Dollar Charges Higher - Will EUR/USD Break 1.3000, AUD/USD 1.0000?

DailyFX

  • Dollar Charges Higher - Will EUR/USD Break 1.3000, AUD/USD 1.0000?
  • Euro Weighs in on 1Q GDP Readings, Bailout Discussions
  • Japanese Yen Selling Momentum Restrained Despite Severity of USD/JPY Drive
  • British Pound Turns again to BoE Inflation Report to Fill In for Outlook
  • Canadian Dollar Volatility Threat Diffused on In-Line Employment Figures
  • US Oil Sees Massive Intraday Reversal on Commodity Recovery
  • Gold Crawls Back Above $1,440 to Offset Earlier Breakdown

Dollar Charges Higher - Will EUR/USD Break 1.3000, AUD/USD 1.0000?

The dollar surged ahead this past week. A tip for EURUSD below 1.3000 and USDJPY’s drive above 100 were but a few of the highlights, but what was the source of this strength. We may find a serious upgrade in fundamental support for the greenback in the week ahead. In the meantime, the foundation for the move is vague. From a traditional data and event risk angle, the backdrop changed little this past week. The docket was bare for any high-level indicator and there weren’t any major policy meetings to stake speculation on. Nevertheless, the Dow Jones FXCM Dollar Index (ticker = USDollar) surged above the midpoint to the past nine-year’s trading range on the back of its biggest weekly advance since November 2011. There was no doubt an element of self-generated speculative momentum to the move. With USDJPY, EURUSD and AUDUSD moving beyond key technical levels, rounds of stops and entry orders no doubt provided a wave of momentum. Yet, despite its unique strength, a rally for rally’s-sake from this safe haven is unlikely to cut it. Bulls need a platform to work from.

Without doubt, the greatest threat / promise of volatility and catalyst for the dollar is the same spark that can undermine global investor confidence: Fed speculation. Over the years, a safety net has been unfurled beneath the capital markets – encouraging investors to increase their risk profile to dangerous levels. Against questionable global growth, areas of financial instability and record low yields; we have seen investors take record levels of leverage to invest in assets that have seen their yield shrivel or are considered amongst the most risky in the markets. Even backed by a robust economy and investment environment, this would be risky – and we are far from meeting those qualifications. This is the territory of ‘moral hazard’ – where an investor assumes they will not face reasonable risks due to external buffers. The first and biggest supporter of this ill-conceived confidence has been the Fed in its escalation to the current QE3 regime.

We have discussed the subtle shift away from the support of a boundless support effort by the central bank from the FOMC statement that talked of ‘flexibility’ in stimulus moving forward to the changing rhetoric of policy doves. A few more comments were made to suggest the majority at the Fed is now concerned enough about the distorting effects of central bank asset purchases will lead to a change at the June meeting. Group member Esther George is yet another member that said it is time for an exit from constant expansion policy. A Wall Street Journal article released late Friday has only further fanned the flames of market speculation of such a tapering. There are a number of Fed speeches scheduled for the week ahead, and they will feed this theme. The dollar has already performed remarkably well to this point, but a market-wide risk aversion shift on stimulus withdrawal would only further the currency’s performance (with the exception of USDJPY).

Euro Weighs in on 1Q GDP Readings, Bailout Discussions

The euro may be setting itself up for the worst combination of fundamental milestones of the majors – and that likely suits policy officials just fine. It is obvious – despite the G7’s refusal to admit it – that the world’s largest economies are engaged in a currency war. As it happens, the Eurozone is well behind the curve and it perhaps needs the extra support more than anyone. Just last week, the ECB cut the benchmark and marginal lending rate to dispel any belief that there was a yield benefit to the euro. Recent commentary suggests that the group is considering an escalation to full blown stimulus through Asset-Backed Securities (ABS) purchases. A late entrant to the stimulus race is the worst position for a currency. The devaluing influence is greater than the stability offering; and if risk topples, the euro will be in the crosshairs.

Japanese Yen Selling Momentum Restrained Despite Severity of USD/JPY Drive

Though USDJPY’s impressive 2.7 percent rally was smaller than the post-Bank of Japan (BoJ) stimulus reaction in early April, it is still the second largest advance in two years and it clears the very important 100 figure. That said, there is a very different level of fundamental drive between the move this month and the one before. The rally this past week seems more a combination of the follow through in breaking a well recognizable number and an impressive dollar move than a combination of sustainable and lasting factors. There is considerable risk going forward. If risk aversion were to kick in, it would be devastating for the six-month build up in baseless carry. And, USDJPY is just as troubled.

British Pound Turns again to BoE Inflation Report to Fill In for OutlookThrough the past week, the sterling fell right in the middle of the pack for performance. In other words, it took its cue from more committed counterparts. That may change in the week ahead. In contrast to the official policy decision this past week, the Bank of England’s Quarterly Inflation report will give us a clear view on how to speculate their policy bearings before the new governor (Mark Carney) comes on board.

Canadian Dollar Volatility Threat Diffused on In-Line Employment Figures

There was substantial volatility risk for the Canadian dollar through the final trading day of this past week. Having seen the extreme reactions to Australian and New Zealand labor data earlier, FX traders were no doubt battening down the hatches for a surprise outcome. Instead, the data printed ‘in-line’. The country added 12,500 jobs (estimates were 15,000) in April and the jobless rate held at 7.2 percent.

US Oil Sees Massive Intraday Reversal on Commodity Recovery

Technical traders should take a look at a daily chart of oil. US oil (West Texas Intermediate) was down as much as 3.3 percent Friday, but the commodity managed to close out the day virtually unchanged. The result was the largest lower ‘wick’ or ‘tail’ since November 1, 2011. In other words, it was a remarkable intraday, bullish reversal. The initial decline seemed to follow the same mirror performance to dollar strength as the broader commodity market. Yet, the recovery sustainably higher volume shows a market look to mark a new trend next week.

Gold Crawls Back Above $1,440 to Offset Earlier Breakdown

As with crude, gold bulls fought their way back from a possible bearish trend shift. Friday, the metal finally slipped below the $1,440 floor that set up over the past two weeks. Considering we were waiting for the next move to confirm conviction after the previous drift post-April collapse, this stirred the market to life. Yet, the dollar rally didn’t seem to throw enough weight to break the alternative store of wealth. That said, the talk surrounding a QE3 taper can deal serious damage to the anti-dollar going forward. Fed chatter will be particularly important.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

22:45

NZD

Food Prices (MoM) (APR)

-1.3%

23:50

JPY

Japan Money Stock M2+CD (YoY) (APR)

3.1%

3.0%

23:50

JPY

Japan Money Stock M3 (YoY) (APR)

2.5%

2.5%

1:30

AUD

Home Loans (MAR)

4.0%

2.0%

1:30

AUD

Investment Lending (MAR)

1.8%

1:30

AUD

Value of Loans (MoM) (MAR)

1.2%

1:30

AUD

NAB Business Confidence (APR)

2

1:30

AUD

NAB Business Conditions (APR)

-7

1:30

AUD

RBA Credit Card Balances (MAR)

$A50.0B

1:30

AUD

RBA Credit Card Purchases (MAR)

$A20.2B

5:30

CNY

Industrial Production (YoY) (APR)

9.4%

8.9%

5:30

CNY

Industrial Production (YTD) (YoY) (APR)

9.5%

9.5%

5:30

CNY

Fixed Assets Investment (YTD) (YoY) (APR)

21.0%

20.9%

5:30

CNY

Retail Sales (YoY) (APR)

12.8%

12.6%

5:30

CNY

Retail Sales (YTD) (YoY) (APR)

12.6%

12.4%

6:30

EUR

Bank of France Business Sentiment (APR)

93

93

7:00

EUR

Spain House Transactions (MAR)

7:15

CHF

Retail Sales (Real) (YoY) (MAR)

2.4%

12:30

USD

Advance Retail Sales (APR)

-0.3%

-0.4%

12:30

USD

Advance Retail Sales Less Autos (APR)

-0.2%

-0.4%

12:30

USD

Advance Retail Sales ex Auto & Gas (APR)

0.3%

-0.1%

12:30

USD

Advance Retail Sales "Control Group" (APR)

0.3%

-0.2%

14:00

USD

Business Inventories (MAR)

0.3%

0.1%

22:45

NZD

Retail Sales ex Inflation (QoQ) (1Q)

0.8%

2.1%

23:01

GBP

RICS House Price Balance (APR)

2%

-1%

23:50

JPY

Domestic Corporate Goods Price Index (MoM) (APR)

0.1%

0.1%

23:50

JPY

Domestic Corporate Goods Price Index (YoY) (APR)

-0.2%

-0.5%

23:50

JPY

Loans & Discounts Corp (YoY) (MAR)

1.42%

GMT

Currency

Upcoming Events & Speeches

-:-

EUR

First Cyrpus Aid Payment Expected

-:-

EUR

EU to Debate €6Bln Greek Aid

13:00

EUR

Euro-Zone Finance Ministers Meet in Brussels

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

15.0000

2.0000

9.8365

7.8165

1.3650

Resist 2

7.5800

5.8950

6.1150

Resist 1

12.9000

1.9000

9.5500

7.8075

1.3250

Resist 1

6.8155

5.8300

5.8620

Spot

12.0849

1.8010

9.1219

7.7609

1.2383

Spot

6.5994

5.7395

5.7920

Support 1

12.0000

1.6500

8.7750

7.7490

1.2000

Support 1

6.0800

5.6075

5.5000

Support 2

11.5200

1.5725

8.5650

7.7450

1.1800

Support 2

5.8085

5.4440

5.3040

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

1.3103

1.5477

102.94

0.9658

1.0168

1.0120

0.8396

133.85

157.99

Resist. 2

1.3074

1.5447

102.61

0.9636

1.0151

1.0096

0.8373

133.39

157.50

Resist. 1

1.3046

1.5417

102.28

0.9613

1.0134

1.0073

0.8349

132.92

157.02

Spot

1.2989

1.5358

101.62

0.9568

1.0100

1.0025

0.8302

132.00

156.06

Support 1

1.2932

1.5299

100.96

0.9523

1.0066

0.9977

0.8255

131.08

155.10

Support 2

1.2904

1.5269

100.63

0.9500

1.0049

0.9954

0.8231

130.61

154.62

Support 3

1.2875

1.5239

100.30

0.9478

1.0032

0.9930

0.8208

130.15

154.14

v

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

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

Rates

View Comments (0)