Euro: Investor Sentiment Surveys a First Step Into Heavier Event Surf

Talking Points:

• Dollar Inches Higher Without Help From Fed’s Fischer
• Euro: Investor Sentiment Surveys a First Step Into Heavier Event Surf
• British Pound and UK Yields Rise on Data Improvement

Dollar Inches Higher Without Help From Fed’s Fischer

The Dow Jones FXCM Dollar Index (ticker = USDollar) inched higher Monday. Though officially notching a fresh four-month high for the index, there is little conviction to the move. A fundamental driver is needed to stage the next leg of the bull’s month-long run, but neither docket nor financial seas have been very accommodating. For the currency’s high limit safe haven appeal, we see a further moderation of the spurt of fear suffered the past two weeks as technical levels for the likes of the S&P 500, High-Yield markets and Carry Trades hold at the same time volume moderates. Where rate speculation could have developed out of the first round of Vice Chair Fischer’s commentary, he kept it vague.

Euro: Investor Sentiment Surveys a First Step Into Heavier Event Surf

The Euro opened the week lower against the majors – but there was little conviction to the selling. Fears over the region’s financial stability moderated with hefty gains from European equity indexes. Meanwhile, there was a contrast in sovereign bond performance with the ‘core’ seeing yields rise (demand slide) while the ‘periphery’ experienced a drop in their own yields. Looking at the docket moving forward, data will start to play a heavier roll in speculation. The upcoming session offers up the ZEW’s investor sentiment measures for Germany and the Eurozone. As useful as this may seem, the indicators are not especially known as market movers. From Greece’s 2Q GDP on Wednesday or the mix of periphery and core growth readings on Thursday, we can expect more rate speculation stirred.

British Pound and UK Yields Rise on Data Improvement

The UK economic docket was light to start the weekend, but a market on edge about interest rate speculation was more than willing to translate the economic updates into price action for the sterling. On the Calendar Monday, Bloomberg’s survey of economic forecasts showed a tick higher in the pace of expansion out through 2015. Meanwhile, an employment sentiment survey from Lloyds rose to a series high. Growth and inflation read like the ingredients for a rate hike and speculators are more than open to that call – especially after the heart pound retracement over the past month. Gilt yields and UK swap rates were up alongside the pound, but don’t expect this trend to gain a lot of traction just yet. With the all-important BoE Quarterly Inflation Report (QIR) due Wednesday, traders will be on edge.

Yen Crosses In Breakout Patterns but Can 2Q GDP Supply the Move?

Having marked a serious turn in the past month, it seems that the Yen crosses’ implied (expected) volatility measures are cooling. The short-term (1-week) expected activity gauge for USDJPY has retreated back below 5 percent to start the week as the pair has held its position above 102 – there is a distinct inverse relationship between volatility levels and the direction of USDJPY, much like the S&P 500 and VIX. Ahead, we have a high profile Japanese indicator set for release: 2Q Japanese GDP figures. This is no doubt an important update, but that doesn’t make it a definitive market-mover. An improvement from this data is unlikely to single-handedly drive global investor sentiment higher – and thereby the yen crosses – higher. To reverse the BoJ’s hands-off approach to further QQE, a substantial miss would be needed.

Canadian and Aussie Dollar Rallies, New Zealand Dollar Dives on Housing Data

Housing data was the name of the game for the Comm Bloc Monday. The particular sector is of particular interest in Canada, Australia and New Zealand where loose monetary policy contributed to distortion in demand and prices for homes. Each country released data on the sector to different outcomes. Canada posted the most impressive performance Monday when July housing starts offered a modest beat of expectations with 200,100 starts on an annual basis reported. The loonie rose between 0.4 and 0.7 percent – against the GBP and EUR respectively. Housing prices in Australia through 2Q would also beat – 1.8 percent growth – but the rate hike pressure didn’t seem to gain the same kind of traction. For New Zealand this morning, the pain continued. A 13 percent drop in sales has led to a market-wide tumble for the Kiwi.

Emerging Markets Rebound Sharply as Russia-Ukraine Fears Ebb

Though not hitting the stride that High-Yield indexes have enjoyed, the MSCI Emerging Market Index posted an impressive 1.3 percent rally this past session. As one of the more risk-sensitive assets classes, the EM asset speculative ranks have stepped up more readily to the correction. However, here too, the volume is diminishing. Looking to the currency tables, FX performance tells the story of what is moving the international financial system. The Russian Ruble was one of the best performers against the US Dollar. Advancing 0.7 percent, the Ruble is making its first serious effort to turn its tide in a month. With a positive shift and appetite for risk, the story the markets flock to is belief that tensions over Ukraine are de-escalating. However, this assessment will likely prove more volatile than the situation itself if risk appetite turns.

Gold Heading Towards a Near-Term Breakout

The trading range gold has to work with is rapidly deteriorating. Having covered little more than $6 through the opening session, the backdrop for the precious metal is exceptionally quiet. Activity levels this low often sets the stage for at least a short-term break. The real question is whether a technical cue will find fundamental motivation to cover real ground. ETF volume through the open of the week was tepid and aggregate open interest in futures is just off of the five-year lows established last week. In the meantime, the net speculative position for futures traders reportedly shifted out of the bulls favor this past week (down 12.7 percent according to the COT) and the CBOE’s volatility index for gold is still carving out its rising trend. A break over the next 24 hours is unlikely to stir stronger appetites as it will fall outside the BoE’s quarterly report and the ECB’s GDP listings.**Bring the economic calendar to your charts with the DailyFX News App.

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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

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