Dollar Little Moved, S&P 500 Extends 8 Day Rally Ahead of Bernanke

DailyFX

  • Dollar Little Moved, S&P 500 Extends 8 Day Rally Ahead of Bernanke
  • Euro Refuses to Cave Despite EFSF Downgrade, Lingering Portuguese Fears
  • British Pound: CPI Expected to Return to 3.0% - What Will the BoE Do?
  • Australia Dollar Ignores Chinese 2Q GDP but Rallies on RBA Minutes
  • New Zealand Dollar Response to 13-Year CPI Reading Restrained
  • Japanese Yen Slides as Carry Benefits Shrinking Volatility Concerns
  • Gold Virtually Unchanged for Second Trading Day

Dollar Little Moved, S&P 500 Extends 8 Day Rally Ahead of Bernanke

The dollar is facing down serious breakout potential, but the will for a serious breakout and trend development simply isn’t there. With the Dow Jones FXCM Dollar Index (ticker = USDollar) stationed once again just below its confluence of series-long Fibs and trendline around 10,900 and EURUSD having worked its way into a ‘terminal’ wedge formation, it would seem that a trend-defining move is imminent. Yet, fundamentals can actually work to curb the development of any meaningful breakout attempt within the next 24 hours. As tantalizing as technical setups are in the short-term, it is follow through that provides FX market participants with trades. However, jumping into a trade ahead of what is likely to be very heavy fundamental seas is seen by most as unnecessarily risky. The problem with taking a trade on something like the upcoming US CPI, TIC capital flows or Goldman Sachs earnings for example is that Wednesday’s Bernanke testimony carries far more weight.

Euro Refuses to Cave Despite EFSF Downgrade, Lingering Portuguese Fears

Friday ended on negative headlines for the Euro, and Monday didn’t open to much better. Through the close last week, rating agency Fitch announced it had relieved France of its coveted ‘triple A’ status – brining the measure for the Eurozone’s second largest economy down the same level as Standard & Poor’s and Moody’s. Given the importance of this large economy in the backing of shared, regional assets; the EFSF received a downgrade by the same group Monday to ‘AA+’. There was a time when downgrades were heavy market movers for the euro, but that theme still seems to be behind us. For the rescue programs the ESM (European Stability Mechanism) is the more important program. Yet, speculation that that backup can be hit with a cut – and thereby higher yields – or even Germany suffering the same is a risk that we shouldn’t discount. For tangible risk, we must keep an eye on Portugal and Greece particularly. The former’s government set a deadline of Sunday to agree to austerity measures internally, and the Bank of Portugal is due to release their quarterly economic update today.

British Pound: CPI Expected to Return to 3.0% - What Will the BoE Do?

There is sense of hope amongst dovish rate watchers that new Bank of England (BoE) Governor Mark Carney will ramp up stimulus in the not-too-distant future. That could be somewhat difficult if the consensus forecast for the upcoming June CPI figures prove accurate. According to Bloomberg’s consensus of economists’ expectations, the year-over-year clip of price growth – central banks’ preferred time frame – is expected to hit 3.0 percent following the previous 2.7 percent clip. More than just representing the fastest pace of inflation in 14 months, that is considered the central bank’s traditional tolerance level. It is true that Chancellor of the Exchequer issued a remit that allowed the BoE to ignore inflation on a temporary basis to focus on growth, but we have yet to see such bold action. In other news, sterling traders should watch the headlines for comments that come out of BoE member Fisher’s and DMO CEO Stheeman’s testimony on QE at 10:30 GMT.

Australia Dollar Ignores Chinese 2Q GDP but Rallies on RBA MinutesThere have been two notable pieces of event risk for the Australian dollar to respond two over the past 24 hours, and the market-mover wouldn’t be the one we would have suspected. At the top of the docket for Aussie traders this week was the Monday morning release of Chinese GDP for the second quarter. As Australia’s biggest trade partner and given the country’s heavy significant exposure to export industry, a slowing pace for the world’s second largest economy is of significant concern. The 7.5 percent reading for annual expansion, however, seemed to defuse fears. Though particularly soft for this behemoth’s normal pace (extending the longest sub-8 percent clip in decades), the surprise quotient was absent. Far more market-moving was the RBA minutes. The suggestion that central bank policy was “appropriate” given past rate cuts suggests a neutral inflection. However, an assessment of possible further AUD depreciation and scope for cuts keeps the door open.

New Zealand Dollar Response to 13-Year CPI Reading Restrained

On the hunt for short-term volatility events to stir the market temporarily from its Taper trance, the New Zealand dollar had an opportunity to see a sharp move on the back of 2Q CPI (consumer price index) data. Interest expectations had climbed aggressively for two months up until last week on the assumption that the Reserve Bank of New Zealand (RBNZ) was closing in on its first rate hike in years. In fact, through last week, overnight swaps were pricing in 70 bps worth of hikes over the coming 12 months – the most hawkish assumption in two-years. Yet, just in the past week, that forecast was tripped by 25 bps. It was a prescient move as the inflation report released this morning printed at quicker-than-expected downshift to a 0.7 percent pace of annual price growth. That is the most tepid reading since 4Q 1999

Japanese Yen Slides as Carry Benefits Shrinking Volatility Concerns

All of the yen crosses – whether a pairing of safe havens or clearly defined carry trade – advanced Monday. The climb matches the performance of global equities which reflected rising risk trends. Yet, the pace between the two would also match –meaning the yen’s tumble was relatively tame. Event risk from the Japanese newswires has been particularly light through the opening 24 hours of the trading week. Where policy officials previously engaged in proactive jawboning to drive the yen lower, it seems they are now confident of a self-generating cycle. There is also the forthcoming Upper House elections this weekend that is no doubt preoccupying both lawmakers and investors. If the ruling LDP wins, reforms from Prime Minister Abe will soon follow – leveraging the fiscal leg of the government’s ambitious recovery/inflation drive.

Gold Virtually Unchanged for Second Trading Day

A lack of financial instability and/or stimulus action by central banks is a particular dampener for gold. Having lost a third of its value over the past 9 months, the metal faces a serious uphill fundamental battle to regain lost ground. We have seen exactly what kind of event risk the commodity requires to find its way back towards the light. The four-day climb through the past week was sustained on the tempered Taper speculation that followed last Wednesday’s FOMC minutes. Momentum was good enough for Thursday’s break above $1,265, but breaking $1,300 likely requires another firm push. Discussion of Eurozone instability and the influence of US CPI figures in the upcoming session are unlikely to trump the ‘wait-and-see’ gravity related to Bernanke’s testimony on Wednesday. In the meantime, the CFTC’s COT figures showed last week that net long speculative futures positioning hit a fresh eight-and-a-half year low. On the positive side, though, the CBOE’s gold volatility index has continues to retreat (now 23.5 percent) and the wholesale selling of ETF holdings has leveled off this past week.

**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

4:00

JPY

Tokyo Condominium Sales (YoY) (JUN)

49.2%

March was the first time the reading moved above 20% since May 2012.

6:00

EUR

EU 25 New Car Registrations (JUN)

-5.9%

Any improved data out of Italy will help avert added stress on the crisis-prone Euro-zone.

8:00

EUR

Italian Trade Balance (Total) (euros) (MAY)

2500M

1907M

8:00

EUR

Italian Trade Balance Eu (euros) (MAY)

441M

8:30

GBP

Producer Price Index Input n.s.a. (YoY) (JUN)

4.2%

2.2%

Higher inflation expectations combined with less than stellar growth prospects put the BoE in a tough position in regards to current easing policy. Consumer and producer price data will provide an excellent backdrop ahead of Wednesday’s BoE release of minutes.

8:30

GBP

Producer Price Index Output n.s.a. (YoY) (JUN)

1.9%

1.2%

8:30

GBP

Producer Price Index Output Core n.s.a. (YoY) (JUN)

1.1%

0.8%

8:30

GBP

DCLG UK House Prices (YoY) (MAY)

2.8%

2.6%

8:30

GBP

Consumer Price Index (YoY) (JUN)

3.0%

2.7%

8:30

GBP

Core Consumer Price Index (YoY) (JUN)

2.3%

2.2%

8:30

GBP

Retail Price Index (YoY) (JUN)

3.4%

3.1%

8:30

GBP

Retail Price Index Ex Mort Int.Payments (YoY) (JUN)

3.4%

3.1%

8:30

EUR

Italian General Government Debt (MAY)

2041.3B

Declines in trade balance do not help the EU as poor economic conditions are starting to create some significant political tensions in Portugal and Greece.

9:00

EUR

Euro-Zone Consumer Price Index (MoM) (JUN)

0.1%

0.1%

9:00

EUR

Euro-Zone Consumer Price Index (YoY) (JUN F)

1.6%

1.6%

9:00

EUR

Euro-Zone Consumer Price Index - Core (YoY) (JUN F)

1.2%

1.2%

9:00

EUR

Euro-Zone Trade Balance s.a. (euros) (MAY)

16.2B

16.1B

9:00

EUR

Euro-Zone Trade Balance (euros) (MAY)

12.0B

14.9B

9:00

EUR

Euro-Zone ZEW Survey (Economic Sentiment) (JUL)

30.6

9:00

EUR

German ZEW Survey (Current Situation) (JUL)

9.0

8.6

Any disappointment out of the EU’s strongest nation will have broader implications for the Euro-Zone to the downside.

9:00

EUR

German ZEW Survey (Economic Sentiment) (JUL)

40.0

38.5

12:30

CAD

Manufacturing Shipments (MoM) (MAY)

0.8%%

-2.4%

Economists surveyed over the past week have lowered estimates from 1.0% to the current 0.8%.

12:30

USD

Consumer Price Index (MoM) (JUN)

0.3%

0.1%

Now that the Fed has stated policy will be dependent on incoming data, market participants will be watching US data with a watchful eye. Falling inflation levels are a worry and last Wednesday Mr. Bernanke stressed that such levels of falling inflation are devastating for an economy. Any major changes here will provide a backdrop for Bernanke’s speech and Q&A before congress this Wednesday and Thursday.

12:30

USD

Consumer Price Index (YoY) (JUN)

1.6%

1.4%

12:30

USD

Consumer Price Index ex Food & Energy (YoY) (JUN)

1.6%

1.7%

13:00

USD

Total Net TIC Flows (MAY)

$12.7B

13:00

USD

Net Long-term TIC Flows (MAY)

-$37.3B

13:15

USD

Industrial Production (JUN)

0.3%

0.0%

13:15

USD

Capacity Utilization (JUN)

77.7%

77.6%

13:15

USD

Manufacturing Production (SIC) (JUN)

0.2%

0.1%

14:00

USD

NAHB Housing Market Index (JUL)

51

52

GMT

Currency

Upcoming Events & Speeches

1:00

AUD

Australia Sells 9-Year Inflation Bonds

1:30

AUD

Reserve Bank of Australia Meeting Minutes

9:00

EUR

ECB Announces Allotment of 3-Month Dollar Tender

10:30

GBP

BoE's Paul Fisher Testifies to Parliament on QE

12:00

EUR

Bank of Portugal Releases Summer Economic Bulletin

12:00

USD

|| US 2Q Earnings – Goldman Sachs

18:15

USD

Fed's Esther George Speaks on U.S. Economy

23:50

JPY

Bank of Japan Meeting Minutes

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

12.6585

1.9351

9.8846

7.7575

1.2616

Spot

6.6706

5.7059

6.0699

Support 1

12.6000

1.9100

9.3700

7.7490

1.2000

Support 1

6.0800

5.6075

5.9365

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

GBP/JPY

Gold

Res 3

1.3192

1.5251

101.18

0.9585

1.0524

0.9279

0.7928

132.19

152.65

1311.30

Res 2

1.3161

1.5215

100.82

0.9559

1.0503

0.9249

0.7902

131.74

152.17

1303.42

Res 1

1.3131

1.5179

100.47

0.9533

1.0481

0.9219

0.7876

131.29

151.68

1295.54

Spot

1.3070

1.5106

99.77

0.9482

1.0437

0.9160

0.7823

130.39

150.71

1279.78

Supp 1

1.3009

1.5033

99.07

0.9431

1.0393

0.9101

0.7770

129.49

149.74

1264.02

Supp 2

1.2979

1.4997

98.72

0.9405

1.0371

0.9071

0.7744

129.04

149.25

1303.42

Supp 3

1.2948

1.4961

98.36

0.9379

1.0350

0.9041

0.7718

128.59

148.76

1311.30

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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