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Dollar Advances Despite Risk Trends, Questionable Data

Dollar Advances Despite Risk Trends, Questionable Data

2011-09-01 04:25:00
John Kicklighter, Chief Currency Strategist
Share:
  • Dollar Advances Despite Risk Trends, Questionable Data
  • Euro: Should We Take Greek Rumors Seriously?
  • British Pound Slides Ahead of Housing, Manufacturing Data
  • Canadian Dollar Surprisingly Steady Despite 2Q Economic Contraction
  • Swiss Franc Rallies in the SNB’s Absence, Can GDP Offer Relief
  • Japanese Yen Pays Little Heed to Noda’s Vows to Target the Yen
  • Gold Carves out its Smallest Range in Two Weeks as Correlations Wane

Dollar Advances Despite Risk Trends, Questionable Data

The dollar put in for a notable advance through Wednesday’s session; but the support from this move was not easily determined. The obligatory review of risk appetite trends would show US equities closed high for the fourth consecutive session – the best run since the end of June. Furthermore, the event risk on the economic docket wouldn’t do much to break the greenback’s tie to risk trends or curb speculation that the Fed would back off its path to further stimulus next month. In fact, the modest disappointment in the ADP employment change for August (91,000 gain) and weakest reading from the Purchasing Managers of Chicago’s factory activity report since November 2009 would reinforce the argument for additional accommodation. And yet, the Dow Jones FXCM Dollar Index (ticker = USDollar) would advance off its August range low.

Defining the dollar’s strength, we need to once again reflect on market conditions. A tangible deterioration in global credit and financial conditions is the foundation for dollar strength (playing to its safe haven status) and active depreciation through US stimulus expansion is the primary weight for the currency. In reality, these particular elements happen to be the catalysts for overall risk trends. However, both of these drivers have lost traction. That opens the field up to more topical and short-lived considerations while a healthy section of the market remains on the sidelines until the major themes once again take over. A natural result of this fundamental mix is a lack of conviction behind a singular focus – in turn leading to chop and a deterioration in previously dominant correlations (like the overriding shifts in risk appetite trends).

Looking ahead to the coming trading session, there isn’t a clear read on these major themes regaining traction. What’s more the presence of Friday’s NFPs will act as a distraction to discourage new trends. However, the ISM factory activity report is important enough to growth to follow.

Related:Discuss the Dollar in the DailyFX Forum, John’s Video: EURUSD Marks a Tentative Breakout but What About Follow Through?

Euro: Should We Take Greek Rumors Seriously?

The euro put in for another quick stumble through this past active trading session. Once again, the performance of this particular currency is a good means for gauging exactly what the market believes is important from a fundamental perspective. If we were to fall back in risk appetite trends, the strong performance from US and European equity indexes (many were up as much as 3 percent through the close) would suggest that sentiment had improved and thereby concern for the region’s financial troubles would significantly retreat. Given the euro’s performance, that line of reasoning didn’t hold water.

Instead, we would defer to the development of economic and financial troubles behind the Euro. On the docket, we noted that Germany reported its 26th consecutive monthly decline in unemployment and a consistent 2.5 percent read for Euro Zone CPI; but the health of the region’s largest economy is not in doubt and interest rate expectations are no longer a consideration. This leads the discussion directly back to the viability of a recovery in the region’s financial system. On that front, the most remarkable headline was the rumor that Greece had hired a law firm to begin debt restructuring and Euro Zone withdrawal procedures. Of course this would be instantly refuted and it likely has little merit; but the outlook is so dour that this is not an unlikely path for the nation to take (in fact, many believe it is inevitable). With short-term (1 year) Greek government bond yields above 60 percent, it is hard to avoid the bearish outlook. Furthermore, that should lead us to take warnings that European banks exposure is an underappreciated problem more seriously. Expect rumors and confirmed reports of this nature to continue.

British Pound Slides Ahead of Housing, Manufacturing Data

The British pound took its cues from the euro this past session; and it is reasonable to expect the same for general trend for the rest of the week. This connection (facilitated by the economy’s ties to the Euro Zone) stands as the most prominent driver for the foreseeable future. In the meantime, we can see brief distractions through volatility related to data. That said, we should keep an eye on the London session releases.

Canadian Dollar Surprisingly Steady Despite 2Q Economic Contraction

Canada’s 2Q GDP report delivered a far more remarkable surprise than even the skeptics had expected. According to the Stats Canada report, the world’s either largest economy contracted on an annualized basis by 0.4 percent – the first contraction since 2Q 2009. This doesn’t fit well with the image of a more stable US alternative; and this will certainly undermine its strength going forward.

Swiss Franc Rallies in the SNB’s Absence, Can GDP Offer Relief

It isn’t often that the market will react when something that wasn’t expected to happen, doesn’t. That is exactly what sparked the franc’s recent rally. Of the four Wednesdays in August, the SNB announced intervention in the forwards/swaps market three times – an effort to keep the currency down. In the coming session, the focus will turn to obvious event risk (2Q GDP). Will a slowdown curb its safe haven appeal? Unlikely.

Japanese Yen Pays Little Heed to Noda’s Vows to Target the Yen

Japan’s sixth Prime Minister in five years noted three of his primary objectives entering the top spot – rebuild the destruction wrought by the devastating earthquake; clean up the nuclear fallout; and to fight the economic-damaging effects of the elevated Japanese yen. Sounds very familiar to Kan’s priorities. And, the yen threat seems as hollow as it always has been. Until the threat of peg comes in, that will remain.

Gold Carves out its Smallest Range in Two Weeks as Correlations Wane

Technically, gold retraced through Wednesday’s session; but there was little conviction in the move. In fact, there was so little drive behind the commodity that it carved out its smallest daily range in two weeks. This diminished activity level will not likely last for long however. While it is difficult to jump start trends in these markets; the consistency in financial troubles and stimulus is a virtual constant.

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

1:00

NZD

ANZ Commodity Price (AUG)

-0.1%

Prices may be subdued by strong NZD

1:00

CNY

PMI Manufacturing (AUG)

51

50.7

Main driver of the Chinese economy expected to recover moderately, though on the verge of stalling

1:30

AUD

Private Capital Expenditure (Q2)

4.0%

3.4%

Prices-related data expected to hasten moderately, though interest rates expected to hold until next year

1:30

AUD

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

0.3%

-0.1%

2:30

CNY

HSBC Manufacturing PMI (AUG)

49.3

HSBC index may follow official data

4:00

JPY

Official Reserve Assets (AUG)

$1150.9B

Increase may be due to selling efforts

5:00

JPY

Vehicle Sales (YoY) (AUG)

-27.6%

Domestic demand still weak

5:30

EUR

French ILO Mainland Unemployment Rate (Q2)

9.2%

9.2%

French employment data not expected to move market, still hinges on German labor data yesterday

5:30

EUR

French Mainland Unemployment Change (Q2)

-7K

5:30

EUR

French ILO Unemployment Rate (Q2)

9.7%

9.7%

5:45

CHF

GDP (QoQ) (Q2)

0.4%

0.6%

Swiss output expected to grow at a slower pace as domestic demand replaces lost exports, slower recovery

5:45

CHF

GDP (YoY) (Q2)

2.3%

2.5%

6:00

EUR

German GDP s.a. (QoQ) (Q2 F)

0.1%

0.1%

Final revisions of Q2 data not expected to change drastically from advance data

6:00

EUR

German GDP w.d.a. (YoY) (Q2 F)

2.7%

2.7%

6:00

EUR

German GDP n.s.a. (YoY) (Q2 F)

2.8%

2.8%

6:00

EUR

German Domestic Demand (Q2)

1.1%

Breakdown of Q2 German GDP shows a large drop in construction, exports. Weakness in major sectors of the German economy may indicate further weakness ahead in the European union.

6:00

EUR

German Government Spending (Q2)

-0.1%

1.3%

6:00

EUR

German Construction Investment (Q2)

-1.4%

6.2%

6:00

EUR

German Imports (Q2)

2.3%

1.5%

6:00

EUR

German Private Consumption (Q2)

-0.2%

0.4%

6:00

EUR

German Exports (Q2)

1.6%

2.3%

6:00

EUR

German Capital Investment (Q2)

0.8%

5.0%

6:00

GBP

Nationwide House Prices SA MoM (AUG)

0.0%

0.2%

UK house prices survey shows improvement in the long term, though not likely to change sentiment

6:00

GBP

Nationwide House Prices NSA YoY (AUG)

0.4%

-0.4%

6:30

AUD

RBA Commodity Price Index (AUG)

108.3

Price index expected to fall as slowdown saps copper, base metals prices

7:15

CHF

Retail Sales (Real) (YoY) (JUL)

7.4%

Retail sales may fall from recent peak

7:30

CHF

SVME-Purchasing Managers Index (AUG)

51

53.5

European PMI data weakness may point to less hawkish central banks, overall recovery slowdown

7:45

EUR

Italian PMI Manufacturing (AUG)

49

50.1

7:50

EUR

French PMI Manufacturing (AUG F)

49.3

49.3

7:55

EUR

German PMI Manufacturing (AUG F)

52

52

8:00

EUR

Euro-Zone PMI Manufacturing (AUG F)

49.7

49.7

Eurozone PMI expected unchanged

8:30

GBP

PMI Manufacturing (AUG)

49

49.1

British PMI weaker due to slower economy

12:00

USD

RBC Consumer Outlook Index (SEP)

40.2

Outlook index near post-recession lows

12:30

USD

Unit Labor Costs (Q2 F)

2.3%

2.2%

Secondary US labor market data may show continued weakness, may confirm slowdown in recovery

12:30

USD

Initial Jobless Claims (AUG 27)

408K

417K

12:30

USD

Non-Farm Productivity (Q2 F)

-0.5%

-0.3%

12:30

USD

Continuing Claims (AUG 20)

3685K

3641K

13:45

USD

Bloomberg Consumer Comfort (AUG 28)

-47

Survey still at lows

14:00

USD

Construction Spending (MoM) (JUL)

0.2%

0.2%

US construction moderately growing on commercial demand

14:00

USD

ISM Manufacturing (AUG)

48.5

50.9

US manufacturing industries expected to weaker in August, may set tone into rest of the year

14:00

USD

ISM Prices Paid (AUG)

55

59

21:00

USD

Total Vehicle Sales (AUG)

12.1M

12.2M

US spending on large goods seen as weakening on economic uncertainty

21:00

USD

Domestic Vehicle Sales (AUG)

9.5M

9.62M

GMT

Currency

Upcoming Events & Speeches

16:30

USD

Fed's Lockhart Speaks on Economy in Lafayette

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

0.8560

1.0275

1.0750

0.9020

118.00

146.05

Resist 1

1.5000

1.6600

81.50

0.8275

1.0000

1.0800

0.8750

113.50

140.00

Spot

1.4372

1.6244

76.59

0.8062

0.9785

1.0691

0.8516

110.08

124.42

Support 1

1.4000

1.5935

76.35

0.7500

0.9425

1.0350

0.7745

109.00

124.00

Support 2

1.3700

1.5750

75.50

0.7000

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

12.3212

1.7151

7.0000

7.7864

1.2045

Spot

6.3424

5.1838

5.3636

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

1.4510

1.6367

77.03

0.8303

0.9848

1.0757

0.8600

111.28

125.70

Resist 1

1.4441

1.6306

76.81

0.8183

0.9816

1.0724

0.8558

110.68

125.06

Pivot

1.4400

1.6272

76.62

0.8088

0.9771

1.0688

0.8531

110.29

124.68

Support 1

1.4331

1.6211

76.40

0.7968

0.9739

1.0655

0.8489

109.69

124.04

Support 2

1.4290

1.6177

76.21

0.7873

0.9694

1.0619

0.8462

109.30

123.66

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

1.4563

1.6417

77.47

0.8192

0.9890

1.0850

0.8651

111.80

126.09

Resist. 2

1.4515

1.6374

77.25

0.8159

0.9864

1.0810

0.8618

111.37

125.67

Resist. 1

1.4467

1.6331

77.03

0.8127

0.9838

1.0771

0.8584

110.94

125.26

Spot

1.4372

1.6244

76.59

0.8062

0.9785

1.0691

0.8516

110.08

124.42

Support 1

1.4277

1.6157

76.15

0.7997

0.9732

1.0611

0.8448

109.22

123.58

Support 2

1.4229

1.6114

75.93

0.7965

0.9706

1.0572

0.8414

108.79

123.16

Support 3

1.4181

1.6071

75.71

0.7932

0.9680

1.0532

0.8381

108.36

122.74

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

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

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