Dollar Extends Rebound with USDJPY Rallying Through 97.50
Euro Traders Will Carry a Bias into 2Q Eurozone GDP Figures
British Pound Threatens Bullish Break on EURGBP After CPI
Japanese Yen Crosses Surge while Equities Struggle
Australian Dollar: Treasury Projects Rising Jobless Rate, Deficit
New Zealand Dollar Faces Data Measuring Foreign Investment
Gold’s Breakout Stalls as Dollar Recovers

Dollar Extends Rebound with USDJPY Rallying Through 97.50
It seems that the greenback’s move Monday to end its longest slide in over two-and-a-half years was more than just a one-off tick higher before resuming the tumble. The Dow Jones FXCM Dollar Index advanced a second day through Tuesday’s session despite a bullish performance by equities and headlines that cast doubt on the Fed’s September ‘Taper’ time table. This performance can be interpreted as inherent strength; but without a clear fundamental bias to put FX traders on the same track, the world’s most prolific reserve currency is likely to succumb to the same congestion that currently plagues the broader financial markets. If the dollar is to run on a theme of ‘passive correction’ rather than concerted bid, the currency is presented will have to maximize its recovery through certain pairings. Where the dollar hasn’t retraced a quarter of its six-weeks drop with EURUSD and GBPUSD, USDJPY has already mounted a significant move and covered much of its range.

Keeping an eye on the docket for fundamental catalysts, the dollar’s performance this past session was all the more remarkable for its contradiction of ‘standard’ role. As a safe haven, its universal advance conflicts with the sea of green for US and global equity markets. As for the ebb and flow of speculation surrounding the time frame for the Fed’s first reduction in its ongoing stimulus support for the markets, Atlanta Fed President Dennis Lockhart (a non-voter) offered a mix of commentary. Many hit upon his comment that he didn’t expect to ‘have enough data to be sure of [his] outlook next month.” Yet, he also said it was possible to see the Taper call at any of the next three meetings (September, October, December). Bloomberg updated its poll of economists’ expectations for the first move to wind down its massive backstop. Certainty seems to be growing as now 65 percent of those surveyed expect a September Taper, but only to $75 billion (from $65 billion).

Euro Traders Will Carry a Bias into 2Q Eurozone GDP Figures
Top billing for event risk over the coming 24 hours goes to the Euro for the release of the Euro-region 2Q GDP figures. However, the fundamental fodder will not necessarily translate into meaningful volatility for the currency. In fact, over the past two weeks, we have seen the market virtually ignore the release of the growth updates for Spain and Greece – both of which printed modest improvement to ongoing recessions. The upcoming round of data offers a broader view. We will see numbers for ‘Core’ members (Germany, France), the ‘Periphery’ (Portugal, Cyprus) and see the region-wide Eurozone update. These data series do not often deviate from consensus, so a substantial ‘surprise’ here can leverage a heavier euro reaction. The consensus now leans towards a slow recovery from persistent recession. Turning the economy away from the goal can cause a flare up in financial, sovereign and speculative fear.

British Pound Threatens Bullish Break on EURGBP After CPI
Against the backdrop of last week’s Bank of England Quarterly Inflation report – whereby the central bank issued guidance, targets and played down immediate expectations of new stimulus measures – Tuesday’s CPI figures were viewed as a particularly capable catalyst for the sterling. Given the pound’s rally last week after the shift in policy approach last week, it was clear the market is skeptical of the 2016 time frame for the first rate hike laid out by Governor Carney. The 2.8 percent headline inflation reading for July (in-line with expectations) may have supported that disbelief, but it didn’t weaponize skepticism. Perhaps Wednesday’s jobs data – another direct target – will yield more reaction.

Japanese Yen Crosses Surge while Equities StruggleThe yen crosses climbed between 1.3 and 0.6 percent Tuesday – establishing the Japanese yen as the weakest currency on the day. That surge was particularly impressive considering the US equity indexes were struggling for gains of their own. Yet, the response for these carry-favored pairings has been stronger and more consistent to the Japanese-based Nikkei 225, likely due to a corollary foreign capital flow for the exceptionally volatile markets. Indeed, the three-month volatility index for the Nikkei 225 is currently 29 percent versus the 12 percent reading with the comparable US-based VIX. Upcoming, weekly capital flows data will be a noteworthy update.

Australian Dollar: Treasury Projects Rising Jobless Rate, Deficit
The Australian dollar was a mixed bag this past session. That is frustrating for both sides of the FX market as bears await the return to a very aggressive four-month trend while bulls want to leverage momentum on a correction. The market’s presumption of a policy shift – from dovish to neutral – last week has set the stage for a possible rebound for the Aussie dollar, but an actual rally likely requires a fundamental boost. Risk trends are not particularly accommodating. Meanwhile, the Treasury updated disappointing growth, jobs and fiscal balance forecasts.

New Zealand Dollar Faces Data Measuring Foreign Investment
Though it hasn’t fully recouped losses through Tuesday, the New Zealand dollar is up against all of its major counterparts through early Wednesday trade. While there isn’t a strong ‘risk appetite’ theme to support the high-yield currency, we find a higher return for the currency itself this morning to try and draw investors in. The benchmark 10-year government bond yield jumped 9 bps this morning to 4.45 percent – the highest level since October 2011. The upcoming report of foreign holdings of New Zealand debt in July can put a number to this appetite.

Gold’s Breakout Stalls as Dollar Recovers
Statistics bore out another expected outcome for the markets. Through Monday, gold managed a four consecutive-day rally with the most recent session posting a significant technical break on a hefty 1.8 percent swell. Alone, that technical progress and jump in momentum would seem obvious support for the follow through needed to upgrade tentative breakout to convincing trend generation. Yet, against the backdrop of a dominant, 11-month bear trend; the surge higher instead played the part of a last push before stalling. This past session, the metal tumbled 1.2 percent as the CBOE’s Gold Volatility Index held steady. That fits the trend since last September whereby the commodity has managed 8 instances of four-day rallies (one was five) before ending its run. The question now is whether this was simply a technical end to the wave or the start of a genuine turn. Once again $1,320 and $1,300 will be key levels to benchmark progress. If the dollar extends its run, gold will give.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

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