Talking Points:
Dollar Performance Not as Robust as EURUSD Insinuates
Euro Tumbles As European Equities Rally
British PoundOut of Room and Facing Trial by Event Risk
Dollar Performance Not as Robust as EURUSD Insinuates
The world’s most liquid currency cross EURUSD made a significant break this past session. Breaking through the 1.3500-floor that kept the bears at bay since its dramatic reaction to the June ECB rate decision on June 5, this looks at first blush like a serious coup for the greenback. Yet, the currency’s broader performance doesn’t bear the weight of the bulls’ run just yet. Through the past session, the dollar lost ground versus its Aussie counterpart and was virtually unchanged against the Yen, Pound and Canadian dollar. For those keeping track of the technical boundaries, the Dow Jones FXCM Dollar Index (ticker = USDollar) was unable to surpass 2014’s moving bearish guide at 10,450 and even the heavily EURUSD-weighted ICE DXY Index found itself short of this year’s 81 high.
From the fundamental landscape, there wasn’t much to inspire the dollar to charge higher. The ‘risk’ barometer moved further away from the extreme readings usually associated to a rally for the currency. In fact, the S&P 500 moved back within striking distance of a fresh record high and the capital market volatility measures eased further back from last Thursday’s peaks. In the absence of a sentiment-motivated bid for the safe haven, there was serious potential from the June consumer inflation (CPI) figures. This data series puts the pressure on the Federal Reserve to recalibrate monetary policy and consider the timing for a return to hikes. Yet, the stress wasn’t particularly high in this round of data. The headline annual figure held at 2.1 percent – notably above their target – while the core measure unexpectedly ticked lower to 1.9 percent. Outside of the dollar’s response, 2-year Treasury yields sunk 3.7 percent and the December 2015 Fed Fund futures were little changed. While there are other events scheduled this week, the gravity of next week’s FOMC decision, NFPs and 2Q GDP may keep the dollar anchored.
Euro Tumbles As European Equities Rally
Next to the Swiss Franc, the Euro was the worst performer amongst the majors this past session. That said, its stumble began before the heavy-hitting news and data started to cross the wires. From the calendar, the Eurozone 1Q government debt numbers increased for the first time in three quarters to 93.9 percent of GDP. Taking the more geopolitical route, the European Union Finance Ministers announced they would expand their sanctions against Russia. What comes as greater surprise is that the currency was retreating while local equities posted substantial gains between 1 and 2.2 percent. The region’s financial stability wasn’t called into question. Meanwhile, the Eurozone government bond yields ticked higher (demand eased), though with little conviction. We need to monitor this prominent EURUSD break for conviction.
British Pound Out of Room and Facing Trial by Event Risk
GBPUSD is facing an impending breakout – a break of necessity. The pair is currently facing a price range of around 40 pips while its average daily range over the past month (20 trading day ATR) is over 60 pips that will put speculators on edge for moves that look to resolve this pressure and could consequently spark a larger move and a surge in volume. In the forthcoming trading session, we have three events that could stoke the pound’s most pressing interests: interest rate expectations. Set for simultaneous release, the BBA home loans data takes on increased prominence with officials’ warnings about the sector growing overheated; while the BoE minutes will directly shape the central bank’s bearings. A little later, BoE Governor Carney is scheduled to speak. Perhaps he will state further surprise of market rate-speculation…
New Zealand Dollar Coils before Heavily-Anticipated RBNZ Hike
Heading into the upcoming RBNZ rate decision (due at 21:00 GMT), there is an incredible level of certainty. Of the 15 economists polled by Bloomberg, 14 expect a fourth 25bp hike to 3.50 percent. The market itself is pricing in an 85 percent probability of a similar move according to swaps. That is a heavy speculative lean…and yet the New Zealand dollar hasn’t generated much progress from this hawkishness. In fact, the currency has gained little to no ground against many of its counterparts since the first hike. So what happens if they decide to hold?
Australian Dollar Advances as Core Inflation Heats Up
When will the RBA hike rates again? Over a long enough time line, tightening is inevitable, but for this theme to be a proactive driver for the currency, there needs to be some degree of confidence where speculators can grab on and its timeframe needs to be considered competitive. Given the currency’s sluggish performance these past few years and the fact that its rate is still the second highest among the majors as is, it is particularly sensitive to speculation of hikes. So, when the core CPI reading hit a four-year high 2.9 percent, there was a spark.
Emerging Markets Gap to 18 Month High, Ruble Climbs Despite EU Sanctions
The US equity indexes were unable to set fresh records, but the MSCI Emerging Market ETF logged an impressive performance gapping to an 18-month high. The bond index for the group similarly advanced to fresh highs. For the currency group, the day’s performance was split. The more thinly traded EM currencies lost ground, but the larger units were green and led by the Russian Ruble’s 0.7 percent advance.
As Rate Expectations Grow, Gold Will Struggle
US inflation figures gave limited impetus to extend rate hopes to the dollar as they attempt to time the Fed’s first move back into hawkish territory. Though while the pressure is not imminent, it is definitely building. And that is what we are seeing in the UK, Japan, Australia and others. As the onus of rate hikes grows, gold’s appeal diminishes. Up next, traders will be watching the UK data set.**Bring the economic calendar to your charts with the DailyFX News App.
ECONOMIC DATA
GMT
Currency
Release
Survey
Previous
Comments
1:00
AUD
Skilled Vacancies (MoM) (JUN)
-1.3%
Reflects changes in Australia’s skilled job market
1:30
AUD
Consumer Prices Index (QoQ) (2Q)
0.5%
0.6%
Inflation figures are an important mandate of most central banks today and are a great driver of monetary policy expectations. Higher than expected numbers increase speculation of a rate hike by the nation’s central bank.
1:30
AUD
Consumer Prices Index (YoY) (2Q)
3.0%
2.9%
1:30
AUD
CPI RBA Trimmed Mean (QoQ) (2Q)
0.6%
0.5%
1:30
AUD
CPI RBA Trimmed Mean (YoY) (2Q)
2.7%
2.6%
1:30
AUD
CPI RBA Weighted Median (QoQ) (2Q)
0.7%
0.6%
1:30
AUD
CPI RBA Weighted Median (YoY) (2Q)
2.7%
2.7%
6:45
EUR
French Business Survey Overall Demand (JUL)
7
Economic indicators from the Eurozone are currently being observed carefully for any signs of growth
6:45
EUR
French Production Outlook Indicator (JUL)
-19
8:30
GBP
BBA Loans for House Purchase (JUN)
41757
Loan growth represents demand for housing
9:00
EUR
Euro-Zone Government Deficit (1Q)
Higher than expected deficits weigh negatively on an area’s currency as the government is expected to fund the deficit by raising additional debt
10:00
GBP
CBI Reported Sales (JUL)
16
4
Again an indicator that covers a vast number of sectors and represents economic changes
11:00
USD
MBA Mortgage Applications (JUL 18)
-3.6%
Represents change in demands for loans to buy houses
12:30
CAD
Retail Sales (MoM) (MAY)
0.5%
1.1%
Measure of consumer confidence within an area; important mandate of central banks
12:30
CAD
Retail Sales ex Autos (MoM) (MAY)
0.3%
0.7%
14:00
EUR
Euro-Zone Consumer Confidence (JUL A)
-7.5
-7.5
Currently it is been carefully followed for any signs of an economic recovery
14:30
USD
DOE U.S. Crude Oil Inventories (JUL 18)
-7525K
Higher than expected inventories tend to drop oil prices as supply exceeds demand
21:00
NZD
Reserve Bank of New Zealand Interest Rate Decision
3.50%
3.25%
Interest rate decisions and forward monetary policy guidance are the most closely watched announcements for the near future value of the corresponding currency
22:45
NZD
Trade Balance (New Zealand dollars) (JUN)
150M
285M
The Trade Balance determines change in demand of a currency, and is consequently tracked closely by traders
22:45
NZD
Exports (New Zealand dollars) (JUN)
4.25B
4.60B
22:45
NZD
Imports (New Zealand dollars) (JUN)
4.05B
4.32B
23:50
JPY
Adjusted Merchandise Trade Balance (Yen) (JUN)
-1122B
-862B
A net trade deficit signifies an important trend within a region – the imports are higher than the exports.
23:50
JPY
Merchandise Trade Balance Total (Yen) (JUN)
-665B
-909B
23:50
JPY
Merchandise Trade Exports (YoY) (JUN)
1.0
-2.7
23:50
JPY
Merchandise Trade Imports (YoY) (JUN)
8.4
-3.6
GMT
Currency
Upcoming Events & Speeches
1:20
AUD
RBA’s Low Speaks at RMB Internationalization Round Table
1:30
JPY
BoJ’s Hiroshi Nakaso Speaks on Japanese Economy
8:30
GBP
Bank of England Minutes
11:30
EUR
ECB Executive Board Member Praet Speaks on Lithuania
11:45
GBP
BOE Governor Carney Addresses Business Audience in Glasgow
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
— 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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