Dollar Needs a Bigger Catalyst than NFPs to Jump Start a Trend

It was an unusual ending to an otherwise volatile week for the US dollar. After a slow recovery from the liquidity lull of the extended Independence Day holiday, momentum never really gained traction. Not only did the dollar struggle for direction, but underlying risk appetite trends were similarly left to drift. The market's focus was centered on Friday with the release of the June non-farm payrolls (NFP) numbers.

• Dollar Needs a Bigger Catalyst than NFPs to Jump Start a Trend
• Euro Traders Watch Periphery Yields and EU Stress Test Results
• British Pound Readies for Employment, Inflation Figures
• Canadian Dollar: Strong Labor Data Sabotaged by NFPs' Risk Pull
• New Zealand Dollar Has a Second Chance at GDP Impact
• Australian Dollar More Sensitive to Data but Risk Trends Still in Control
• Gold Completes its First Five-Day Advance Since April

Dollar Needs a Bigger Catalyst than NFPs to Jump Start a Trend

It was an unusual ending to an otherwise volatile week for the US dollar. After a slow recovery from the liquidity lull of the extended Independence Day holiday, momentum never really gained traction. Not only did the dollar struggle for direction, but underlying risk appetite trends were similarly left to drift. The market's focus was centered on Friday with the release of the June non-farm payrolls (NFP) numbers. Yet, that catalyst would similarly fail to jump start a meaningful trend – as expected. However, the reaction to this data deserves a closer look. Without looking at the data itself, we would have seen that risk appetite took a considerable hit from the data which in turn led the S&P 500 to its first daily loss in two weeks (a period which tallied nearly a 7 percent rally from the benchmark stock index). Yet, despite this shift of capital away from risky asset; the Dow Jones FXCM Dollar Index (ticker = USDollar) actually put in for its second consecutive decline. Is the greenback losing its role as a safe haven currency? And, if this important connection disappears; what can reasonably lead the dollar to an eventual recovery?

The first step to answering these questions is to look more closely at the data. The 18,000-job net increase in national payrolls was a notable shortfall of the 105,000 consensus forecast. Looking beyond the headline figure, the details were similarly discouraging: the jobless rate ticked up to 9.2 percent; labor participation dropped to a quarter-century low (64.1 percent); the average duration of unemployment hit a record 39.9 weeks; and the birth/death adjustment actually added 131,000 jobs to the total. However, when we boil all of this down; there is little surprise in the figures. Over the months, we have seen the employment data cool alongside other important growth-related fundamental factors. As such, this disappointment doesn't come as much of a surprise as market participants are well aware of the decelerating pace of growth. And, when we look at it in that context; the fact that the dollar-based pairs (EURUSD, GBPUSD, AUDUSD, etc) are trading within ranges makes more sense. It isn't necessarily that risk trends have completely lost their influence over the dollar; rather, we simply haven't seen a genuine run for underlying sentiment trends.

There is no shortage of potential stressors to undermine optimism that is precariously held up by expectations of a consistent trend and a permanence of stimulus. From the US docket, we should watch the CPI data (inflation without Fed action will further pressure the economy), University of Michigan Consumer Confidence survey and June retail sales figures. Since we are focusing on larger fundamental swings, perhaps Fed Chairman Ben Bernanke's semi-annual policy report to Congress will carry more weight. Lacking for a specific time frame, but making up for it with influence; both the approach of the second quarter earnings season and the potential for US market rates to rise should always be under observation. In the week ahead, the dollar will struggle for clear trends unless one of the important fundamental themes builds steam.

Related:Discuss the Dollar in the DailyFX Forum, John's Picks: The Case for AUDUSD, EURJPY Breakouts over EURUSD, GBPUSD Trends

Euro Traders Watch Periphery Yields and EU Stress Test Results

The euro has closed out a week of remarkable fundamental events (Portugal's downgrade to junk and an ECB rate hike) and now looks forward to another active week for the newswires. Rather than worry about economic indicators; traders should monitor the health of region's financial markets. The European Banking Authority is scheduled to release the results of its second bank stress test on Friday the 15th; but the downside from this event may be curbed by rumors that countries are ready to provide support for those banks that failed and can't find funding. There is no easy solution, however, for periphery EU economies whose bond yields are rallying to record highs and locking the countries out of market.

British Pound Readies for Employment, Inflation Figures

We are in one of those market phases where the BoE rate decisions are near the lower run of the volatility ladder. So then, what event risk can stir the British pound to life? The outlook for growth, monetary policy and market returns now rests with the balance between economic activity and austerity efforts. Therefore, the CPI and employment figures for June can genuinely alter the market's bias for the sterling.

Canadian Dollar: Strong Labor Data Sabotaged by NFPs' Risk Pull

Once again, the headline Canadian employment report would impress. The 28,400 net increase to payrolls in June was nearly twice the forecast; but this report was incapacitated before it even hit the wires. With the US NFPs due only an hour-and-a-half after the Canadian data; investors were waiting to see how Canada's growth would fare through important trade channels.

New Zealand Dollar Has a Second Chance at GDP Impact

The earthquake this past week set kiwi traders on guard; but to truly stop the kiwi's remarkable advance, the market needed a jolt of fundamental reality (that growth is slowing in New Zealand as much as anywhere else and it will curb rates). We could have gotten that with the 1Q GDP figures; but those were pushed back. So, now we are looking ahead to the second attempt at this release as the kiwi hits record highs.

Australian Dollar More Sensitive to Data but Risk Trends Still in Control

Since the RBA took a dovish turn on its monetary policy approach at the last rate decision, the Aussie dollar has shown itself to be more sensitive to disappointing data that may eventually lead to more than a hold on the benchmark. This may leverage the influence that business and consumer sentiment figures have on short-term price action next week; but the underlying trend still falls to the bearing on risk appetite.

Gold Completes its First Five-Day Advance Since April

Gold's performance this past week was impressive. A five-day rally in dollar terms (the longest run since late-April) led an advance that spanned most currencies. With the mix of a credit crunch in China, financial troubles in Europe, debt ceiling debate in the US and stimulus withdrawal throughout the developing world, the appeal of an alternative to currencies is rising. The question is whether it will last if rates start to rise…

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ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
1:30 (Sat)	CNY	Consumer Price Index (YoY) (JUN)	6.2%	5.5%	Higher inflation may prompt more rate increases, though Premier Wen Jiabao has said inflation would be under control
1:30 (Sat)	CNY	Producer Price Index (YoY) (JUN)	6.9%	6.8%
2:00 (Sun)	CNY	Trade Balance (YoY) (JUN)	$14.2B	$13.05B	Trade balance expected to grow despite slower growth in both imports and exports
2:00 (Sun)	CNY	Imports (YoY) (JUN)	6.2%	5.5%
2:00 (Sun)	CNY	Exports (YoY) (JUN)	18.6%	25.3%
4:00 (Sun)	CNY	Actual FDI (YoY) (JUN)		13.4%	Foreign investment trending slightly lower
22:45 (Sun)	NZD	NZ Card Spending (MoM) (JUN)		-0.1%	Could point to higher consumption
23:50 (Sun)	JPY	Japan Money Stock M2+CD (YoY) (JUN)		2.7%	Slower growing money stock could indicate slower rate of recovery
23:50 (Sun)	JPY	Japan Money Stock M3 (YoY) (JUN)		2.1%
(Mon)	CNY	Foreign Exchange Reserves (JUN)		15.4%	M0 money supply still expected to grow with new loans, may prompt further tightening
(Mon)	CNY	New Yuan Loans (JUN)	12.9%	12.7%
(Mon)	CNY	Money Supply - M0 (YoY) (JUN)	15.4%	15.1%
(Mon)	CNY	Money Supply - M1 (YoY) (JUN)		3186.2
(Mon)	CNY	Money Supply - M2 (YoY) (JUN)		-1.8%
0:00	NZD	QV House Prices (YoY) (JUN)		-1.6%	Real estate has been weakening
1:30	AUD	Owner-Occupied Home Loan Value (MoM) (MAY)		$3044.7B	Tighter rates could slow flow of home loan values
1:30	AUD	Home Loans (MAY)		4.8%
1:30	AUD	Value of Loans (MoM) (MAY)		6.3%
1:30	AUD	Investment Lending (MAY)		-1.6%	Investment lending slow on rates
6:00	JPY	Machine Tool Orders (YoY) (JUN P)		34.0%	Preliminary number may suggest recovery
6:45	EUR	French Industrial Production (MoM) (MAY)		-0.3%	French manufacturing and industries has grown slightly slower due to slower German, Eurozone demand
6:45	EUR	French Industrial Production (YoY) (MAY)		2.6%
6:45	EUR	French Manufacturing Production (MoM) (MAY)		0.2%
6:45	EUR	French Manufacturing Production (YoY) (MAY)		4.1%
12:15	CAD	Housing Starts (JUN)	181.5K	183.6K	Expected lower housing starts show slow
23:01	GBP	BRC Sales Like-For-Like (YoY) (JUN)		-2.1%	Weaker British housing sector could lower hawkish rate expectations
23:01	GBP	RICS House Price Balance (JUN)		-28%
23:50	JPY	Tertiary Industry Index (MoM) (MAY)		2.6%	Services sector may benefit from recovery
23:50	JPY	Dom Corporate Goods Price Index (MoM) (JUN)		-0.1%	Domestic goods price may follow Tokyo and National CPI data higher
23:50	JPY	Dom Corporate Goods Price Index (YoY) (JUN)		2.2%

GMT	Currency	Upcoming Events & Speeches
(Mon)	JPY	BOJ to Hold Regular Policy Meeting (JUN)

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	1.6600	89.00	0.9345	1.0275	1.1800	0.8400	122.00	146.05
Resist 1	1.5000	1.6300	86.00	0.8900	1.0000	1.1000	0.8300	118.00	140.00
Spot	1.4265	1.6059	80.64	0.8366	0.9627	1.0755	0.8379	114.92	129.38
Support 1	1.4000	1.5935	80.00	0.8300	0.9500	1.0400	0.7745	113.80	125.00
Support 2	1.3700	1.5750	75.00	0.8250	0.9055	1.0200	0.6850	105.50	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	1.6575	7.4025	7.8165	1.3650		Resist 2	7.5800	5.6625	6.1150
Resist 1	12.5000	1.6300	7.3500	7.8075	1.3250		Resist 1	6.5175	5.3100	5.7075
Spot	11.6294	1.6336	6.7436	7.7820	1.2290		Spot	6.3584	5.2150	5.4210
Support 1	11.5200	1.5040	6.5575	7.7490	1.2145		Support 1	6.0800	5.1050	5.3040
Support 2	11.4400	1.4725	6.4295	7.7450	1.2000		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	1.4533	1.6152	81.29	0.8482	0.9735	1.0769	0.8322	117.62	130.87
Resist 1	1.4418	1.6069	81.11	0.8441	0.9696	1.0725	0.8284	116.68	130.12
Pivot	1.4352	1.6009	80.94	0.8403	0.9655	1.0690	0.8265	116.12	129.55
Support 1	1.4237	1.5926	80.76	0.8362	0.9616	1.0646	0.8227	115.18	128.80
Support 2	1.4171	1.5866	80.59	0.8324	0.9575	1.0611	0.8208	114.62	128.23

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	1.4486	1.6143	81.73	0.8500	0.9744	1.0819	0.8358	117.25	130.83
Resist. 2	1.4441	1.6104	81.53	0.8475	0.9722	1.0785	0.8330	116.88	130.47
Resist. 1	1.4395	1.6065	81.33	0.8450	0.9700	1.0750	0.8302	116.50	130.10
Spot	1.4265	1.6059	80.64	0. 8366	0.9627	1.0755	0.8379	114.92	129.38
Support 1	1.4211	1.5909	80.53	0.8352	0.9612	1.0612	0.8192	115.00	128.65
Support 2	1.4165	1.5870	80.33	0.8327	0.9590	1.0577	0.8164	114.62	128.29
Support 3	1.4120	1.5831	80.13	0.8302	0.9568	1.0543	0.8136	114.25	127.92

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Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

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