Dollar Retrenches Itself Deep in its Month-Long Range

Technically, the US dollar would put in for a positive close through Thursday’s active session. However, an astute trader would appreciate the fact that the single currency is actually still mired in its month-long congestion pattern. It is easy to become caught up in the day-to-day changes from particular currency pairs; and the headlines of a positive or negative move can often be exaggerated to catch the attention of traders with extraordinarily short attention spans.

Dollar Retrenches Itself Deep in its Month-Long Range as Scheduled Event Risk Evaporates, Weekend Approaches
Euro Financial Troubles Showing Greater Signs of Stress but Norway is Confident in its the Region’s Recovery
British Pound Finds Little Guidance from Mum BoE, Finds its Fundamental Potential Diminished by Trade
Canadian Dollar Marks its Worst Trade Deficit in Four Decades, Will Employment Redeem the Bull Run?
Australian Dollar Takes Another Big Step Towards Major Resistance at 0.94
Japanese Yen Traders Still Not Convinced of Invention as Noda Says Simulated Manipulation Tested

Dollar Retrenches Itself Deep in its Month-Long Range as Scheduled Event Risk Evaporates, Weekend Approaches
Technically, the US dollar would put in for a positive close through Thursday’s active session. However, an astute trader would appreciate the fact that the single currency is actually still mired in its month-long congestion pattern. It is easy to become caught up in the day-to-day changes from particular currency pairs; and the headlines of a positive or negative move can often be exaggerated to catch the attention of traders with extraordinarily short attention spans. And, this is not just an FX specific phenomenon. The S&P 500 (despite showing a greater level of volatility), crude oil and Treasury yields are all more or less holding broad ranges. The remarkable level of correlation between these various assets recently leads us to the conclusion that all of these markets are anchored for the same reason: the potential of financial and economic deterioration without the necessary catalyst to encourage investors to unwind or build up risky positions. So, while the masses wait for the inevitable spark to jump start the movement of capital, technical ranges will gather more and more potential energy. Perhaps the best representation of this congestion is EURUSD. Not only has this liquid pair found itself bound to a 300-point range for the past month, it has developed this chop at the mid-point of another correction (the upswing after the December to June selloff). Congestion within congestion.

Though the speculative markets find themselves in broader ranges, there are still fundamental developments and trading opportunities to be found on lower time frames. Today, the markets were preoccupied with a couple lower tier economic indicators. Scheduled data is tricky to account for. From a purely fundamental perspective, each piece of economic data offers evidence for an improvement or deterioration in the outlook for growth, interest rates, capital flow and other imperative aspects of investment. However, the time frame of most speculators dampens the market’s reaction to data that can’t be interpreted to have an immediate impact on the economic speedometer or general level of sentiment. The trade balance reading for July released through the US session is a good representation of this relative indifference. The deficit reported a bigger than expected improvement from a 21-month high to a $42.8 billion shortfall. Encouraged by a 1.8 percent increase in exports, this offers support for a general recovery when other areas of the economy are lacking. At the same time, the net outflow is still very large; and the outlook for further improvement lacking. Another problem with data is that it can actually be less influential that it may seem. The media has intensified its coverage of employment trends recently; and there has been greater coverage particularly over jobless claims. While this data is more timely than NFPs, it is less definitive and shows smaller changes to general trends (not exactly the formula for market movement). A further complication to this particular report, they had to fill in for the absence of 9 states’ statistics with estimates. Not all data is treated equally.

With only one more active trading day left to an otherwise disappointing week for volatility, expectations for a refreshed dollar trend are low. To be fair, even if there were a significant round of data, it probably wouldn’t stoke the fires. That will ultimately fall to risk appetite itself.

Euro Financial Troubles Showing Greater Signs of Stress but Norway is Confident in its the Region’s Recovery
The market has clearly shifted its focus away from debate surrounding the financial stability of the European region; because news specifically tailored to this concern heated up Thursday. For positives, the IFW Institute upgraded its forecasts for the German economy. The outlook for 2010 growth was raised from 2.1 to 3.1 percent and the 2011 projection from 1.2 to 1.7 percent. Look at the fringes of the EU, Hungary was moved off the imminent threat level when it raised twice the capital planned after vowing to keep its deficit to GDP ratio below 3.0 percent. Even the view of Greece (the perennial problem child for region) improved after it was report that Norway’s sovereign wealth fund (the second largest in the world) had increased its holdings of the nation’s debt. This confidence can be attributed to their flexibility in holding period. The fact that the Bank of Greece reported regional financial institutions borrowed another 96.2 billion euros from the ECB tells of the short-term problems they face. Add to that, ECB member Stark’s suggestion that more German banks need to raise capital; and the assessment is balanced.

British Pound Finds Little Guidance from Mum BoE, Finds its Fundamental Potential Diminished by Trade
While few fundamental traders were expecting anything to come from the Bank of England’s rate decision today, there was still considerable potential in the possibility that they would expand stimulus or give clues to the next move. Instead, the lack of a statement deflated all interest. What was interesting was the biggest deficit for the trade balance on record and the government’s warning of further spending cuts.

Canadian Dollar Marks its Worst Trade Deficit in Four Decades, Will Employment Redeem the Bull Run?
The Canadian dollar was one of the most provocative currencies on the day and will likely hold the markets interest through Friday. The currency was surprisingly stable through the past session despite the worst trade reading since 1971 in its July reading. Tomorrow’s employment report will be a little harder to ignore. A significant 30,000 improvement is expected after the previous month’s surprising contraction.

Australian Dollar Takes Another Big Step Towards Major Resistance at 0.94
It was slow to develop, but the early Thursday morning release of Australia’s stronger than expected employment statistics would eventually encourage the currency higher. This general drift could simply be chalked up to the slight breeze in risk appetite trends; but the rise to fresh three-month highs requires a little more vigor that that to carry such price action. The close to 0.94 the pair reaches, the more tension we’ll see.

Japanese Yen Traders Still Not Convinced of Invention as Noda Says Simulated Manipulation Tested
Stepping up their effort at verbal intervention, Japanese Finance Minister Noda said that the government was already running simulated intervention – generally a warning that they are prepared to act. The market, however, was unimpressed. The release of the government’s new 915 billion yen stimulus plan seems equally unremarkable. Representing only 0.2 percent of GDP, skeptics fail to see its leverage potential.