Australian Dollar Advances a Second Day as China Funding Crisis Eases
Dollar Steadies Even as S&P 500 Rebounds, Data Leading to Taper?
Both the Dow Jones FXCM Dollar Index (ticker = USDollar)
and S&P 500 closed the day higher Tuesday. This
counter-fundamental, positive correlation tells us something very
important: that the ‘risk aversion’ drive that followed the Federal Reserve’sTaper warningis losing its potency.
If risk aversion were truly intensifying, an unwinding of the
front-run-the-Fed trades would evolve into a deleveraging of the
exposure that was founded on the assumption of boundless support by the
central bank. Yet, there is not enough momentum behind this fear to keep
US equities – which are arguably the most stubborn benefactor of the
‘more hazard’ – shedding the uncommitted investors as the benchmarks
pull back from record highs. This hesitance should not be taken to mean
that the danger of a full-scale bear market has been avoided however. Leverage (measured on the NYSE) is at record highs and participation (S&P 500 futures open interest) at 15-year lows.
Australian Dollar Advances a Second Day as China Funding Crisis Eases
Funding pressure in the
Chinese markets is a significant threat to financial stability globally,
but it is especially troublesome for the Aussie dollar which is exposed
through its direct trade exposure as well as its position as the
major’s top ‘investment’ currency. The story out of China has developed
around a few Chinese banks essentially defaulting on loans due to a severe shortage of short-term funding.
This issue has evolved out of regulators cracking down on particular
venues for financial institutions to continue to lend out short-term
credit at excessive rates in hopes of trying to curb a lending bubble in
the economy. The People’s Bank of China (PBoC) voiced confidence that
funding risks would be met individually but they wouldn’t lax rules.
Shibor lending rates have eased today, and the relief offers further
Aussie reprieve.
Japanese Yen: Asia Market Volatility Remains, Stirs Yen Crosses
The Tokyo session is proving to be the more active period for swing traders.
While the Nikkei 225 started Wednesday’s session following in the wake
of the US equity market’s climb, the Japanese benchmark suffered a
severe jolt as trading wore on. The more than 300-point intraday plunge from the stock index
may be technically smaller than the near 450-poing tumble the previous
session, but it still represents serious volatility issues for the
region. And, volatility begets volatility. If the market’s remain this
reactive, the proper catalyst to align investors’ concerns can generate a
breakout to undermine the past few weeks’ worth of congestion. A
bearish break for shares would be a direct spark for yen buying (spark
for yen crosses to drop) as it would rouse risk aversion that leads to
carry trade deleveraging. Yet, general activity itself – regardless of
direction – is also a problem for Asian markets as it volatility is
elementally a measure of ‘risk’.
Canadian Dollar the Most Oversold Currency Short Term?Over
the past few months, the Australian dollar may have shed more value
than any other major currency; but more immediate comparison performance
of the past two weeks shows a different scale. Through that period, the
FX market’s worst performer has been the Canadian dollar. While the USDCAD’s 3.2 percent advance is most remarkable,
the rest of its pairings have delivered the loonie between 1.7 and 1.3
percent in losses. Through that same period, the Canadian data has held
up relatively well. Capital inflations, home sales, retail sales and
inflation have improved. Furthermore, we have seen net speculative short
interest on the Canadian currency via futures positioning on the COT
drop 65 percent from a six year low set two months ago. An eight-day straight advance in USDCAD (the longest since 2005) looks stretched.
Swiss Franc: SNB’s Zurbruegg EURCHF Cap Necessary, Risks Can’t be Hedged
EURCHF hasn’t returned to
the Swiss National Bank’s (SNB) imposed 1.2000-floor in nine months.
However, that doesn’t seem reason enough for the policy authority to
lift its backstop on the critical pairing. Governing Council member
Fritz Zurbruegg remarked this past session that the barrier is
especially necessary considering the stability of the Euro-region is once again at risk.
Speaking to regional bankers’ group, Zurbruegg also made note that the
SNB’s reserve levels are a result of FX exposure accumulated through
monetary policy. Furthermore, he noted that the central bank couldn’t
hedge itself of these risks and volatility via the euro or dollar was
felt immediately by the group. This may be obvious, but it breaks from
the unflappable confidence we expect from central bankers. Is that recognition of the possibility of failure?
British Pound Traders Take Note of King’s Warning that Carney Limited
When Bank of England
Governor Mervyn King testified before the Treasury Committee for the
last time as the leader of the central bank, he said something sterling
traders consider. In a humorous quip, King suggested that while his
replacement may be more persuasive than he is; Marc Carney would not likely gain more traction than his predecessor.
Each person has one vote under the current regime at the Monetary
Policy Committee (MPC); and King has been outvoted in his call for
stimulus in the past three policy meetings 3 to 6. The market would do
well to remember that Carney can only accomplish so much in his new
position without the support of the Committee. Speculation that the BoE
will materially upgrade its stimulus efforts to match that of the BoJ,
Fed or even ECB has added material weight to the pound. We will see if
this reality clears up slowly or all at once on July 4 when Carney casts his first vote. Meanwhile, we should read through the details on the upcoming BoE Financial Stability report. Last week it was suggested that there is a £26 billion hole in bank financing…
Gold Extends its Plunge to Fresh Multi-Year Lows Overnight
Bulls were making a feigned
attempt to keep gold above the $1,275 level following last week’s FOMC
route. That line in the sand was crossed this morning as the precious metal dropped another 2-plus percent through Asia session trading.
The stability of the US dollar through the past session – despite the
firming of the US equity markets and thereby sentiment – was one aspect
of erosion for the ‘alternative store of wealth’ asset. Yet the real
trigger for fresh lows for the metal seems to be the reduced tension in
the Chinese funding markets. Without a material and pressing financial
stability threat, the task of reviving the fundamental strength of a
last resort and heavily pummeled asset like gold is even further out of
reach. Meanwhile, volume behind the gold selling may be backing off, but
the CBOE’s gold volatility index is still above 25 percent (before
April’s market collapse it averaged around 13 percent) and ETF holdings
hit yet another multi-year low. In fact, the 1.1 percent drop in the exposure was the second biggest in 22 months and ushered in a fresh 3-year low 66.46 million ounces.
**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
|
6:00
|
CHF
|
UBS Consumption Indicator (MAY)
|
|
1.46
|
A recent appreciation in the Franc may impact domestic consumption favorably.
|
6:00
|
EUR
|
German GfK Consumer Confidence Survey (JUL)
|
6.5
|
6.5
|
Indicator has been on a steady and sustainable rise since late 2008.
|
6:45
|
EUR
|
French Gross Domestic Product (QoQ) (1Q F)
|
-0.20%
|
-0.20%
|
France will be under pressure to meet or beat expectations as Eurozone fears reemerge.
|
6:45
|
EUR
|
French Gross Domestic Product (YoY) (1Q F)
|
-0.40%
|
-0.40%
|
|
10:00
|
GBP
|
CBI Reported Sales (JUN)
|
-3
|
-11
|
Lows last month were the worst in over a year.
|
11:00
|
USD
|
MBA Mortgage Applications (JUN 21)
|
|
-3.30%
|
Although
figures are surveyed to come in unchanged from prior readings, any
numbers that beat those expectations will contribute to a USD on the
rise as global risk factors and brighter days for the US economy drive
the greenback even higher.
|
12:30
|
USD
|
Gross Domestic Product (Annualized) (1Q T)
|
2.40%
|
2.40%
|
|
12:30
|
USD
|
Personal Consumption (1Q T)
|
3.40%
|
3.40%
|
|
12:30
|
USD
|
Gross Domestic Product Price Index (1Q T)
|
1.10%
|
1.10%
|
|
12:30
|
USD
|
Core Personal Consumption Expenditure (QoQ) (1Q T)
|
1.30%
|
1.30%
|
|
14:30
|
USD
|
DOE U.S. Crude Oil Inventories (JUN 21)
|
|
313K
|
Volatility outside the normal ranges has been limited since January in regards to weekly inventory levels.
|
14:30
|
USD
|
DOE U.S. Distillate Inventory (JUN 21)
|
|
-489K
|
|
14:30
|
USD
|
DOE U.S. Gasoline Inventories (JUN 21)
|
|
183K
|
|
16:00
|
EUR
|
French Total Jobseekers Change (MAY)
|
26
|
39.8
|
Disappointments here will add to stresses on the Eurozone outlook.
|
16:00
|
EUR
|
French Total Jobseekers (MAY)
|
|
3264.4k
|
|
22:45
|
NZD
|
Trade Balance (New Zealand dollars) (MAY)
|
427M
|
157M
|
Following
strong comments from Wheeler on the NZD, improvements in New Zealand may
push the currency higher and test his statements on intervention
attempts to devalue the currency.
|
22:45
|
NZD
|
Exports (New Zealand dollars) (MAY)
|
4.45B
|
3.95B
|
|
22:45
|
NZD
|
Imports (New Zealand dollars) (MAY)
|
4.02B
|
3.80B
|
|
22:45
|
NZD
|
Balance (YTD) (New Zealand dollars) (MAY)
|
-522M
|
-694M
|
|
23:50
|
JPY
|
Japan Buying Foreign Bonds (Yen) (JUN 21)
|
|
-¥402.5B
|
Market
participants will take note of any greater decrease in the degree to
which Japan is putting money abroad. Short term decreases like these
have occurred despite calls for capital flight following the BoJ’s
massive easing program.
|
23:50
|
JPY
|
Japan Buying Foreign Stocks (Yen) (JUN 21)
|
|
-¥129.9B
|
|
23:50
|
JPY
|
Foreign Buying Japan Bonds (Yen) (JUN 21)
|
|
¥313.3B
|
|
23:50
|
JPY
|
Foreign Buying Japan Stocks (Yen) (JUN 21)
|
|
-¥3.6B
|
|
GMT
|
Currency
|
Upcoming Events & Speeches
|
9:15
|
EUR
|
ECB Announces Allotment of 3-Month Refi Tender
|
9:30
|
GBP
|
BoE Publishes Financial Stability Report
|
11:30
|
GBP
|
UK Chancellor Osborne Announces Spending Review
|
12:15
|
EUR
|
ECB's Joerg Asmussen Speaks on Euro Economy
|
14:00
|
USD
|
Fed's Fisher, Lacker Testify on Financial Stability
|
15:15
|
EUR
|
ECB's Yves Mersch Speaks 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
|
15.0000
|
2.0000
|
10.7000
|
7.8165
|
1.3650
|
|
Resist 2
|
7.5800
|
5.8950
|
6.1150
|
Resist 1
|
12.9000
|
1.9000
|
10.2500
|
7.8075
|
1.3250
|
|
Resist 1
|
6.8155
|
5.8300
|
5.9365
|
Spot
|
12.6508
|
1.8635
|
9.8671
|
7.7638
|
1.2504
|
|
Spot
|
6.4843
|
5.5860
|
5.7475
|
Support 1
|
12.0000
|
1.6500
|
9.3700
|
7.7490
|
1.2000
|
|
Support 1
|
6.0800
|
5.6075
|
5.7400
|
Support 2
|
11.5200
|
1.5725
|
8.9500
|
7.7450
|
1.1800
|
|
Support 2
|
5.8085
|
5.4440
|
5.5000
|
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
|
1.3471
|
1.5837
|
96.50
|
0.9339
|
1.0246
|
0.9728
|
0.8187
|
128.84
|
151.40
|
Resist. 2
|
1.3441
|
1.5805
|
96.12
|
0.9312
|
1.0226
|
0.9696
|
0.8159
|
128.34
|
150.84
|
Resist. 1
|
1.3412
|
1.5772
|
95.74
|
0.9285
|
1.0207
|
0.9665
|
0.8130
|
127.83
|
150.29
|
Spot
|
1.3353
|
1.5707
|
94.98
|
0.9231
|
1.0168
|
0.9602
|
0.8073
|
126.82
|
149.18
|
Support 1
|
1.3294
|
1.5642
|
94.22
|
0.9177
|
1.0129
|
0.9539
|
0.8016
|
125.81
|
148.08
|
Support 2
|
1.3265
|
1.5609
|
93.84
|
0.9150
|
1.0110
|
0.9508
|
0.7987
|
125.30
|
147.52
|
Support 3
|
1.3235
|
1.5577
|
93.46
|
0.9123
|
1.0090
|
0.9476
|
0.7959
|
124.80
|
146.97
|
--- Written by: John Kicklighter
--- Edited by: Ilesanmi Ogooluwa
Email: iogooluwa@gmail.com
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