticipated drain, a number of the dollar-based pairs marked surprisingly aggressive moves through the lull. Both USDJPY and USDCHF gapped in the dollar’s favor to start the week, while GBPUSD secured a tentative turn on a remarkably consistent 7-week bear trend. Bullish or bearish, the greenback’s trend will develop through what comes next as liquidity and volatility fill out. Aside from fundamentals in the form of themes (like interest rate speculation) and event risk, traders should keep a close eye on ‘market conditions’. A historical trend in fading volume for the broader financial system has materially changed the camber of the markets. However, misgivings of stability and stimulus-supported gains have grown materially in recent months. If the natural ebb and flow in volatility associated to the seasonal change from the ‘Summer Lull’ stirs the deeper wells of activity; both trends and momentum could develop.
While awaiting the change in deeper currents of participation, dollar traders will have more active drivers to concern themselves with in the upcoming session. The Dow Jones FXCM Dollar Index (ticker = USDollar) has run a remarkably consistent, seven consecutive week rally. That is second only to run through March 2013 – a move that covered far more ground and was driven by the first signs of a shift from a dovish Fed forecast (QE3) to a more neutral standing (the ‘Taper’). Though the policy conversation has progressed since then, the next step towards pricing in the first rate hike is still inconsistent – something Treasury yields and other rate products reflect. The upcoming ISM manufacturing and IBD economic sentiment survey may help shape these forecasts, but many will likely wait until Friday NFPs unless provoked.
Euro Economic Health Fades Further, Investors More Expectant of ECB
There was a wealth of surprisingly revealing fundamental developments for Euro traders through Monday’s session. While most were likely marking the initial Italian and final Eurozone and German manufacturing PMI figures (all disappointing), the revision to the Germany 2Q GDP figures and a private bond sale by Spain were significantly more remarkable. Though Germany’s growth update was a revision, it was issued with important details. Among those particulars, we learned that private consumption was weaker than expected (0.1 percent), capital investment plunged (2.3 percent) and construction collapsed the mostin 6 years (4.2 percent). These are the types of domestic avenues that can keep the economy trending lower. Meanwhile, Spain took advantage of the exceptionally low market rates the Eurozone has enjoyed as investors chase yield by issuing its first 50-year bond – for an incredible 4 percent coupon. This is yet another symbol of extreme complacency.
Australian Dollar Confronts an RBA Decision with Heavy Speculation
The RBA rate decision due this morning is the first of five major central bank policy meetings this week. And, it also happens to carry some of the most market-moving potential. The impact of these events – and any event risk – is not in what the outcome is, but rather what is realized relative to what the markets had expected. No change is expected from the Australian central bank, but tone is very important to the currency’s trend. Slowly gaining traction over the past months as policymakers backed off of rate cut language, the currency was more recently knocked off pace by worryingly dovish commentary. If the group reinforces that language, the AUD could suffer a more concerted drop.
British Pound Running Through a Data Ringer
While the Pound managed gains against most counterparts to start the week, few carried the same level of market interest as GBPUSD which technically broke a bearish channel that has guided the pair lower since it set a multi-year peak on July 15. Under more conducive (more liquid) conditions, this push could have picked up on the buoyancy of shorter gilt yields and swaps and ran a more assertive rebound. Alas, bulls will have to rely on the docket ahead which includes a construction activity (housing-related) PMI and retail inflation reading from the BRC.
Swiss Franc: How Much Weight to 2Q GDP Versus SNB Vow?
As the Euro trends lower, EURCHF is noticeably trending towards the 1.2000-level which the Swiss National Bank (SNB) has vowed to uphold. Monday, central bank President Thomas Jordan reiterated the group’s commitment to prevent the exchange rate from slipping the level with threats of ‘unlimited’ FX operations. We are currently less than 75 pips away from that self-imposed floor and the ECB is threatening to add weight to this pair. Can the Swiss 2Q GDP reading due today avert this pressure? Unlikely. Keep an eye on EURCHF.
Emerging Markets: Ruble Hits Fresh Record Lows as Ukraine Situation Boils
Emerging market currencies were mixed to start the week with momentum notably dampened by the absence of North American speculative liquidity. That said, there were still some standouts for activity. Once again the Russian Ruble was in the headlines slipping to a record low against the USD (down 0.5 percent to 37.29) as Ukraine rhetoric intensified alongside military engagements within the country.
Gold Volume Shrinks to Thinnest Trading in Four-Years
Between staid price action amongst the financial market benchmarks and a steady US dollar, there was little to motivate gold to break recent congestion. However, activity levels are growing extreme. We have been watching speculative positioning in futures and FX markets as well as open interest, but volume itself is starting to show an extraordinary drain. Last week, volume in gold futures dropped to their lowest levels of non-holiday trade since August 2010. Like the broader financial markets, these are circumstances that look ‘too quiet’.
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ECONOMIC DATA
GMT
Currency
Release
Survey
Previous
Comments
01:00
NZD
ANZ Commodity Price (AUG)
-2.4%
Falling Prices since March 2014
01:30
JPY
Labor Cash Earnings (YoY) (JUL)
0.9%
1.0%
Increasing since March 2014
01:30
AUD
Current Account Balance (Australian Dollar) (2Q)
-14.0B
-5.7B
Aussie current account balance has significantly contracted in the last 3 quarterly reports
01:30
AUD
Net Exports of GDP (2Q)
-0.70
1.40
Exports as % of GDP expected to fall for first time since Q1 2012
01:30
AUD
Building Approvals (MoM) (JUL)
-1.9%
-5.0%
More number of buildings have been approved each month since June 2013
01:30
AUD
Building Approvals (YoY) (JUL)
7.8%
16.0%
04:30
AUD
Reserve Bank of Australia Rate Decision (SEP 2)
2.5%
2.5%
The RBA is expected to maintain a status-quo monetary policy after the central bank decided a ‘period of stability’ in rates going forward was the best direction for the bank
05:45
CHF
Gross Domestic Product (YoY) (2Q)
1.6%
2.0%
The Swizz economy remains unaffected by the Eurozone crisis and has expanded strongly since Q4 of 2009
05:45
CHF
Gross Domestic Product (QoQ) (2Q)
0.5%
0.5%
08:30
GBP
Markit/CIPS UK Construction PMI (AUG)
61.50
62.40
UK construction sentiment has remained strong since mid-2013
09:00
EUR
Euro-Zone Producer Price Index (MoM) (JUL)
-0.1%
0.1%
PPI figures in the Eurozone have consistently contracted since August last year
09:00
EUR
Euro-Zone Producer Price Index (YoY) (JUL)
-1.1%
-0.8%
13:30
CAD
RBC Canadian Manufacturing PMI (AUG)
54.30
Strong Manufacturing reports may further boost BOC expectations after a strong GDP report last week
13:45
USD
Markit US Manufacturing PMI (AUG F)
58.00
58.00
Manufacturing sentiment has been showing a strong uptrend in the United States this year, and is likely to add bets to hawkish Fed policy
14:00
USD
ISM Manufacturing (AUG)
56.80
57.10
14:00
USD
ISM Prices Paid (AUG)
58.80
59.50
14:00
USD
Construction Spending (MoM) (JUL)
1.0%
-1.8%
Construction spending hasn’t seen any major changes recently, remaining with the -2% and 2% mark since June 2012
14:00
USD
IBD/TIPP Economic Optimism (SEP)
45.50
44.50
Economic optimism is expected to continue remaining negative
22:45
NZD
Value of All Buildings s.a. (QoQ) (2Q)
0.0%
16.0%
Values of buildings saw a huge jump in Q1 of this year
23:01
GBP
BRC Shop Price Index (YoY) (AUG)
-2.0%
-1.9%
Retail prices have been declining since mid-2013, allowing the BOE to hold on rate hikes
23:30
AUD
AiG Performance of Service Index (AUG)
49.30
The Services Sector has been contracting since March this year
GMT
Currency
Upcoming Events & Speeches
09:10
EUR
ECB Main Refinancing Operation Result
09:30
EUR
Italy’s Mogherini Speaks to EU Parliament Panel
11:30
USD
CEO Energy-Power Conference Day 1
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
— Written by: John Kicklighter, Chief Strategist for DailyFX.com
To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter
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