Dollar Rally Forces EURUSD and USDJPY Breaks

Date

8/21/2014 1:34:48 AM

(MENAFN- DailyFX) DailyFX.com - r>

Talking Points:

Dollar Rally Forces EURUSD and USDJPY Breaks
British Pound Surprised by BoE Hawks But Doesn’t Turn
Euro Traders Ready for Another Round of Economic Data

Dollar Rally Forces EURUSD and USDJPY Breaks

" style="text-align:justify"> Between two days of key event risk it seemed that the US Dollar was due a period of moderation. However this past session was anything but. The normally boilerplate FOMC minutes offered up a surprisingly hawkish lean and extended the currency’s impressive run this week. This extension has raised the stakes for the dollar’s trends. Aside from the Dow Jones FXCM Dollar Index (ticker = USDollar) advancing to six-month highs we find that many of the majors are attempting to tip the scales into key breakouts. Key among these standout moves are EURUSD GBPUSD and USDJPY. Each carries a different level of fundamental headwind and thereby carries a different gauge of the dollar’s strength. EURUSD sets the currency against a currency that projects an economic performance and monetary policy bearing that stands into direct contrast to the US. The Cable is a more significant fundamental balance with UK growth and BoE rate forecasts outpacing their counterpart. Then there is USDJPY – a cross that shares a distinct relationship to equities through carry and investor appetite.

" style="text-align:justify"> For the dollar to maintain this exceptional run its fundamental backing will have to build steadily. The current trend has been founded on a material upgrade to interest rate expectations. Tuesday’s July CPI figure may have kept the ‘mid-2015’ time frame for the first Fed hike in contention but falling in-line with consensus did little to embolden rate hawks or convert the complacent and doves. The Fed minutes were far more effective in that capacity. According to the transcript of the July 29-30 meeting “many Fed officials” believed the pace of job gains may bring forward the first Fed hike. On inflation “most” saw downside pressures on price growth diminishing. While not stamping a specific date on the first 25bp hike this presents a tangible hawkishness. Ahead we are set for another round of rate fodder in US manufacturing activity data and the start of the Jackson Hole Symposium. One element in this slow but measureable change in monetary policy from one of the first adopters is its impact on risk trends. Will the low volatility environment hold out as the easy money is slowly reined in

British Pound Surprised by BoE Hawks But Doesn’t Turn

While the Fed’s minutes will no doubt stand out in peoples’ memory longer because of the dollar’s response the Bank of England’s review was just as remarkable. Breaking from the trend of unanimity for the MPC we learned that the vote to hold rates was actually 7-2. Members Weale and McCafferty voted for a 25 basis point rate hike at the last meeting. While this is still far from consensus voices calling for action now means the ultimate hike is much closer than it has been in years. Ahead retail sales and a 10-year Gilt sale present second tier event risk.

Euro Traders Ready for Another Round of Economic Data

Last week the Euro’s fortunes dimmed significantly when 2Q GDP figures showed the ‘core’ economies had stalled or contracted. Though European equity indexes have held steady through the disappointment the implications are significant. A drop in economic activity will temper investor returns and could lead governments to put their deficit reduction goals on hold. That in turn could reverse the record low sovereign borrowing costs and reverse capital inflows. Ahead we have PMI figures to tell us whether August activity has improved at all.

USDJPY Position on a Different Level than Other Yen Crosses

This past session GBPJPY recovered from a near breakdown and EURJPY edged above trendline resistance. In comparison USDJPY put in for a genuine break higher. This was in large part due to the bullish performance of the dollar but the general performance for these crosses is remarkable. The BoJ has offered little change in tone to suggest they are willing to upgrade their anti-yen policies so the focus in this performance is fully on risk trends. Yet the motivations behind sentiment and carry trade are shaky. Can risk appetite really hold firm while economic activity cools Watch for discussions about health of the global economy and financial market at Jackson Hole.

Australian Dollar Drops after Chinese PMI Misses

Australian data released this morning was modestly encouraging. The June Conference Board Leading Index grew 0.4 percent to offer support through the traditional growth channels. Meanwhile the capital markets were bolstering the appeal of carry currencies like the Aussie dollar with equity markets on the rise. And yet the Australian currency took a nasty spill. The source of this move was the August HSBC Chinese Manufacturing PMI. Though still reflecting growth (above 50) the substantial miss of expectations with a 50.3 print clearly unnerved traders.

Emerging Markets: Stimulus Tide Turn Could Spell Trouble

" style="text-align:justify"> Developed world equity markets didn’t’ seem too troubled by the implications of an earlier end to easy US monetary policy but the Emerging Markets seem to have taken it to heart. The MSCI EM ETF slipped for the first time in three days (0.2 percent) just after printing a new 18-month high. In the FX market the EM currencies were heavily coated in red with majors like the Turkish Lira down 1.0 percent South African Rand off 0.9 percent and Mexican Peso lower by 0.7 percent.

Gold’s Decline Notably Slower than Dollar’s Advance

There is a meaningful divergence in the relative performance of gold and the US Dollar. As the currency is the common pricing instrument for the commodity their moves are often mirrors not just in direction but magnitude as well. Yet where gold is down for four consecutive days through Wednesday it’s losses are far more constrained than the greenback’s gains. Perhaps that safe haven demand is gaining some traction.

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ECONOMIC DATA

" style="text-align:center"> GMT	" style="text-align:center"> Currency	" style="text-align:center"> Release	" style="text-align:center"> Survey	" style="text-align:center"> Previous	" style="text-align:center"> Comments
" style="text-align:center"> 00:00	" style="text-align:center"> AUD	Conference Board Leading Index (JUN)		" style="text-align:center"> 0.2%	The House affordability Index has seen an uptrend for the last few years rising from 52.5 in Q2 of 2010
" style="text-align:center"> 01:00	" style="text-align:center"> AUD	CBAHIA House Affordability (2Q)		" style="text-align:center"> 77.20
" style="text-align:center"> 01:00	" style="text-align:center"> AUD	ANZ Consumer Confidence (MoM) (AUG)		" style="text-align:center"> 0.6%
" style="text-align:center"> 01:30	" style="text-align:center"> AUD	RBA FX Transaction (Australian dollar) (JUL)		" style="text-align:center"> 1271M	RBA FX transactions usually peak during the Aussie winter months
" style="text-align:center"> 01:30	" style="text-align:center"> AUD	RBA FX Transactions Government (JUL)		" style="text-align:center"> -1293M
" style="text-align:center"> 01:35	" style="text-align:center"> JPY	Markit/JMMA Japan Manufacturing PMI (AUG P)	" style="text-align:center"> 51.50	" style="text-align:center"> 50.50	Sentiment has fallen from a high of 56.6 in Jan to 50.5 in July
" style="text-align:center"> 01:45	" style="text-align:center"> CNY	HSBC China Manufacturing PMI (AUG P)	" style="text-align:center"> 51.50	" style="text-align:center"> 51.70	Been reported higher than expected in the last two months
" style="text-align:center"> 03:00	" style="text-align:center"> NZD	Credit Card Spending (MoM) (JUL)		" style="text-align:center"> 0.7%	Credit card spending has risen since Oct 2009 in NZ reflecting a strong consumer sentiment
" style="text-align:center"> 03:00	" style="text-align:center"> NZD	Credit Card Spending (YoY) (JUL)		" style="text-align:center"> 7.0%
" style="text-align:center"> 06:00	" style="text-align:center"> CHF	Trade Balance (Swiss franc) (JUL)	" style="text-align:center"> 1.85B	" style="text-align:center"> 1.38B	Switzerland’s trade balance has always reflected greater exports than imports since August 2005
" style="text-align:center"> 06:00	" style="text-align:center"> CHF	Exports (MoM) (JUL)		" style="text-align:center"> 5.6%
" style="text-align:center"> 06:00	" style="text-align:center"> CHF	Imports (MoM) (JUL)		" style="text-align:center"> 10.8%
" style="text-align:center"> 07:00	" style="text-align:center"> CHF	Money Supply M3 (YoY) (JUL)		" style="text-align:center"> 4.0%	Sharp drop last month from the 8%+ levels since June 2012
" style="text-align:center"> 07:00	" style="text-align:center"> EUR	Markit France Composite PMI (AUG P)	" style="text-align:center"> 49.60	" style="text-align:center"> 49.40	French manufacturing has contracted in 5 of 7 months YTD
" style="text-align:center"> 07:00	" style="text-align:center"> EUR	Markit France Manufacturing PMI (AUG P)	" style="text-align:center"> 47.80	" style="text-align:center"> 47.80	French manufacturing has contracted in 5 of 7 months YTD
" style="text-align:center"> 07:30	" style="text-align:center"> EUR	Markit/BME Germany Manufacturing PMI (AUG P)	" style="text-align:center"> 51.50	" style="text-align:center"> 52.40	Manufacturing PMI has largely been on the downtrend from a YTD high of 56.5 in January
" style="text-align:center"> 07:30	" style="text-align:center"> EUR	Markit/BME Germany Composite PMI (AUG P)	" style="text-align:center"> 54.60	" style="text-align:center"> 55.70
" style="text-align:center"> 08:00	" style="text-align:center"> EUR	Markit Eurozone Manufacturing PMI (AUG P)	" style="text-align:center"> 51.30	" style="text-align:center"> 51.80	PMI Data is anticipated to be lower than last month’s and a poor report might add bets to additional stimulus from the ECB
" style="text-align:center"> 08:00	" style="text-align:center"> EUR	Markit Eurozone Services PMI (AUG P)	" style="text-align:center"> 53.70	" style="text-align:center"> 54.20
" style="text-align:center"> 08:00	" style="text-align:center"> EUR	Markit Eurozone Composite PMI (AUG P)	" style="text-align:center"> 53.40	" style="text-align:center"> 53.80
" style="text-align:center"> 08:30	" style="text-align:center"> GBP	Retail Sales (MoM) (JUL)	" style="text-align:center"> 0.4%	" style="text-align:center"> -0.1%	Retail Sales data from the UK will be in focus after GDP And CPI data were mostly in line with expectations and higher than expected numbers might stir rate hike speculations from the BoE
" style="text-align:center"> 08:30	" style="text-align:center"> GBP	Retail Sales (YoY) (JUL)	" style="text-align:center"> 3.5%	" style="text-align:center"> 4.0%
" style="text-align:center"> 08:30	" style="text-align:center"> GBP	Retail Sales Incl. Auto (MoM) (JUL)	" style="text-align:center"> 0.4%	" style="text-align:center"> 0.1%
" style="text-align:center"> 08:30	" style="text-align:center"> GBP	Retail Sales Incl. Auto (YoY) (JUL)	" style="text-align:center"> 3.1%	" style="text-align:center"> 3.6%
" style="text-align:center"> 08:30	" style="text-align:center"> GBP	Public Finances (PSNCR) (Pounds) (JUL)		" style="text-align:center"> 11.8B	The UK public sector has consistently borrowed in the last 4 months to finance their deficit
" style="text-align:center"> 08:30	" style="text-align:center"> GBP	Public Sector Net Borrowing (Pounds) (JUL)	" style="text-align:center"> -1.7B	" style="text-align:center"> 9.5B
" style="text-align:center"> 12:30	" style="text-align:center"> USD	Initial Jobless Claims (AUG 16)	" style="text-align:center"> 303K	" style="text-align:center"> 311K	Employment remained a big concern in latest FOMC minutes
" style="text-align:center"> 12:30	" style="text-align:center"> USD	Continuing Claims (AUG 9)	" style="text-align:center"> 2520K	" style="text-align:center"> 2544K	Employment remained a big concern in latest FOMC minutes
" style="text-align:center"> 13:45	" style="text-align:center"> USD	Markit US Manufacturing PMI (AUG P)	" style="text-align:center"> 55.30	" style="text-align:center"> 55.80	Low of 51.0 in Oct 2012 showing an improving US manuf. sector
" style="text-align:center"> 14:00	" style="text-align:center"> USD	Philadelphia Fed. (AUG)	" style="text-align:center"> 19.70	" style="text-align:center"> 23.90	Outlook has largely been positive since February this year
" style="text-align:center"> 14:00	" style="text-align:center"> USD	Existing Home Sales (JUL)	" style="text-align:center"> 5.02M	" style="text-align:center"> 5.04M	The US reported better than expected housing data earlier this week adding more rate hike bets
" style="text-align:center"> 14:00	" style="text-align:center"> USD	Existing Home Sales (MoM) (JUL)	" style="text-align:center"> -0.5%	" style="text-align:center"> 2.6%
" style="text-align:center"> 14:00	" style="text-align:center"> EUR	Euro-Zone Consumer Confidence (AUG A)	" style="text-align:center"> -9.10	" style="text-align:center"> -8.40	Negative sentiment since Feb’01
" style="text-align:center"> 14:00	" style="text-align:center"> USD	Leading Indicators (JUL)	" style="text-align:center"> 0.6%	" style="text-align:center"> 0.3%	Leading Indicators have been reflecting an improving US economy since Feb this year

" style="text-align:center"> GMT	" style="text-align:center"> Currency	" style="text-align:center"> Upcoming Events & Speeches
" style="text-align:center"> -:-	" style="text-align:center"> USD	Kansas City Federal Reserve Jackson Hole Symposium
" style="text-align:center"> 01:30	" style="text-align:center"> AUD	RBA FX Transactions Market

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

" style="text-align:center"> CLASSIC SUPPORT AND RESISTANCE

" style="text-align:center"> EMERGING MARKETS 18:00 GMT						" style="text-align:center"> SCANDIES CURRENCIES 18:00 GMT
" style="text-align:center"> Currency	" style="text-align:center"> USD/MXN	" style="text-align:center"> USD/TRY	" style="text-align:center"> USD/ZAR	" style="text-align:center"> USD/HKD	" style="text-align:center"> USD/SGD	" style="text-align:center"> Currency	" style="text-align:center"> USD/SEK	" style="text-align:center"> USD/DKK	" style="text-align:center"> USD/NOK
" style="text-align:center"> Resist 2	" style="text-align:center"> 13.5800	" style="text-align:center"> 2.3800	" style="text-align:center"> 12.7000	" style="text-align:center"> 7.8165	" style="text-align:center"> 1.3650	" style="text-align:center"> Resist 2	" style="text-align:center"> 7.5800	" style="text-align:center"> 5.8950	" style="text-align:center"> 6.5135
" style="text-align:center"> Resist 1	" style="text-align:center"> 13.3250	" style="text-align:center"> 2.3000	" style="text-align:center"> 11.8750	" style="text-align:center"> 7.8075	" style="text-align:center"> 1.3250	" style="text-align:center"> Resist 1	" style="text-align:center"> 7.3285	" style="text-align:center"> 5.8475	" style="text-align:center"> 6.3145
" style="text-align:center"> Spot	" style="text-align:center"> 13.0707	" style="text-align:center"> 2.1529	" style="text-align:center"> 10.5535	" style="text-align:center"> 7.7507	" style="text-align:center"> 1.2463	" style="text-align:center"> Spot	" style="text-align:center"> 6.8573	" style="text-align:center"> 5.5796	" style="text-align:center"> 6.1569
" style="text-align:center"> Support 1	" style="text-align:center"> 12.8350	" style="text-align:center"> 2.0700	" style="text-align:center"> 10.2500	" style="text-align:center"> 7.7490	" style="text-align:center"> 1.2000	" style="text-align:center"> Support 1	" style="text-align:center"> 6.7750	" style="text-align:center"> 5.3350	" style="text-align:center"> 5.7450
" style="text-align:center"> Support 2	" style="text-align:center"> 12.6000	" style="text-align:center"> 1.7500	" style="text-align:center"> 9.3700	" style="text-align:center"> 7.7450	" style="text-align:center"> 1.1800	" style="text-align:center"> Support 2	" style="text-align:center"> 6.0800	" style="text-align:center"> 5.2715	" style="text-align:center"> 5.5655

" style="text-align:center"> INTRA-DAY PROBABILITY BANDS 18:00 GMT

" style="text-align:center"> \CCY	" style="text-align:center"> EUR/USD	" style="text-align:center"> GBP/USD	" style="text-align:center"> USD/JPY	" style="text-align:center"> USD/CHF	" style="text-align:center"> USD/CAD	" style="text-align:center"> AUD/USD	" style="text-align:center"> NZD/USD	" style="text-align:center"> EUR/JPY	" style="text-align:center"> Gold
" style="text-align:center"> Res 3	" style="text-align:center"> 1.3435	" style="text-align:center"> 1.6781	" style="text-align:center"> 103.17	" style="text-align:center"> 0.9123	" style="text-align:center"> 1.0969	" style="text-align:center"> 0.9386	" style="text-align:center"> 0.8543	" style="text-align:center"> 137.87	" style="text-align:center"> 1329.49
" style="text-align:center"> Res 2	" style="text-align:center"> 1.3417	" style="text-align:center"> 1.6757	" style="text-align:center"> 103.00	" style="text-align:center"> 0.9110	" style="text-align:center"> 1.0953	" style="text-align:center"> 0.9369	" style="text-align:center"> 0.8527	" style="text-align:center"> 137.64	" style="text-align:center"> 1325.18
" style="text-align:center"> Res 1	" style="text-align:center"> 1.3399	" style="text-align:center"> 1.6733	" style="text-align:center"> 102.83	" style="text-align:center"> 0.9096	" style="text-align:center"> 1.0936	" style="text-align:center"> 0.9352	" style="text-align:center"> 0.8510	" style="text-align:center"> 137.41	" style="text-align:center"> 1320.87
" style="text-align:center"> Spot	" style="text-align:center"> 1.3362	" style="text-align:center"> 1.6684	" style="text-align:center"> 102.49	" style="text-align:center"> 0.9069	" style="text-align:center"> 1.0904	" style="text-align:center"> 0.9319	" style="text-align:center"> 0.8476	" style="text-align:center"> 136.95	" style="text-align:center"> 1312.25
" style="text-align:center"> Supp 1	" style="text-align:center"> 1.3325	" style="text-align:center"> 1.6635	" style="text-align:center"> 102.15	" style="text-align:center"> 0.9042	" style="text-align:center"> 1.0872	" style="text-align:center"> 0.9286	" style="text-align:center"> 0.8442	" style="text-align:center"> 136.49	" style="text-align:center"> 1303.63
" style="text-align:center"> Supp 2	" style="text-align:center"> 1.3307	" style="text-align:center"> 1.6611	" style="text-align:center"> 101.98	" style="text-align:center"> 0.9028	" style="text-align:center"> 1.0855	" style="text-align:center"> 0.9269	" style="text-align:center"> 0.8425	" style="text-align:center"> 136.26	" style="text-align:center"> 1299.32
" style="text-align:center"> Supp 3	" style="text-align:center"> 1.3289	" style="text-align:center"> 1.6587	" style="text-align:center"> 101.81	" style="text-align:center"> 0.9015	" style="text-align:center"> 1.0839	" style="text-align:center"> 0.9252	" style="text-align:center"> 0.8409	" style="text-align:center"> 136.03	" style="text-align:center"> 1295.01

-- 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

" style="text-align:justify"> 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.

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