Forex: Dollar Extends Rebound with USDJPY Rallying Through 97.50

DailyFX

  • 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

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

Westpac Consumer Confidence (AUG)

-0.1%

After a brief jump in confidence for June, the consumer confidence survey continues to decline.

0:30

AUD

Westpac Consumer Confidence Index (AUG)

102.1

1:30

AUD

Wage Cost Index (QoQ) (2Q)

0.7%

0.7%

The Wage Cost Index in Australia QoQ has yet to rise to 2012 highs of 1%.

1:30

AUD

Wage Cost Index (YoY) (2Q)

3.0%

3.2%

3:00

NZD

Non Resident Bond Holdings (JUL)

68.2%

After topping out 69.10%, the indicator appears to be taking a downward turn.

5:30

EUR

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

0.1%

-0.2%

Surveys put the QoQ print at its highest since September 2012.

5:30

EUR

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

-0.1%

-0.4%

6:00

EUR

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

0.6%

0.1%

As with French GDP, improvements have been seen since negative QoQ growth in December.

6:00

EUR

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

0.2%

-0.2%

6:00

EUR

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

0.7%

-1.4%

6:45

EUR

French Wages (QoQ) (2Q P)

0.7%

French CPI YoY is making its largest streak of gains (from April 2013) after falling for much of the past two years. French NFP (non-government) has been negative since March of 2012.

6:45

EUR

French Non-Farm Payrolls (QoQ) (2Q P)

-0.1%

6:45

EUR

French Consumer Price Index (YoY) (JUL)

1.1%

0.9%

7:15

CHF

Producer & Import Prices (MoM) (JUL)

0.2%

0.1%

Producer and import prices YoY are finally positive after spending half of 2012 in the red.

7:15

CHF

Producer & Import Prices (YoY) (JUL)

0.5%

0.2%

8:30

GBP

Bank of England Meeting Minutes

After the BoE set employment thresholds (7%) at the Quarterly Inflation report, the labour data’s significance has been amplified

8:30

GBP

Jobless Claims Change (JUL)

-15.0K

-21.2K

8:30

GBP

Claimant Count Rate (JUL)

4.4%

4.4%

8:30

GBP

ILO Unemployment Rate (3M) (JUN)

7.8%

7.8%

8:30

GBP

Average Weekly Earnings inc Bonus (3MoY) (JUN)

2.0%

1.7%

8:30

EUR

Portugal GDP (QoQ) (2Q P)

0.1%

-0.4%

Expected first quarter of growth since 3Q 2010.

9:00

CHF

ZEW Survey (Expectations) (AUG)

4.8

6-Month Avg at near 3 year high

9:00

EUR

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

-1.4%

Any disappointing prints here could be a turning point for the positive Euro-Zone sentiments. With Cyprus continuing to be a risk factor in Europe, further disappointing news out of the country could damage the current 2 month high in the Euro.

9:00

EUR

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

-4.4%

9:00

EUR

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

0.2%

-0.2%

9:00

EUR

Euro-Zone Gross Domestic Product s.a. (YoY) (2Q A)

-0.8%

-1.1%

11:00

USD

MBA Mortgage Applications (AUG 9)

0.2%

GS has warned a recorvery without housing could be less than 1%

12:30

USD

Producer Price Index (YoY) (JUL)

2.4%

2.5%

Upstream price pressures will contribute to Taper speculation

12:30

USD

Producer Price Index ex Food & Energy (YoY) (JUL)

1.3%

1.7%

14:30

USD

DOE U.S. Crude Oil Inventories (AUG 9)

-1320K

Prices for WTI have been trading in a range (109-102) following the massive moves in early July.

14:30

USD

DOE U.S. Gasoline Inventories (AUG 9)

135K

22:30

NZD

Business NZ PMI (JUL)

54.7

Has been on the decline since May.

23:50

JPY

Japan Buying Foreign Bonds (Yen) (AUG 9)

689.9B

As Japanese debt crosses the 1 quadrillion Yen level, stability in foreigners buying Japanese bonds remains key in order to maintain stability in the JGB market.

23:50

JPY

Japan Buying Foreign Stocks (Yen) (AUG 9)

-19.5B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (AUG 9)

124.4B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (AUG 9)

-42.2B

GMT

Currency

Upcoming Events & Speeches

15:00

USD

New York Fed Releases Household Debt, Credit Report

17:20

USD

Fed's James Bullard Speaks on Monetary Policy

19:15

USD

Fed's James Bullard Speaks on Monetary Policy

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

13.4800

2.0000

10.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.2000

1.9500

10.2500

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.7325

1.9329

9.9850

7.7554

1.2677

Spot

6.5386

5.6249

5.8961

Support 1

12.6000

1.9100

9.3700

7.7490

1.2000

Support 1

6.0800

5.6000

5.8700

Support 2

12.0000

1.6500

8.9500

7.7450

1.1800

Support 2

5.8085

5.4440

5.7400

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

1.3370

1.5567

99.51

0.9424

1.0423

0.9204

0.8056

131.82

1351.22

Res 2

1.3343

1.5536

99.20

0.9401

1.0404

0.9178

0.8032

131.45

1343.82

Res 1

1.3316

1.5506

98.90

0.9377

1.0384

0.9152

0.8009

131.08

1336.43

Spot

1.3261

1.5445

98.28

0.9330

1.0345

0.9099

0.7962

130.33

1321.65

Supp 1

1.3206

1.5384

97.66

0.9283

1.0306

0.9046

0.7915

129.58

1306.87

Supp 2

1.3179

1.5354

97.36

0.9259

1.0286

0.9020

0.7892

129.21

1343.82

Supp 3

1.3152

1.5323

97.05

0.9236

1.0267

0.8994

0.7868

128.84

1351.22

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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