Talking Points:
Dollar Looks to Fed to Secure Strongest Run in Half a Century
British Pound Edges Higher as Market Digests Shift in Scotland Sentiment
Euro Focus Still on ECB Policy, But Sovereign Bond Yields are Rising…
Dollar Looks to Fed to Secure Strongest Run in Half a Century
Friday is opening once again green for the Dow Jones FXCM Dollar Index (ticker = USDollar). If we close out the session positive, it would mark the fifth consecutive daily advance – matching the currency’s best performance since February. Furthermore, baring a sharp drop before the week closes, we are going to close an even more incredible record for the dollar: the ninth consecutive weekly gain. For the ICE Dollar Index, that matches the longest bull series on records going back nearly 50 years (there were comparable runs in 1997, 1979 and 1975). In other words, the US currency has enjoyed an incredible level of strength. Yet, in a financial system where complacency and comfort dominate; such a move is an affront to established market conditions. Either currency or broader sentiment must yield.
Given the shift in the dollar’s position and fundamentals, the rise in FX-based volatility measures and the event risk ahead; we may very well find the system is more prone to change than the errant currency. Whether Dollar or FX trader, appreciation of the rapid increase in implied (expected) volatility measures is warranted. It has been particularly pronounced in the shorter-term, currency-based arena. That certainly has a lot to do with the high-level event risk we face next week including the FOMC rate decision. However, we find that the turn in activity FX activity measures is consistent over longer durations, and the sentiment is spreading to other asset classes. Is the seasonal transition from ‘Summer Lull’ conditions finally stirring historically temperate markets? Is the fire beginning in the currency realm?
To determine the next leg of the greenback’s course – and certainly to change the current of the general financial system – elemental changes and event risk are necessary. On that front, few known events carry as much weight as Wednesday’s FOMC decision. Beyond just the penultimate Taper, this event will offer updated forecasts and Chairwoman Janet Yellen’s press conference. In this event, there is heavy volatility potential. While the currency’s gains and some surveys insinuate a market that is more certain of a hawkish path, Fed Funds futures and market-wide speculative positioning show a deeper sense of blissful ignorance. A path towards tighter policy will eventually turn the tides.
British Pound Edges Higher as Market Digests Shift in Scotland Sentiment
It was a YouGov opinion poll gauging Scots’ position on the impending referendum vote this past weekend that prompted GBPUSD to gap sharply lower Monday. A 51 percent support for independence from the UK suddenly thrust an expected low-probability event to the top of the list of concerns. Noting the lack of appreciation they initially paid this event, it comes as little surprise that the sterling found limited lift on an updated survey from the same group that showed a shift to the ‘No’ camp by the same margin. The vote on September 18 (Thursday) stands as a top event risk for the pound as the implications are not clear. However, also keep an eye on BoE rate forecasts with UK CPI on Tuesday.
Euro Focus Still on ECB Policy, But Sovereign Bond Yields are Rising…
The projected ballooning of Euro-area monetary policy is certainly turning the screws on the markets. The three-month Euribor rate has dropped to a record low below 0.09 percent and the Euro has collapsed 7.7 percent in four months against a dollar that is still under the influence of QE3. And, much of this has been in anticipation. While the ECB has cut rates, it has yet to increase its balance sheet. That begins next Thursday when the bank allots its first Targeted-LTRO. This tangible stimulus move still has influence to exact, however, we shouldn’t forget there are other forces at play. A rise in Eurozone sovereign bond yields and a retreat in foreign interest in Eurozone capital markets is concerning.
Japanese Yen: Will This USDJPY Rally Hit 110?
USDJPY targets keep rising as the pair extends its incredible run. Yet, momentum is not as easy to maintain to 110 and beyond as many may appreciate. The first obstacle to this pair’s progress is the known event risk for the dollar. While the Fed decision could certainly drive the greenback higher on a hawkish upgrade; that is a necessary outcome to that must be realized to fulfill current expectations. A hawkish Fed could also spur risk aversion. And, BoJ Governor Kuroda repeating the ‘no need for more QE’ stance, there is little to stop an inflated carry unwind.
Australian Dollar Rallies on Strong Jobs, Retreats When Realized they Were Part-Time
It is important to appreciate that data does not have a black-and-white impact on the markets. That is because its implications are interpreted by a group with biases and different analyses. Case-in-point was the Aussie August jobs figures. What was originally a rally on a 121,000-net increase in jobs turned into a complete reversal when the market realized the bulk was part-time jobs.
Emerging Markets at Critical Juncture in Bull Trend as Investors Contemplate Fed Tightening
Technical traders are watching the MSCI Emerging Market ETF closely. Having dropped back 3.5 percent from its multi-year high set this past Friday, the index has experienced a swell in volatility into the backbone of the 8-month advance. Hold or collapse has more to do with underlying fundamentals than stops and entries. Is the Fed soon to start withdrawing the liquidity that has lowered volatility and encouraged yield reach?
Gold Creeps into 8-Month Lows, Volatility on the Rise
While gold isn’t on fire, it is still melting lower. The metal has continued to drop through the morning hours Friday to push us to levels not seen since January. This consistent decline is developing alongside rising volume in the speculative futures and ETFs exposures. Meanwhile, the CBOE’s Gold Volatility Index has forged ahead to 5-month highs. What will central bank speculation do to the metal next week…
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ECONOMIC DATA
GMT
Currency
Release
Survey
Previous
Comments
22:30
NZD
Business NZ Performance of Manufacturing Index
53.5
22:45
NZD
Food Prices (MoM)
-0.70%
Gives RBNZ one way of looking at price increases
1:30
AUD
Credit Card Balances
$A49.9B
These two measures grow with the economy.
1:30
AUD
Credit Card Purchases
$A23.1B
4:30
JPY
Industrial Production (MoM)
0.20%
These are from the month of July F
4:30
JPY
Industrial Production (YoY)
-0.90%
4:30
JPY
Capacity Utilization (MoM)
-3.30%
6:00
EUR
German Wholesale Price Index (MoM)
0.10%
Gives the ECB one way of measuring the inflation of the largest economy in the Eurozone
6:00
EUR
German Wholesale Price Index (YoY)
0.50%
8:30
GBP
Construction Output SA (YoY)
3.20%
5.30%
Improved construction performance can put pressure on BoE to increase rates
8:30
GBP
Construction Output SA (MoM)
0.60%
1.20%
9:00
EUR
Euro-Zone Industrial Production s.a. (MoM)
0.70%
-0.30%
Indicator of how manufacturing is performing; however, these measure for July
9:00
EUR
Euro-Zone Industrial Production w.d.a. (YoY)
1.40%
0.00%
9:00
EUR
Euro-Zone Employment (QoQ)
0.10%
Monetary policy decisions are dictated by the employment situation
9:00
EUR
Euro-Zone Employment (YoY)
0.20%
12:30
USD
Advance Retail Sales
0.60%
0.00%
Can indicate how strong the consumption is in the economy; however the measures are volatile
12:30
USD
Retail Sales Less Autos
0.30%
0.10%
12:30
USD
Retail Sales Ex Auto and Gas
0.40%
0.10%
12:30
USD
Retail Sales Control Group
0.50%
0.10%
12:30
USD
Import Price Index (MoM)
-1.00%
-0.20%
Important as it contributes to the general CPI
12:30
USD
Import Price Index (YoY)
-0.40%
0.80%
13:00
CAD
Teranet/National Bank HPI (MoM)
1.10%
House prices are important to the BoC rate decision as rate changes can change the cost of mortgages
13:00
CAD
Teranet/National Bank HPI (YoY)
4.90%
13:00
CAD
Teranet/National Bank HP Index
165.84
13:55
USD
U. of Michigan Confidence
83.3
82.5
Improved confidence can interest rate increases more likely
14:00
USD
Business Inventories
0.40%
0.40%
GMT
Currency
Upcoming Events & Speeches
6:05
JPY
BOJ Governor Kuroda Speech
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
13.1524
2.1625
10.7255
7.7502
1.2554
Spot
7.0676
5.7562
6.2669
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
1.3026
1.6421
106.13
0.9394
1.0948
0.9406
0.8352
137.23
173.13
Res 2
1.3003
1.6393
105.94
0.9376
1.0932
0.9390
0.8335
136.99
172.81
Res 1
1.2980
1.6365
105.75
0.9359
1.0915
0.9374
0.8319
136.75
172.48
Spot
1.2934
1.6309
105.36
0.9324
1.0882
0.9341
0.8285
136.28
171.83
Supp 1
1.2888
1.6253
104.97
0.9289
1.0849
0.9308
0.8251
135.81
171.19
Supp 2
1.2865
1.6225
104.78
0.9272
1.0832
0.9292
0.8235
135.57
170.86
Supp 3
1.2842
1.6197
104.59
0.9254
1.0816
0.9276
0.8218
135.33
170.54
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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