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Dollar and S&P 500 Volatility Risk Not Defused by Bernanke Testimony

By , Chief Currency Strategist
18 July 2013 04:35 GMT
  • Dollar and S&P 500 Volatility Risk Not Defused by Bernanke Testimony
  • British Pound Biggest Fundamental Mover on Strong Jobs, Surprise BoE Minutes
  • Euro Slides after Bank of Italy Downgrades Growth Outlook, Weak Portugal Bond Sale
  • Canadian Dollar Welcomes New BoC Governor with a Retreat
  • Australian and New Zealand Dollar Gauge Relative Strength
  • Japanese Yen: Bank of Japan Receives a Vote of Confidence from Bernanke
  • Gold Rejected at $1,300 as Bernanke Avoids Taper Relief, BoE Shirks QE

Dollar and S&P 500 Volatility Risk Not Defused by Bernanke Testimony

Fed Chairman Ben Bernanke played the monetary policy game well this past session. He managed to defuse what was an extreme volatility event by carefully negotiating his testimony without feeding speculators’ expectations for Taper plans. And yet, he has just made an inevitable and necessary development from the market’s that much more difficult to trade. Looking to the S&P 500, we have a depiction of risk trends loitering at record highs without conviction for further advancement. Alternatively, the safe haven US dollar hasn’t retreated as the market goes on the hunt for yield nor rallied as the peak in stimulus is realized. This ‘stability’ would be more encouraging it weren’t so clearly an uneasy-quiet that is represented by an array of technical patterns that threaten near-term breakouts. Looking back at the Chairman’s rhetoric before the Senate, he did not alter the time table for a Taper later this year – the consensus is still September. That said, he did invalidate the skeptics hopes of a steady build in stimulus. Furthermore, the Beige Book released later proffered an economic assessment that read like justification for reducing external support. A breakout – bullish or bearish – is necessary for the dollar and S&P 500, but the trigger will be less obvious.

British Pound Biggest Fundamental Mover on Strong Jobs, Surprise BoE Minutes

In a remarkable turn of events, the British pound’s docket proved the most market moving this past session. The sterling climbed against all of its counterparts with a surprisingly strong jobs report and unexpected outcome from the minutes of the Bank of England’s (BoE) last policy meeting. Supporting growing expectations for a robust rebound in UK growth, June jobless claims unexpectedly dropped 21,200-positioned – the biggest improvement in the labor report since June 2010 and a promising precursor to next week’s first quarter GDP report. It was the minutes that were perhaps more surprising however. There was little surprise back on July 4 when the BoE voted to forego additional stimulus at new Governor Mark Carney’s first meeting. Yet, what many didn’t realize until the transcript was released was that the minority votes for further bond purchases at previous meetings were quieted. Fears of a stimulus swell have weighed the sterling since all year, and this may relieve a serious burden from the currency’s shoulders. That said, some alternative – beyond guidance – must have been discussed to quiet the doves…

Euro Slides after Bank of Italy Downgrades Growth Outlook, Weak Portugal Bond Sale

Despite the dollar’s weakness this past session, its primary counterpart wasn’t able to leverage much indirect benefit. The euro was caved to stronger risk-based counterparts in AUD and NZD, while the pound leveraged considerable event risk to bolster its own position. Fundamentals for the euro were comparatively more troubled. Through the European session, two headlines were particularly disconcerting: the Bank of Italy’s downgraded 2013 GDP forecast and a poor showing at Portugal’s debt auction. According to its national central bank, Italy is projected to contract a deeper 1.9 percent this year versus 1.0 percent projected back in April. That puts another core Eurozone member deeper into recession. Meanwhile, the temporary stay of government dissolution hasn’t revived investor confidence in Portuguese markets as demand at its 12-month bond auction tumbled and the cost of financing jumped. A positive that may carry over to tomorrow though was the late, theGreek Parliament approval of contentious public sector reform that puts public 12,500 jobs at risk – trading social discontent for an aid payment.

Canadian Dollar Welcomes New BoC Governor with a RetreatThe Bank of Canada held its first monetary policy meeting with newly-installed Governor Stephen Poloz at the helm. However, unlike the situation in the UK where Mark Carney has brought substantial change to the regime at the BoE, Canada’s new head central banker didn’t initiate many changes. Poloz’s rhetoric was different, but its content was essentially the same. The warning of ‘gradual normalization’ in rates was a suggestion that the next move would be a hike, yet it was clearly further down the road. Meanwhile, an upgraded 2013 GDP forecast (from 1.5 to 1.8 percent) is unique nowadays. For data, the C$6.7 billion capital inflow May was half the previous month, but still positive.

Australian and New Zealand Dollar Gauge Relative Strength

Both the Australian and New Zealand dollars have recovered from this past Friday’s swing lows. Yet, which one carries the greatest potential? That is a determination likely to be made by the fundamentals. While there are any number of elements that go into pricing a currency, just a few actually carry the clout to define trends. Both the Aussie and kiwi dollars are ‘investment’ currencies to global investors; and that is where we must look to gauge strength. The yield on both countries’ 10-year government bond has dropped sharply – a sign of stepped up demand. Meanwhile, the interest rate forecast on for the RBNZ has seen the aggressive 70bps worth of hikes over the coming 12-month fall back to 45bps, while the probability of an RBA cut next month has dropped from 70 percent to 54 percent. Speculation of hikes is more appealing than forecasts for cuts; but if both conditions are priced in, the Aussie dollar is actually seeing improvement.

Japanese Yen: Bank of Japan Receives a Vote of Confidence from Bernanke

There is no better approval for your expansive stimulus effort when that endorsement comes from the world’s most pervasive monetary policy supporter. In response to a question posed before the House, Bernanke said that the Bank of Japan’s (BoJ) unprecedented stimulus program was aiming to revive growth and beat deflation rather than give the country an inequitable trade advantage by manipulating the currency. This approval may stand as further evidence that attendees of the G-20 will back off of the cries of currency manipulated that were heaped on Japan at previous gatherings. The tame but consistent positive bearing on global equities no doubt helped the miserly carry trade as well.

Gold Rejected at $1,300 as Bernanke Avoids Taper Relief, BoE Shirks QE

Ambiguity in Chairman Bernanke’s testimony in regards to the taper may have saved the dollar and equities from a nasty spill, but the status quo doesn’t work for gold. That is because the regular theme as of late for the commodity has been a consistent deleveraging effort as it loses its ‘alternative store of wealth’ liquidity. Even if the head of the US central bank had given a clear signal that the Taper would be pushed back into the end of the year or perhaps early 2014, gold would still have struggled to generate bullish momentum. A delayed reduction in stimulus is not an increase in the existing effort. Instead, with the market still working on a September time frame for the first reduction in monthly, US QE purchases; the metal’s effort to overtake $1,300-resistance evolved into reversal (New to Forex? Watch this video). Add to that the end of additional stimulus calls at the BoE and Greece’s approval of the next round of austerity measures and currency erosion is easing.

**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

0:00

AUD

Conference Board Leading Index (MAY)

0.3%

Serving as a proxy for Chinese growth or slowdowns, data out of both NZ and Australia will continue to be close watched as China-bears eye relevant data.

1:00

NZD

ANZ Consumer Confidence Index (JUL)

123.9

1:00

NZD

ANZ Consumer Confidence (MoM) (JUL)

0.20%

1:30

AUD

NAB Business Confidence (2Q)

2

1:30

CNY

Property Prices (JUN)

1:30

AUD

RBA Foreign Exchange Transaction (Australian dollar) (JUN)

490M

1:30

AUD

RBA Foreign Exchange Transaction- Other (Australian dollar) (JUN)

33M

3:30

AUD

RBA Foreign Exchange Transaction- Public (Australian dollar) (JUN)

-515M

5:30

JPY

Nationwide Department Store Sales (YoY) (JUN)

2.6%

Abenomics appears to be showing an impact in sales data as the print recovers strongly after being below 0 earlier in the year.

5:30

JPY

Tokyo Department Store Sales (YoY) (JUN)

5.1%

6:00

CHF

Trade Balance (Swiss franc) (JUN)

2.15B

2.22B

Market participants will be looking for any comments from SNB members during any big data prints as the central bank is currently intervening in the FX market to stabilize the Franc.

6:00

CHF

Exports (MoM) (JUN)

1.70%

6:00

CHF

Imports (MoM) (JUN)

0.90%

8:00

EUR

Euro-Zone Current Account s.a. (euros) (MAY)

19.5B

Current account prints have been on the rise since early 2011

8:00

EUR

Euro-Zone Current Account n.s.a. (euros) (MAY)

15.3B

8:30

GBP

Retail Sales ex Auto Fuel (MoM) (JUN)

0.2%

2.1%

Sales and inflation figures have the ability to move markets where they otherwise would not as a dovish new BoE head is raising speculation of more easing.

8:30

GBP

Retail Sales ex Auto Fuel (YoY) (JUN)

1.6%

2.1%

8:30

GBP

Retail Sales inc Auto Fuel (MoM) (JUN)

0.4%

2.1%

8:30

GBP

Retail Sales inc Auto Fuel (YoY) (JUN)

1.7%

1.9%

12:30

CAD

Wholesale Sales (MoM) (MAY)

0.2%

The print has not deviated beyond 2% since April of 2012.

12:30

USD

Initial Jobless Claims (JUL 12)

360K

Fed Chairman Ben Bernanke made it clear on Wednesday that any talk of a taper would be in the context of incoming data. Therefore, from here on out we can expect surprises in data to move markets.

12:30

USD

Continuing Claims (JUL 6)

2977K

14:00

USD

Philadelphia Fed. (JUL)

6.8

12.5

14:00

USD

Leading Indicators (JUN)

0.3%

0.1%

22:45

NZD

Net Migration s.a. (JUN)

1740

The print has been moving up since moving positive in January of 2012.

23:50

JPY

Japan Buying Foreign Bonds (Yen) (JUL 12)

973.1B

Past prints have confirmed that Japanese are investing their money in the domestic economy and that foreigners are piling into Japanese stocks. A continuation of the trend verifies positive outlook for Abenomics.

23:50

JPY

Japan Buying Foreign Stocks (Yen) (JUL 12)

-14.1B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (JUL 12)

3.5B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (JUL 12)

486.9B

GMT

Currency

Upcoming Events & Speeches

USD

G20 Finance Ministers and Central Bankers Meeting

USD

G20 Labour Ministers Meeting

EUR

German Fin Min Schaeuble to Visit Greece

7:00

EUR

ECB's Joerg Asmussen Speaks on Euro Economy

Aft-Mkt

USD

|| US 2Q Earnings - Google

11:15

USD

|| US 2Q Earnings - Morgan Stanley

14:00

USD

Fed Chairman Ben Bernanke Humphrey-Hawkins Testimony

17:00

USD

US to Sell 10-Year TIPS

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

12.8248

1.9532

9.9898

7.7565

1.2611

Spot

6.6645

5.7005

6.0533

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

1.3207

1.5321

100.65

0.9579

1.0466

0.9268

0.7945

131.66

152.53

1315.85

Res 2

1.3176

1.5284

100.28

0.9553

1.0444

0.9238

0.7918

131.18

152.02

1307.84

Res 1

1.3145

1.5246

99.91

0.9527

1.0422

0.9208

0.7891

130.71

151.50

1299.83

Spot

1.3084

1.5172

99.18

0.9475

1.0378

0.9149

0.7838

129.76

150.47

1283.80

Supp 1

1.3023

1.5098

98.45

0.9423

1.0334

0.9090

0.7785

128.81

149.44

1267.77

Supp 2

1.2992

1.5060

98.08

0.9397

1.0312

0.9060

0.7758

128.34

148.93

1307.84

Supp 3

1.2961

1.5023

97.71

0.9371

1.0290

0.9030

0.7731

127.86

148.41

1315.85

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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18 July 2013 04:35 GMT