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Dollar Holds Losses this Time Around as S&P 500 Climb Sticks

Dollar Holds Losses this Time Around as S&P 500 Climb Sticks

2011-08-24 04:28:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Holds Losses this Time Around as S&P 500 Climb Sticks
  • Japanese Yen Actually Advances after Japan Downgrade, New Efforts to Curb Advance
  • Euro Advances Despite Weak Economic Figures, Trouble with Bailout Efforts
  • British Pound Finds Little Boost to Housing, Business Sectors
  • Canadian Dollar Slips after Core Retail Sales Reading Reports Contraction
  • New Zealand Dollar Sees Inflation Expectations Back Off, Retail Sales Up
  • Gold Takes its Biggest Hit Since February 2010 but this Isn’t a Reversal

Dollar Holds Losses this Time Around as S&P 500 Climb Sticks

The US dollar has traded back and forth now for five consecutive days. This speaks more to the fundamentals and market conditions that we are facing more so than Tuesday’s single anti-dollar move does. Through this previous session, the benchmark currency fell against all but one of its counterparts (the dollar managed a modest advance versus Swiss franc). This move was facilitated by the bullish effort from our favored barometer for investor sentiment: the S&P 500. The equities managed to overtake 1,150 through the active New York trading session despite the headwinds coming from second tier economic releases. Yet, it was the lack of follow through that should strike us most. Shortly after overtaking the overhead on congestion from the past few trading sessions, strength quickly dissipated. That should surprise no one. Latent attempts to build new trends ahead of major (and ambiguous) event risk will consistently fall flat. And so, QE3 retains its market gravity.

The biggest of the market waves over the past 24 hours were driven by shared sentiment rather than any particular event risk. On the economic docket, we were presented with the July new home sales and August Richmond Fed manufacturing activity figures. This data had little hope in altering the fundamental appeal of the dollar itself; but it would also fall short in shifting risk appetite trends. Certainly a five-month low in home sales (298,000) and two-year low in the regional factory activity (-10) are discouraging against the backdrop of a slowing economy – but that slowdown has been expected and has therefore been long priced in.

Instead, we keep the focus on the closing remarks at the Jackson Hole Symposium this Friday. We’ll cover more of the scenarios for this event come Thursday; but the potential that a shift in monetary policy will be announced in this forum is simply too great to overlook. Naturally, this means that any effort to revive risk appetite will lack for participation just as surely as an attempt to rally the dollar. As such, expectations for Tuesday’s strong S&P 500 advance should be curbed; and the probability of a leveraged reaction to the July durable goods orders or June housing prices figures will be set low.

Related:Discuss the Dollar in the DailyFX Forum, John’s Video: S&P 500 Rally and Japan Downgrade Eclipsed by QE3 Focus

Japanese Yen Actually Advances after Japan Downgrade, New Efforts to Curb Advance

It was Japan’s turn to throw the kitchen sink at its currency – and officials had a little outside help to amplify the effort. With USDJPY consolidating just above record lows, it has become painfully obvious to market participant and policy official that all warnings or active attempts to stem the Japanese currency’s advance to this point have failed. Finance Minister Noda has consistently voiced warnings that the government was watching the FX market and was prepared to act ‘boldly’ should markets prove to be one-sided and the yen not find any relief. Traders long ago discounted this warning as they have seen too many iterations of intervention fail. To up the effort this morning, Noda announced a $100 billion program that would distribute reserves to JBIC in an effort to curb the yen’s influence. In additional, the lawmaker announced that traders will have to disclose their FX positions through September – an effort to scare away speculators by removing their anonymity. This seems like a well-timed effort given Moody’s downgrade of Japan to AA3; yet the Japanese yen has actually gained ground on the move…

Euro Advances Despite Weak Economic Figures, Trouble with Bailout Efforts

The European docket and headlines were generally weak Tuesday. Euro Zone PMI figures (often used as leading indicators for growth) printed modestly better than expected; but they still matched multi-year lows. Far more discouraging were the biggest drop in regional investor confidence on record and a 14-month low in consumer sentiment. Add to that suggestions that the Finland may refuse to participate in the second Greek bailout effort due to a collateral gaff; and things are looking downright dour. That said, this doesn’t significantly alter the outlook.

British Pound Finds Little Boost to Housing, Business Sectors

The sterling put in for a lackluster performance through the previous trading session. In the market-moving pyramid for the pound we first have to worry about underlying risk trends, then we move down to the implications of the Euro-area financial troubles and then we come to local data. That doesn’t offer much hope for a reaction to BBA home purchases or CBI trend figures. Tomorrow’s sentiment reading will similarly struggle.

Canadian Dollar Slips after Core Retail Sales Reading Reports Contraction

With the US showing clear signs of slowing, Canada needs to find as much domestic growth as possible to fortify itself from being drug down into a possible recession scenario. The June retail sales figures do little to offer support. While the headline figure bested expectations by showing a notable 0.7 percent growth, when we took out the car sales, the figure slipped back into contractionary territory (0.1 percent).

New Zealand Dollar Sees Inflation Expectations Back Off, Retail Sales Up

In Tuesday’s calendar, the kiwi dollar took another blow to its questionable, yield-based bullish appeal. While the RBNZ’s two-year inflation forecast for 3Q only ticked down from a 20-year high 3.0 percent reading; the expectations for higher rates is a fragile construction. Perhaps not so fragile that the upcoming 2Q retail sales figures will undermine the currency; but certainly frail enough for risk trends to reverse its strength.

Gold Takes its Biggest Hit Since February 2010 but this Isn’t a Reversal

To some, the largest one-day decline for gold in 18 months would signal a sure reversal. Yet, they shouldn’t be so hasty. First of all, the rally that has driven the metal to record highs these past weeks has leveraged volatility – which leads to naturally intense swings (bearish and bullish). Furthermore, as long as there are uncertainties in risk trends, funding markets and policy manipulation; the metal will remain buoyant.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

22:45

NZD

Trade Balance (New Zealand dollars) (JUL)

-100M

230M

Trade figures have oscillated dramatically over the past three years; but pull back that has recently occurred in the 3Q has stepped up recently

22:45

NZD

Exports (New Zealand dollars) (JUL)

3.85B

3.97B

22:45

NZD

Imports (New Zealand dollars) (JUL)

3.90B

3.74B

22:45

NZD

Balance (YTD) (New Zealand dollars) (JUL)

1104

1021

23:50

JPY

Corporate Service Price (YoY) (JUL)

-0.5%

-0.7%

Upstream inflation figures won’t add enough of an argument to distract the yen’s deeply set funding status

0:00

AUD

Conference Board Leading Index (JUN)

-0.1%

This is a meaningful growth reading; but currently the market is more concerned with risk trends and Aussie yield

1:30

AUD

Construction Work Done (2Q)

1.0%

0.7%

Moderation continues as the post floods work has yet to really gain traction

8:00

EUR

German IFO - Expectations (AUG)

102.8

105

Business confidence likely to follow the same path as consumer / investor figures – but to what degree?

8:00

EUR

German IFO - Business Climate (AUG)

111.0

112.9

8:00

EUR

German IFO - Current Assessment (AUG)

119.8

121.4

9:00

EUR

Euro-Zone Industrial New Orders s.a. (MoM) (JUN)

0.4%

3.6%

A sharp slowdown in factory orders would fit the financial, economic troubles that have developed recently

9:00

EUR

Euro-Zone Industrial New Orders (YoY) (JUN)

11.9%

15.5%

11:00

USD

MBA Mortgage Applications (AUG 19)

4.1%

The sharp drop in mortgage rates after the Fed’s 2-year rate hold may still struggle given pained labor markets

12:30

USD

Durable Goods Orders (JUL)

2.3%

-2.1%

A sharp recovery of June’s contraction is expected; but the lack of participation through core channels may leave the economic impact of this report lacking

12:30

USD

Durables ex Transportation (JUL)

-0.5%

0.1%

12:30

USD

Goods Orders Non-Defense ex Aircrafts (JUL)

-1.8%

-0.4%

12:30

USD

Goods Shipments Non-Defense ex Aircrafts (JUL)

1.0%

14:00

USD

House Price Purchase Index (QoQ) (2Q)

-0.5%

-2.5%

The housing sector continues to flounder. The market will look for any immediate reactions to the vow to keep rates near zero

14:00

USD

House Price Index (MoM) (JUN)

0.1%

0.4%

14:30

USD

DOE U.S. Crude Oil Inventories (AUG 19)

4233K

These weekly inventory figures will be used to compare and contrast any drawdowns that may follow Hurricane Irene

14:30

USD

DOE U.S. Gasoline Inventories (AUG 19)

-3510K

14:30

USD

DOE U.S. Distillate Inventory (AUG 19)

2449K

GMT

Currency

Upcoming Events & Speeches

17:00

USD

US to Sell $35 bln in 5-Year Note Auction

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist 2

1.5160

1.6745

86.00

0.8275

1.0275

1.0800

0.9020

118.00

146.05

Resist 1

1.5000

1.6600

81.50

0.8000

1.0000

1.0645

0.8750

113.50

140.00

Spot

1.4438

1.6509

76.67

0.7915

0.9884

1.0527

0.8359

110.70

126.58

Support 1

1.4000

1.5935

76.35

0.7000

0.9425

1.0400

0.7745

109.00

124.00

Support 2

1.3700

1.5750

75.50

0.6800

0.9055

0.9925

0.6850

106.00

119.00

CLASSIC SUPPORT AND RESISTANCE EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

13.8500

1.8235

7.4025

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

12.5000

1.8000

7.3500

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

12.3175

1.7695

7.1803

7.7956

1.2035

Spot

6.3194

5.1598

5.4283

Support 1

11.5200

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.4400

1.5725

6.4295

7.7450

1.1800

Support 2

5.8085

4.9115

4.9410

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist 2

1.4577

1.6635

77.16

0.7963

0.9942

1.0631

0.8468

111.65

127.39

Resist 1

1.4507

1.6572

76.92

0.7939

0.9913

1.0579

0.8414

111.17

126.98

Pivot

1.4431

1.6510

76.69

0.7896

0.9881

1.0483

0.8313

110.63

126.57

Support 1

1.4361

1.6447

76.45

0.7872

0.9852

1.0431

0.8259

110.15

126.17

Support 2

1.4285

1.6385

76.22

0.7829

0.9820

1.0335

0.8158

109.61

125.76

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist. 3

1.4643

1.6691

77.59

0.8044

0.9998

1.0699

0.8505

112.56

128.42

Resist. 2

1.4592

1.6646

77.36

0.8012

0.9970

1.0656

0.8469

112.10

127.96

Resist. 1

1.4540

1.6600

77.13

0.7980

0.9941

1.0613

0.8432

111.63

127.50

Spot

1.4438

1.6509

76.67

0.7915

0.9884

1.0527

0.8359

110.70

126.58

Support 1

1.4336

1.6418

76.21

0.7850

0.9827

1.0441

0.8286

109.77

125.66

Support 2

1.4284

1.6372

75.98

0.7818

0.9798

1.0398

0.8249

109.30

125.20

Support 3

1.4233

1.6327

75.75

0.7786

0.9770

1.0355

0.8213

108.84

124.74

v

Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com

Follow John on twitter at http://www.twitter.com/JohnKicklighter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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