Dollar Eases a Second Day as Dow Matches Strongest Rally in Years

DailyFX

  • Dollar Eases a Second Day as Dow Matches Strongest Rally in Years
  • Euro: Signs of Liquidity Trouble, Watch Key Bond Auctions and EU Topics
  • New Zealand Dollar: Is RBNZ Policy Speculation Going to Follow BoE Footsteps?
  • British Pound Extends Decline as Data Feeds Fear of Triple Dip Recession, Stimulus
  • Japanese Yen Advances for the First Time in 4 Days, Policy Officials Have Spoken
  • Australian Dollar Heading into Volatility with Thursday Jobs Data
  • Gold Posts Biggest Rally in Two Weeks on Fading Volume, Volatility

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Dollar Eases a Second Day as Dow Matches Strongest Rally in Years

The Dow Jones FXCM Dollar Index (ticker = USDollar) hasn’t fallen for three consecutive days since December 12. Yet, greenback weakness in the early hours of Wednesday’s trading session suggests we may match that performance mark this week. The benchmark currency’s performance has long run askew of its negative correlation to risk trends thanks to questionable convictions behind yield appetite and exceptional weakness of key counterparts (yen, pound and the Euro). The ‘end of stimulus is nigh’ conversation that was stoked by this past Friday’s drop in the jobless rate has run thin. Looking ahead, the February retail sales report is unlikely to carry its weight in the larger themes that concern dollar traders. Meanwhile, the Dow equity index has rallied 8 straight days – matching the most aggressive run in 16 years.

Euro: Signs of Liquidity Trouble, Watch Key Bond Auctions and EU Topics

There weren’t any acute fears arising from the Euro-area’s financial or economic backdrop this past session – an assessment made easily enough by the EURUSD’s maintenance of a terminal congestion pattern (i.e. one that will inevitably end with a breakout). However, for those watch, there was a concerning number of headlines that should draw any fundamental trader’s concern. The Bundesbank (Germany’s national central bank) reported that it had nearly doubled its risk provisions through the past year to €14.4 billion with head Weidmann stating clearly that the region’s crisis was not over. That sentiment was echoed in news that Italy had to pay the highest rates on a 12-month bond auction this year (a side effect of the political gridlock), while the Greece-Troika meeting was delayed to the upcoming session and the Central Bank of Greece reported ECB borrowing surged four-fold to €76.2 billion. Coming up, both Spain and Ireland are expected to sell debt.

New Zealand Dollar: Is RBNZ Policy Speculation Going to Follow BoE Footsteps?The kiwi has refrained from developing a clear and concise trend these past few weeks despite tangible moves in equity indexes (benchmarks for risk appetite) and volatility in New Zealand market rates. This hesitation is due to a combination of questionable commitment behind the sentiment-based positioning as well as an emergent – perhaps irrational – fear that the kiwi dollar will succumb to the same easing effort that its global counterparts have suffered via monetary policy. The drought in New Zealand has led many to believe the economic forecast will be further downgraded by an already pliable Reserve Bank of New Zealand (RBNZ) Governor Wheeler. Comments of a high currency and downside risks are not yet a threat of easing, but traders are sensitive to policy talks – and that is where we will look for the RBNZ rate decision Wednesday evening. If the rhetoric opens the door to possible easing, the kiwi could suffer from the same ailment as the pound – fear.

British Pound Extends Decline as Data Feeds Fear of Triple Dip Recession, Stimulus

The sterling was given a fundamental push this past session. The currency has been razed to the ground these past few months on the assumption that economic hardship and a government committed to austerity will lead the Bank of England (BoE) to offer relief in the form of fresh stimulus. However, the move has resided purely in the speculation column to this point as the central bank has not offered any guidance on introducing fresh support. Yet, speculation received a considerable boost with data this past session. While the trade balance for January managed to slim down to a six-month high 8.195 billion sterling, the factory activity and monthly GDP estimates more than offset it. Industrial production dropped 1.2 percent in the opening month while the February NIESR GDP estimate showed a 0.1 percent drop following a downwardly revised 0.2 percent contraction the previous month. A triple dip recession is a stronger call for stimulus.

Japanese Yen Advances for the First Time in 4 Days, Policy Officials Have Spoken

It is clear what is driving the Japanese yen crosses higher (or the yen down). After two days of testimony with the Upper House of Parliament, the lead nominees for replacing the Bank of Japan’s (BoJ) Governor and two Deputy Governors have finally curbed their threats of unrestrained stimulus moving forward; and the yen advances. We continue to drift in a fundamental limbo with the Japanese currency. On the one hand, we know that the new leadership with the BoJ will work to significantly amplify stimulus efforts and thereby act to drive the yen down. On the other, the currency has already dropped 25 percent against the dollar in less than six months…well before the stimulus efforts have been put into place. Some believe that we could have a ‘buy the rumor, sell the news’ situation with Japan; but it would likely be shallow even if it proved true. The real potential rests with the possibility of a risk aversion move spurring a deleveraging of low yield carry trades.

Australian Dollar Heading into Volatility with Thursday Jobs Data

We could assign the Australian dollar’s strength this past session to risk appetite trends, but there is little support an effective positive sentiment influence in that particular session when previous days have offered divergence. Far more remarkable as a driver for the high yield currency is the ongoing improvement in 12 month interest rate expectations. Measured by overnight swaps, the outlook now calls for only 20 bps worth of easing from the Reserve Bank of Australia (RBA) – the most conservative easing forecast in 19 months. In other news, a report from Norway’s sovereign wealth fund reported what we have seen hints of over the past months – that larger entities are buying into Aussie assets. The fund increased its holdings to 2.1 percent in 2012 from 1.1 percent. Moving forward, we are on data watch. Thursday morning will bring the Australian employment figures. This won’t like be a ‘game changer’ report, but it is certainly worth its weight in volatility potential.

Gold Posts Biggest Rally in Two Weeks on Fading Volume, Volatility

Having been resigned to tight congestion for nearly two weeks, gold traders finally stretched their legs with the metal Tuesday and spurred a bullish break above $1,585. Yet, despite the overdue resolution to anemic trading; the conditions surrounding the bullish thrust were far from convincing. Looking at volume behind the move in futures and ETFs, there is little to initially support a strong conviction in this initial shift in direction. On the other hand, with the CBOE’s Gold Volatility Index dropping for a sixth consecutive day to near-record lows (12 percent), the perceived risk of an aggressive tumble seems to have eased materially. Reduced participation alongside reduced perceived risk is a common site in these markets – on that has proven effective in killing robust trend development. Nevertheless, our focus remains two-fold with the commodity: we know the BoJ will step up net stimulus effortsand the USDollar is technically overbought. The potential is clear.

**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

AUD

AUD Australia Manpower Survey

7%

Labor surveys may not fully include impacts of US, EU risks

NZD

NZD New Zealand Manpower Survey

15%

0:30

AUD

AUD Home Loans

0.50%

-1.50%

Weaker home loans are in line with RBA’s intention to pursue further easing policies.

0:30

AUD

AUD Investment Lending

-2.40%

0:30

AUD

AUD Value of Loans (MoM)

-2.70%

6:30

EUR

EUR French Non-Farm Payrolls (QoQ)

-0.20%

-0.20%

Labor reform is key for labor market.

10:00

EUR

EUR Euro-Zone Industrial Production s.a. (MoM)

-0.10%

0.70%

The upwardly revised figure (YoY) showed a pick up on productivity.

10:00

EUR

EUR Euro-Zone Industrial Production w.d.a. (YoY)

-2.00%

-2.30%

11:00

USD

USD MBA Mortgage Applications

14.80%

Further uptick signals market expected higher rate in the future.

12:30

USD

USD Import Price Index (MoM)

0.50%

0.60%

On month, high fuel and commodity costs may lift price higher after an increase in 2M.

12:30

USD

USD Import Price Index (YoY)

-0.60%

-1.30%

12:30

USD

USD Advance Retail Sales

0.50%

0.10%

Higher nonfarm payroll and employment will support the demand in retail industry, against the backdrop of higher payroll tax and budget cuts.

12:30

USD

USD Retail Sales Less Autos

0.50%

0.20%

12:30

USD

USD Retail Sales Ex Auto & Gas

0.20%

0.20%

12:30

USD

USD Retail Sales "Control Group"

0.20%

0.10%

14:00

USD

USD Business Inventories

0.40%

0.10%

14:30

USD

USD DOE U.S. Crude Oil Inventories

3833K

2.5M uptrend; Avg. of 2379; High of 5947, Low of -951.

14:30

USD

USD DOE Cushing OK Crude Inventory

257K

6M Avg. of 270; High of 2214, Low of -1118.

20:00

NZD

NZD Reserve Bank of New Zealand Rate Decision

2.50%

2.50%

Expected to remain unchanged.

23:50

JPY

JPY Japan Buying Foreign Bonds (Yen)

Demand for JGBs rose to fulfill bond purchases. 2M downtrend for foreign stock demand. 1M downtrend for foreign bonds demand.

23:50

JPY

JPY Japan Buying Foreign Stocks (Yen)

23:50

JPY

JPY Foreign Buying Japan Bonds (Yen)

¥657.8B

23:50

JPY

JPY Foreign Buying Japan Stocks (Yen)

¥269.6B

GMT

Currency

Upcoming Events & Speeches

-:-

JPN

BOJ Governor Nominee Kuroda Hearing in Parliament

1:30

JPN

Bank of Japan Board Member Ishida Speaks

8:30

EUR

EU Foreign Ministers Hold Meeting

23:50

JPN

BOJ Minutes for February Meeting

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

15.5900

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.8300

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.8155

5.7350

5.8200

Spot

12.6279

1.8065

9.0896

7.7569

1.2477

Spot

6.4032

5.7345

5.7258

Support 1

12.5000

1.6500

8.5650

7.7490

1.2000

Support 1

6.0800

5.4440

5.5000

Support 2

11.5200

1.5725

6.5575

7.7450

1.1800

Support 2

5.8085

5.3350

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

1.3115

1.5056

97.22

0.9593

1.0359

1.0316

0.8302

126.68

145.00

Resist. 2

1.3087

1.5023

96.92

0.9573

1.0341

1.0296

0.8282

126.22

144.58

Resist. 1

1.3060

1.4990

96.61

0.9553

1.0323

1.0276

0.8262

125.77

144.16

Spot

1.3005

1.4925

96.00

0.9514

1.0287

1.0236

0.8222

124.86

143.32

Support 1

1.2950

1.4860

95.39

0.9475

1.0251

1.0196

0.8182

123.95

142.47

Support 2

1.2923

1.4827

95.08

0.9455

1.0233

1.0176

0.8162

123.50

142.05

Support 3

1.2895

1.4794

94.78

0.9435

1.0215

1.0156

0.8142

123.04

141.63

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

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