British Pound: Impact from CPI Leveraged by BoE’s Shift

DailyFX

  • Dollar Posts First Advance in Seven Days as Fed Report Minimizes QE
  • Japanese Yen Posts Universal Drop after 2Q GDP Release
  • British Pound: Impact from CPI Leveraged by BoE’s Shift
  • Euro: Does the Market Not Care About Greece’s Ongoing Recession?
  • Australian Dollar Stumbles after Pre-Election Debates on Budget, Economy
  • US Oil Little Moved after IEA Lowers 2014 Demand Outlook, Specs Temper Longs
  • Gold Wins a Critical Technical Break Above $1,320 – Will it Trend?

Dollar Posts First Advance in Seven Days as Fed Report Minimizes QE

The US Dollar advanced Monday for the first time in seven consecutive trading sessions. That ended the longest string of consecutive losses for the currency in 19 months. Having corrected approximately 350 points from the three-year high set last month, the Dow Jones FXCM Dollar is testing the boundaries between a mere correction and a committed trend reversal. With the opening session’s rebound, there is relatively little to suggest this is anything more than a natural bounce from a currency that is more comfortable trading within a low boundary range rather than making the more fundamentally-loaded push lower. One headline that did stick out for dollar bulls Monday was a Fed research report that suggested forward guidance offered better results than outright QE. Tuesday, watch for Fed’s Lockhart’s comments.

Japanese Yen Posts Universal Drop after 2Q GDP Release

Economic growth in the world’s third largest economy was slower than expected according to the official 2Q GDP numbers. The 0.6 percent expansion through the three-month period translated into a 2.6 percent annualized pace – slower than the 0.9 and 3.6 percent tempo expected respectively. Unlike the dollar’s connection to the expected Taper timeframe, this data’s impact on the yen crosses is relatively straightforward. When the Nikkei 225 initially slipped Monday morning, so too did the yen crosses. Local capital flows on overleveraged carry exposure promotes a clear relationship between capital markets and the currency. Yet, when the Nikkei stalled, so too did the yen’s rally.

British Pound: Impact from CPI Leveraged by BoE’s Shift

Though there are a range of noteworthy releases on the economic docket for the upcoming 24 hours, the data with the best potential for generating volatility is the UK inflation report. The sterling has enjoyed a shift in strength these past weeks tied to the expectations surrounding the Bank of England’s monetary policy path. Through the opening quarter of the year, the pound dropped between 9.1 and 5.4 percent against its major counterparts (with the exception of GBPJPY) on the combined expectations of an ongoing recession and upgraded stimulus effort. Those concerns have receded over the past few months as monthly economic readings upgraded into positive quarterly GDP figures. Realization that the BoE would not blindly follow the Fed, BoJ and ECB down the path of escalated stimulus programs is where the real momentum has been found however. The CPI reading can further expel hold out expectations for the central bank to cave to stimulus appetite. Though Governor Carney set a 7 percent threshold on the unemployment report, inflation can prove the spark for the eventual rate hike.

Euro: Does the Market Not Care About Greece’s Ongoing Recession?Conditions are improving for the Eurozone’s most troubled members…slowly. For the first of this week’s European GDP releases, Greece reported a year-over-year slump of 4.6 percent through 2Q. Compared to the performance of ‘Core’ members, this is a pained reading; but compared to the 5.6 percent drop through the first quarter (much less the record 9.0 percent plunge in 4Q 2010), it is a material improvement. It is difficult for optimists or pessimists to claim this data for their cause. German news outfit Der Spiegel ran an article over the weekend that quoted an internal Bundesbank report that expected Greece to receive another loan later this year or early 2014 though the country’s efforts were deemed ‘barely satisfactory’. There are longer-term issues at play, but investors have grown tolerant of European troubles as long as they don’t seize up region’s financial system. Perhaps the growth updates for the Core on Wednesday can clarify.

Australian Dollar Stumbles after Pre-Election Debates on Budget, Economy

Australian Prime Minister Kevin Rudd and Liberal-National coalition leader Tony Abbott debated the economy and national budget Monday in the first discussion before the national September 7 election. At the center of concern is how to compensate the waning strength of a Chinese led boom in export demand and investment alongside a projected A$70 billion financing gap. A proposed, 1.5 percent point reduction corporate tax rate cut by the opposition has peaked the business community’s interest, but the economic implications the discussion has one way or the other is not immediately digestible for near-term FX traders. If local equity markets climb on assumed, favorable business conditions; it may still not offer enough Aussie dollar support to compensate for global ebb and flow that influences foreign investment in local investments.

US Oil Little Moved after IEA Lowers 2014 Demand Outlook, Specs Temper Longs

US-standard West Texas Intermediate (WTI) oil prices were little changed Monday – a significant change of pace from this past Friday’s 2.5 percent rally. For the past month, the commodity has oscillated between $109 and $102.50 as the fundamental drive has shifted from the ‘mispricing’ on supply-demand issues in key US ports to the more traditional courses. For risk trends, there has been limited ‘risk appetite’ to pick up the reins since the US benchmark fully closed the gap against its UK counterpart – Brent – a month ago. Given this stalled momentum, the retreat in the CFTC’s Commitment of Traders (COT) report – showing the first pullback in six weeks for record net speculative long futures interest – should concern bulls. Similarly, the International Energy Agency’s (IEA) global demand forecast for next year cools the appetite. Due to a slowing China economy and unconvincing US and European pace, the group lowered its demand forecasts to 92 million barrels per day.

Gold Wins a Critical Technical Break Above $1,320 – Will it Trend?

A tentative rebound by the US dollar this past session didn’t prevent gold from making a leap higher. The precious metal climbed 1.8 percent ($24) Monday – the second biggest advance in four weeks. What makes the move particularly impressive though is the context with which it has occurred. This opening move has cleared $1,320 and subsequently broken a level of technical resistance. Less subjective, this advance brings gold’s tally to a four day string of gains. Since the commodity entered its current bear phase (last September), we have seen 8 other instances of four-day advances (one was a 5-day climb). This seems a statistic cap for measuring out ‘corrections’ in a dominant. To keep moving higher would insinuate a more fundamental shift in bias. To generate the support needed to keep a persistent trend in place, the anti-currency appeal is gaining little traction as Taper expectations seem rooted. Alternatively, pure speculative appeal can fill a gap left by dollar impotency as it awaits the September Fed. COT figures revealed the biggest jump in net speculative futures positioning last week in 11 months.

**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

1:30

AUD

NAB Business Conditions (JUL)

-8

The Business Condition indicator has been on the decline since the end of 2009.

1:30

AUD

NAB Business Confidence (JUL)

0

6:00

EUR

German Consumer Price Index (MoM) (JUL F)

0.5%

0.5%

Surveys indicate an improvement in CPI YoY after April’s disappointing print of 1.20%. In the past decade, CPI EU Harmonized YoY was only negative for a brief period in mid-2009.

6:00

EUR

German Consumer Price Index (YoY) (JUL F)

1.9%

1.9%

6:00

EUR

German CPI - EU Harmonised (MoM) (JUL F)

0.4%

0.4%

6:00

EUR

German CPI - EU Harmonised (YoY) (JUL F)

1.9%

1.9%

8:30

GBP

Consumer Price Index (MoM) (JUL)

0.0%

-0.2%

CPI YoY in the U.K. has been at the 2% level since 2009. After topping at over 5% in 2011, CPI has remained below 3% for the past year.

8:30

GBP

Consumer Price Index (YoY) (JUL)

2.8%

2.9%

8:30

GBP

Core Consumer Price Index (YoY) (JUL)

2.2%

2.3%

8:30

GBP

Retail Price Index (JUL)

249.6

249.7

Along with the CPI, Retail Price Index YoY has flirted with the 3% level for most of the past year.

8:30

GBP

Retail Price Index (MoM) (JUL)

0.0%

-0.1%

8:30

GBP

Retail Price Index (YoY) (JUL)

3.1%

3.3%

8:30

GBP

Retail Price Index ex Mort Int.Payments (YoY) (JUL)

3.1%

3.3%

8:30

GBP

Producer Price Index Input n.s.a. (MoM) (JUL)

1.1%

0.2%

Upstream / Factory-level inflation figures continue to show pressure on producers for raw materials. Could add to higher costs for consumers further down the stream.

8:30

GBP

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

5.5%

4.2%

8:30

GBP

Producer Price Index Output n.s.a. (MoM) (JUL)

0.2%

0.1%

8:30

GBP

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

2.1%

2.0%

8:30

GBP

Producer Price Index Output Core n.s.a. (MoM) (JUL)

0.1%

0.0%

8:30

GBP

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

1.2%

1.0%

9:00

EUR

Euro-Zone Industrial Production s.a. (MoM) (JUN)

1.0%

-0.3%

The Euro-Zone ZEW Survey has been improving since the start of 2012 despite lingering headwinds.

9:00

EUR

Euro-Zone Industrial Production w.d.a. (YoY) (JUN)

0.5%

-1.3%

9:00

EUR

Euro-Zone ZEW Survey (Eco Sentiment) (AUG)

32.8

9:00

EUR

German ZEW Survey (Current Situation) (AUG)

12.0

10.6

Strong numbers continue to come out of Germany as general sentiment in the Euro-Zone has been on the rise.

9:00

EUR

German ZEW Survey (Economic Sentiment) (AUG)

40.0

36.3

11:30

USD

NFIB Small Business Optimism (JUL)

93.5

As the September FOMC meeting and rate decision nears, U.S. data continues to be in the spotlight, especially in a light week such as this one. Improvements in advance retail sales will be seen as further justification for a September taper.

12:30

USD

Import Price Index (MoM) (JUL)

0.8%

-0.2%

12:30

USD

Import Price Index (YoY) (JUL)

0.2%

12:30

USD

Advance Retail Sales (JUL)

0.3%

0.4%

12:30

USD

Advance Retail Sales ex Autos (JUL)

0.4%

0.0%

12:30

USD

Advance Retail Sales ex Auto and Gas (JUL)

0.4%

-0.1%

12:30

USD

Advance Retail Sales Control Group (JUL)

0.3%

0.1%

14:00

USD

Business Inventories (JUN)

0.3%

0.1%

22:45

NZD

Retail Sales ex Inflation (QoQ) (2Q)

1.5%

0.5%

Inflation is finally beginning to return to more favorable levels nearer to 2% after being in negative territory in September of last year.

GMT

Currency

Upcoming Events & Speeches

AUD

Pre-Election Economic and Fiscal Outlook (Treasury)

16:45

USD

Fed's Dennis Lockhart Speaks on U.S. Economy

17:30

BRL

Brazil to Sell Index-Linked 5, 8, 16, 23, 33-Year Bonds

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

12.6809

1.9247

9.8892

7.7559

1.2634

Spot

6.5302

5.6092

5.8733

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

1.3406

1.5580

98.10

0.9347

1.0382

0.9251

0.8101

130.36

1366.64

Res 2

1.3380

1.5550

97.80

0.9324

1.0363

0.9225

0.8078

130.00

1359.09

Res 1

1.3353

1.5521

97.51

0.9302

1.0344

0.9199

0.8055

129.63

1351.55

Spot

1.3299

1.5461

96.92

0.9258

1.0306

0.9148

0.8009

128.89

1336.45

Supp 1

1.3245

1.5401

96.33

0.9214

1.0268

0.9097

0.7963

128.15

1321.35

Supp 2

1.3218

1.5372

96.04

0.9192

1.0249

0.9071

0.7940

127.78

1359.09

Supp 3

1.3192

1.5342

95.74

0.9169

1.0230

0.9045

0.7917

127.42

1366.64

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

Sign up for John’s email distribution list, here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

Rates

View Comments (1)