Trade FOREX with FXCM

  • Award-Winning Platform
  • 24/7 Customer Support
  • Trade Directly on Charts
  • Free $50K Practice Account

Resources

DailyFX Home / Forex Market News / Forecasts / Daily Forecasts

Dollar Rebounds Before Bear Trend Solidifies and NFPs Hit

By , Chief Currency Strategist
03 July 2014 04:04 GMT

Talking Points:

  • Dollar Rebounds Before Bear Trend Solidifies and NFPs Hit
  • Euro: How Would a Hold on Policy Impact the Market?
  • British Pound Yield Advantage Versus Dollar Highest in 3 Years

Dollar Rebounds Before Bear Trend Solidifies and NFPs Hit

A last minute bounce for the US dollar has balanced the market before the ever-important nonfarm payrolls (NFPs) release. If the Dow Jones FXCM Dollar Index (ticker = USDollar) had stumbled through another session, it would have confirmed the worst series of losses for the benchmark in 11 months and likely tipped the scales on a 16-month congestion pattern. Breaking such prominent support would materially alter both the trend and presumptions of activity level – a direct contrast to the general state of volatility we are currently facing. Developing a trend in a market that is systemically negating momentum and conviction is exceptionally difficult and thereby a low probability event. That said, while conditions may foil trends, it doesn’t preclude volatility.

For volatility, we have the convergence of a perfect drain on market activity. We have seen a steady decline in realized and forecasted activity measures for all asset classes. From the FX-based VIX, we are only one-day removed from a record low (5.53 percent). To further exacerbate the situation, the Independence Day market holiday for the US represents one of the most dependable seasonality effects in financial markets – a further withdrawal of liquidity and subsequent narrowing of trading range. This makes for an extraordinary situation. Already extremely low, this holiday could bring a trough in activity. Of course, if it is the ‘extreme’ low, that would suggest that a turn may be at hand. Given July statistically sees the biggest increase in volatility measures of any other months, this may not be far off the mark.

With the market environment in mind, we will better be prepared for what to expect from the June labor data. Volatility from ‘surprise’ outcomes (deviations from consensus) can generate a volatility response, but it is unlikely to instigate a strong drive…at least until next week. The NFPs figure generally captures the market’s immediate attention, though the ‘qualitative’ measures – like the unemployment, participation and wage growth rate – have started to carry more influence since the Fed dropped its forward guidance targets. If there is a clear improvement in the broad range of data, it could stoke Fed rate hopes next week when market participants are back in full force.

Euro: How Would a Hold on Policy Impact the Market?

Just a month ago, the European Central Bank (ECB) announced a range of initiatives aimed at supporting economic activity, curbing disinflation and revive private lending. Initially, the Euro sunk as the central bank lowered its benchmark rates (including a negative deposit rate) and announced a target-LTRO. These directly reduce the yield and demand the currency offers. Yet, that initial tumble didn’t last. Why? Because we are competing against a very motivated market force: appetite for return. Appetite for higher rates has sent investors to depressed and high-yielding European assets. Stimulus helps to reduce the implied risk with these investments, but the premium will eventually fall below equilibrium. In this meeting, there is little need to move again so soon…unless they are adamant in their need to drive the euro lower.

British Pound Yield Advantage Versus Dollar Highest in 3 Years

Where most other dollar-based majors put in some degree of correction, GBPUSD muscled to yet another multi-year high. This strength falls squarely on the sterling’s shoulders. One of the best performing currencies this past session, a jump in the Markit construction survey and Natinowide housing price index for June offered another lift in rate speculation. Looking to 2-year UK government bond yields, a 0.93 percent reading is the highest level since June 2011 and also represents the biggest premium to its US counterpart in the same amount of time. The service sector and composite activity reports in the upcoming session will have a tall task to keep this perfection priced in.

Australian Dollar: RBA Governor Says Currency Too High, Dollar Undervalued

Effective central bank currency manipulation depends on how committed the market believes you are to driving the exchange rate. The RBA was very vocal this morning, but most of it is seen as bluster that will not lead to tangible action to forcibly alter the market. Governor Stevens this morning said the market underestimates an Aussie dollar drop and that the US dollar is undervalued. But will he do anything to realize that?

Chinese Yuan on Edge of Rally, Data Attempts to Catalyze Move

The Chinese government’s non-manufacturing activity report for June was offered a relatively flat reading – a modest ease from the previous month at 55.0 but well in growth territory. The HSBC service and composite readings for the same period blew the consensus out of the water. With USDCNH carving out a bearish reversal pattern, this update is well placed. Yet, even top tier indicators struggle to move the Renminbi.

Emerging Market Currencies Diverge Further from Capital Markets

Emerging Market capital asset benchmarks posted notable gains this past session. The MSCI Emerging Market ETF rose 0.3 percent on the day to bring it back up to range support. Yet, volume here was just as anemic as the advanced economy markets. Meanwhile, the more liquid EM currencies were weakening. The Brazilian Real, South African Rand and Mexican Peso gave ground to the day’s dollar gains.

Gold Falls Back into Range as Jobs Report’s Impact on Dollar, Risk, Yields Comes Into Focus

Any hope that the strong hiccups of bullish interest from gold these past weeks would feed an underlying trend have all but vanished. The metal has fallen back into a quiet trading pattern with tame volume and leveling open interest amongst derivatives. Perhaps US labor data today can revive interest. This round of event risk can move risk trends, inflation forecasts and dollar bearings – gold’s primary themes.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

1:00

CNY

PMI Non-Manufacturing (JUN)

55.5

Service sector expansion implies economy is growing

1:30

AUD

Retail Sales s.a. (MoM) (MAY)

0.0%

0.2%

Reflects Consumer Confidence

1:30

AUD

Building Approvals (MoM) (MAY)

3.2%

-5.6%

Housing data has triggered bubble concerns in Australia as with many other countries

1:30

AUD

Building Approvals (YoY) (MAY)

8.0%

1.1%

1:35

JPY

Markit PMI Services (JUN)

49.3

Though the BoJ is confident of its policy objectives, growth is still slow to blossom

1:35

JPY

Markit PMI Composite (JUN)

49.2

1:45

CNY

HSBC PMI Services (JUN)

50.7

These proprietary surveys tend to be more volatile than their government counterparts

1:45

CNY

HSBC PMI Composite (JUN)

50.2

7:45

EUR

Italian Markit PMI Composite (JUN)

52.7

Will be a significant driver behind ECB’s policies

7:50

EUR

French Markit PMI Composite (JUN F)

48.0

48.0

7:55

EUR

German Markit PMI Composite (JUN F)

54.2

54.2

8:00

EUR

Euro-Zone Markit PMI Composite (JUN F)

52.8

52.8

8:30

GBP

Official Reserves (Changes) (JUN)

-$613M

Strong numbers might encourage the BoE to move up its timetable on rate hikes

8:30

GBP

Markit PMI Services (JUN)

58.3

58.6

8:30

GBP

Markit PMI Composite (JUN)

58.6

59.0

9:00

EUR

Euro-Zone Retail Sales (MoM) (MAY)

0.3%

0.4%

A key ‘broad’ economic reading for the Eurozone that is under the ECB’s stewardship with fresh accommodation

9:00

EUR

Euro-Zone Retail Sales (YoY) (MAY)

1.8%

2.4%

11:45

EUR

European Central Bank Interest Rate Decision

0.15%

0.15%

The ECB announced a round of measures just last month, there is little expectation of quick follow up

11:45

EUR

European Central Bank Deposit Facility Rate

-0.10%

-0.10%

12:30

CAD

International Merchandise Trade (C$) (MAY)

-0.30B

-0.64B

A key component to growth for the Canadian economy

12:30

USD

Change in Non-Farm Payrolls (JUN)

210K

217K

The Fed follows certain mandates to determine its monetary policy, and unemployment is an important. The Fed had set a target unemployment rate of 6% before it would consider raising interest rates last June. It has sense dropped the objective, but the impression remains amongst market participants

12:30

USD

Unemployment Rate (JUN)

6.3%

6.3%

12:30

USD

Labor Force Participation Rate (JUN)

62.8%

12:30

USD

Underemployment Rate (JUN)

12.2%

12:30

USD

Average Hourly Earnings (MoM) (JUN)

0.2%

0.2%

12:30

USD

Average Hourly Earnings (YoY) (JUN)

2.0%

2.1%

12:30

USD

Average Weekly Hours (JUN)

34.5

34.5

12:30

USD

Trade Balance (MAY)

-$45.0B

-$47.2B

Significant deviations from expectations causes fluctuation in currency value

12:30

USD

Initial Jobless Claims (JUN 28)

312K

312K

Shows number of people in labor market actively looking for a job

12:30

USD

Continuing Claims (JUN 21)

2580K

2571K

13:45

USD

Markit PMI Services (JUN F)

61.2

Economic recovery another important mandate of Fed. Figures will be strong catalyst behind the timing of interest rate change

13:45

USD

Markit PMI Composite (JUN F)

61.1

14:00

USD

ISM Non-Manufacturing Composite (JUN)

56.0

56.3

GMT

Currency

Upcoming Events & Speeches

12:30

EUR

ECB President Mario Draghi Holds Press Conference

13:00

EUR

Merkel, Draghi, Schaeuble & Weidmann Speak on Euro Economy

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

13.5800

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.1500

2.3000

11.8750

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.9418

2.1289

10.6645

7.7501

1.2466

Spot

6.6888

5.4511

6.1665

Support 1

12.8350

2.0700

10.2500

7.7490

1.2000

Support 1

6.0800

5.3350

5.7450

Support 2

12.6000

1.7500

9.3700

7.7450

1.1800

Support 2

5.8085

5.2715

5.5655

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

1.3750

1.7247

102.19

0.8930

1.0692

0.9524

0.8822

139.83

1345.75

Res 2

1.3732

1.7223

102.04

0.8917

1.0679

0.9508

0.8806

139.61

1340.98

Res 1

1.3714

1.7199

101.89

0.8904

1.0665

0.9492

0.8789

139.40

1336.21

Spot

1.3679

1.7152

101.59

0.8878

1.0639

0.9460

0.8756

138.97

1326.67

Supp 1

1.3644

1.7105

101.29

0.8852

1.0613

0.9428

0.8723

138.54

1317.13

Supp 2

1.3626

1.7081

101.14

0.8839

1.0599

0.9412

0.8706

138.33

1312.36

Supp 3

1.3608

1.7057

100.99

0.8826

1.0586

0.9396

0.8690

138.11

1307.59

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.

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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

03 July 2014 04:04 GMT