FOREX: Dollar Following Greece-Led Risk Trends, S&P Warns of Default

The need for liquidity and an alternative to the troubled euro further evaporated through Thursday's session; and the dollar subsequently found all of the fundamental support it mustered through June collapse. While we quickly label the dollar a ‘safe haven' currency; it isn't the risk-free asset such a term would suggest.

• Dollar Following Greece-Led Risk Trends, S&P Warns of Default
• Euro: How Long Can the Market Rally on Expected Outcomes?
• British Pound Struggle to Follow the Euro after BoE Talks of ‘Excess', Confidence Slides
• Japanese Yen Slides as Business Sector Reading Misses Expectations
• Canadian Dollar, Interest Rate Expectations Rally after GDP Release
• Swiss Franc: Economy Minister Picks the Top
• Gold: Why Would the Metal Fall on the Same Day the Dollar Stumbles?

Dollar Following Greece-Led Risk Trends, S&P Warns of Default

The need for liquidity and an alternative to the troubled euro further evaporated through Thursday's session; and the dollar subsequently found all of the fundamental support it mustered through June collapse. Extending the bearish reversal that began the week, the Dow Jones FXCM Dollar (ticker = USDollar) notched up its worse run in a month and handily dropped below the 9,600 level. However, this was not a move that began necessarily with the dollar; so it takes some analysis to understand the currency's true health in this otherwise aggressive shift. Starting with underlying risk trends, we should note that the S&P 500's rally this week has been the most aggressive bullish drive from the benchmark since September. This observation alone could suggest the greenback is simply reflecting sentiment trends which would fit with the commodity currencies' performance (USDCAD, AUDUSD and NZDUSD) and of course EURUSD. Yet, it was the yen's positive performance against the dollar (the yen is the more popular funding currency) that raises interest.

While we quickly label the dollar a ‘safe haven' currency; it isn't the risk-free asset such a term would suggest. There is a high level of financial volatility and extremely little return with the reserve unit; so its appeal when conditions are uncertain is flimsy at best. Where the greenback really shines is through its liquidity. The buildup of panic surrounding the European financial markets heading into this week was severe enough to drive up the cost of short-term funds in the Euro Zone and US. This had the dual impact of sending investors scrambling for the deepest markets (US Treasuries and money markets that are closely linked to the greenback) as well as boost short-term rates that cut into carry trades that were founded on extraordinarily cheap loans from the US. Now, with the imminent threat of a Greek default morphing into a global crisis fully dissipated, the need for liquidity at the expense of a competitive yield gone. That does not fully absolve the market from broader risks; but the short attention span of this heavily speculative market can certainly buy time.

Heading into the final 24 hours of the trading week, we have to consider the unusual trading conditions that could develop due to the extended market holiday in the US. The Independence Day holiday actually occurs on Monday; but market participants will either prepare or exit early an accordance with the ‘summer doldrums' belief. That means, the strong risk-based rally that has defined this week could sputter as bulls look to book profit and take risk off the table. Something that we should take note of for when market's fill back out next week: Standard & Poor's warning today that if the US did not lift its debt ceiling by August, the ratings agency would find the country in default and drop nation's rating to ‘D' – the lowest investment rating. That would completely change the face of the dollar and US finance; and should not be taken lightly.

Related:Discuss the Dollar in the DailyFX Forum, John's Picks: Dollar Dragged Lower Across the Board; But GBPUSD Ready for Correction

Euro: How Long Can the Market Rally on Expected Outcomes?

No one was surprised by Greece's vote to approve the implementation of the new budget proposed by Prime Minister Papandreou and his cabinet. Winning the confidence vote signaled the government was ready to accept the steps required for the country to tap the next round of aid from its first bailout package and further encourage the approval of a second effort. Knowing this, the market had priced the budget vote and implementation vote well ahead of time – and the July 3rd EU Finance Ministers meeting conferring on the release of that 12 billion euro tranche of support is likely folded in as well. If this is indeed the case, how long can the euro continue its rally? From this point, only a disappointment in the Greek saga would really move the euro (down). For further strength, speculators have to move on to next week's ECB rate decision.

British Pound Struggle to Follow the Euro after BoE Talks of ‘Excess', Confidence Slides

In contrast to the euro's steady climb; the sterling's performance has been less than impressive (just refer to EURGBP or GBPJPY). The spread of financial contagion looms particularly large for this broader European member; but the recovery implications are limited. On the other hand, BoE member Fisher's comments that markets overextended and the drop in this month's confidence survey are tangible reminders of hardship.

Japanese Yen Slides as Business Sector Reading Misses Expectations

Despite the surge in traditional risk benchmarks (S&P 500, Australian dollar, US Oil); the Japanese yen still found notable strength against various higher yielding currencies Thursday. This strength suggests sentiment is not as robust as a simple scan of the market's would suggest. And, ensuring that the fundamental barometer isn't broken, we have seen a positive drift after hours – despite a round of disappointing data.

Canadian Dollar, Interest Rate Expectations Rally after GDP Release

In an already volatile market, the Canadian dollar enjoyed a sharp rally Thursday thanks to a generous boost from the commodity sector and slightly-better-than expected growth readings. Through April, the economy was unchanged (beating expectations of a slight contraction), allowing for 2.8 percent year-over-year growth. Far more influential though is the timely economic boost offered by the oil's rally to $95.

Swiss Franc: Economy Minister Picks the Top

Deal with it. That was essence of Swiss Economy Minister Schneider-Ammann offered to the exporters. The policymaker said the strong currency was not temporary and that it was not the government's job to alter the exchange rate. On a day of capitulation though; we see the franc post its biggest rally since May 10th. Did the market fade his comments? No, the franc is just paying for its Euro-safe haven rally.

Gold: Why Would the Metal Fall on the Same Day the Dollar Stumbles?

Under most conditions, the dollar is gold's primary counterpart. The metal is an alternative to currencies that are exposed to inflation and the financial troubles that an economy faces. That said, when risk appetite recovers (especially when it is sourced through the euro), safe haven capital is drawn from both the liquid dollar and the alternative-view gold market.

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ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
1:00	AUD	HIA New Home Sales (MoM) (JUN)		0.2%	Could weaken on lower construction
1:00	CNY	PMI Manufacturing (MAY)	51.5	52	Both official and unofficial data could show slower economy, sap risk appetite
2:30	CNY	HSBC Manufacturing PMI (JUN)		51.6
5:00	JPY	Vehicle Sales (YoY) (JUN)		-38.0%	Expected to recovery following rebuilding
6:30	AUD	RBA Commodity Price Index (JUN)		107.3	Commodity basket should reflect fall in prices with weaker AUD
6:30	AUD	RBA Commodity Index SDR (YoY) (JUN)		29.4%
7:30	CHF	SVME-Purchasing Managers Index (JUN)	57.8	59.2	CHF strength expected to drag overall eco
7:45	EUR	Italian PMI Manufacturing (JUN)	50.6	52.8	PMI of individual European nations still expected to stagnate, with peripherals facing additional headwinds
7:50	EUR	French PMI Manufacturing (JUN F)	52.5	52.5
7:55	EUR	German PMI Manufacturing (JUN F)	54.9	54.9
8:00	EUR	Italian Unemployment Rate s.a. (QoQ) (1Q)	8.3%	8.5%	Quarter-over-quarter decrease expected due to general overall global recovery
8:00	EUR	Italian Unemployment Rate s.a. (MoM) (MAY P)	8.1%	8.1%
8:00	EUR	Euro-Zone PMI Manufacturing (JUN F)	52	52	Problems continue to plague industries
8:30	GBP	PMI Manufacturing (JUN)	52.3	52.1	Growth expected from weaker pound
9:00	EUR	Italian Deficit to GDP (YTD) (1Q)		4.5%	May influence further Italian cuts
9:00	EUR	Euro-Zone Unemployment Rate (MAY)	9.9%	9.9%	Slow recovery may not decrease rate
13:55	USD	U. of Michigan Confidence (JUN F)	72	71.8	Final revision expected slightly higher
14:00	USD	Construction Spending (MoM) (MAY)	0.1%	0.4%	May indicate soft real estate sector
14:00	USD	ISM Manufacturing (JUN)	51.8	53.5	Most important data of US session – continued weakness could flock investor funds towards safer assets
14:00	USD	ISM Prices Paid (JUN)	71.8	76.5
17:00	EUR	Italian Budget Balance (euros) (JUN)		-5.0B	Debt continues to widen, but at a slower pace as government tries to prevent contagion
17:00	EUR	Italian Budget Balance (euros) (YTD) (JUN)		-44.8B
21:00	USD	Domestic Vehicle Sales (JUN)	9.40M	9.22M	Expected stronger sales could indicate early pickup in consumption spending
21:00	USD	Total Vehicle Sales (JUN)	12.08M	11.76M
	JPY	Official Reserve Assets (JUN)		$1139.5B	May fall due to raw material buying

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	0.8215	118.00	140.00
Spot	1.4518	1.6065	80.47	0.8401	0.9641	1.0726	0.8277	116.82	129.26
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	11.7128	1.6239	6.7644	7.7820	1.2280		Spot	6.3151	5.1377	5.3825
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	1.4605	1.6198	81.14	0.8548	0.9737	1.0798	0.8353	117.79	130.64
Resist 1	1.4562	1.6132	80.80	0.8475	0.9689	1.0762	0.8315	117.30	129.95
Pivot	1.4494	1.6052	80.54	0.8390	0.9657	1.0715	0.8281	116.72	129.19
Support 1	1.4451	1.5986	80.20	0.8317	0.9609	1.0679	0.8243	116.23	128.50
Support 2	1.4383	1.5906	79.94	0.8232	0.9577	1.0632	0.8209	115.65	127.74

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	1.4705	1.6225	81.28	0.8499	0.9731	1.0865	0.8389	118.42	130.77
Resist. 2	1.4658	1.6185	81.08	0.8474	0.9708	1.0830	0.8361	118.02	130.40
Resist. 1	1.4612	1.6145	80.88	0.8450	0.9686	1.0796	0.8333	117.62	130.02
Spot	1.4518	1.6065	80.47	0.8401	0.9641	1.0726	0.8277	116.82	129.26
Support 1	1.4424	1.5985	80.06	0.8352	0.9596	1.0656	0.8221	116.02	128.51
Support 2	1.4378	1.5945	79.86	0.8328	0.9574	1.0622	0.8193	115.62	128.13
Support 3	1.4331	1.5905	79.66	0.8303	0.9551	1.0587	0.8165	115.22	127.75

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

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