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DailyFX
Forex: Dollar Clears Resistance with EURUSD Breakout but Fear Trade Cooling
John Kicklighter

Talking Points:

  • Dollar Clears Resistance with EURUSD Breakout but Fear Trade Cooling

  • Japanese Yen: Strong Inflation and Employment Data Doesn’t Help BoJ

  • US Oil Collapses 4 Percent from Highs as Syria Intervention Pressure Cools

Dollar Clears Resistance with EURUSD Breakout but Fear Trade Cooling

Having spent the past two weeks within a narrow band of congestion, the dollar finally made a move higher this past session. Yet, a trend requires much more than just a breakout to take root. And, given the recent balance in risk-sensitive capital markets along with the acclimatization to the high probability of a September Taper, the greenback already looks as if it is lacking for drive. Taking stock of the dollar’s performance, the Dow Jones FXCM Dollar Index overtook a stubborn range of resistance around 10,760. That move was derived from the EURUSD’s biggest drop since May 9 and a universal advance for the dollar against all of its major counterparts. From the docket, we can draw an anecdotal relationship between the substantial upgrade to the US 2Q GDP reading (2.5 percent from a 1.7 percent flash reading) and a greater probability for the Federal Reserve to reduce its monthly stimulus effort three weeks from now. That said, the market already seemed appreciably certain of such an outcome prior to this data. The same is true for Richmond Fed President Lacker’s (a non-voter) remark that all the conditions for the Taper had been met. If the dollar is to establish a durable and universal bull trend, we must tap an undervalued element of its backdrop – an unrivaled liquidity currency. A technical cue would be an S&P 500 drop below 1,625, but there are few clear fundamental sparks.

Japanese Yen: Strong Inflation and Employment Data Doesn’t Help BoJ

Japan’s economic docket was loaded Friday morning with event risk that represents a comprehensive view of Japan’s health and more importantly the success of the Bank of Japan’s (BoJ) stimulus effort. The list of indicators presented an impressive view of the country’s progress, but it would also undermine the central bank’s implicit effort to see its currency lower. Highlights from the data deluge were the 3.8 percent unemployment rate (the lowest in October 2008) and 0.7 percent annual inflation growth (the highest since November 2008). Strong growth and building price pressures curb the need for further stimulus. That limits the counterbalance to any carry unwind that arises.

Euro Drops as IMF Says No Third Greek Cash Injection Underway

After the Swiss franc, the euro was the weakest of the majors Thursday. There was plenty of fundamental fodder for FX traders to draw from in order to establish their positions, but the headlines would ultimately do little to the action on the day. While Germany reported an unexpected increase in unemployment, ECB member Weidmann’s call to end preferential treatment on sovereign debt and the IMF remarking that it was not laying out a new round of Greek aid; the region’s equity markets closed higher and yield lower. This was more likely EURUSD guidance.

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