Dollar Extends Recovery as Slip in Risk Adds Safe Haven Bid

DailyFX

  • Dollar Extends Recovery as Slip in Risk Adds Safe Haven Bid
  • Euro Tumbles to Four Month Low as Systemic Crisis Fears Balloon
  • British Pound Drops 80 Pips after BoE Warns on Banking Sector
  • Japanese Yen Feels Same Risk Aversion Wave as Dollar, Needs Much More
  • Canadian Dollar Fights Back Risk Trends with Biggest Jump in CPI in 22 Years
  • Swiss Franc to Have its Safe Haven Appeal Tested
  • Gold Starts to Taste the Anti-Euro Flows

Range Trade Strategies work best in quiet market conditions - such as the Asia trading session

Dollar Extends Recovery as Slip in Risk Adds Safe Haven Bid

The Dow Jones FXCM Dollar (ticker = USDollar) extended its bullish run to a third day with this past session, but momentum continues to elude the currency market’s safe haven. Nevertheless, broad gains against most counterparts – even fellow safe haven yen – speaks to an individual strength for the greenback. The ‘risk’ element to the day is a factor with the S&P 500 closing slightly lower (European indexes were held onto their losses) and the VIX Volatility Index back above 13 percent. Yet, for the dollar to really start climbing universally, we need risk aversion to a far greater magnitude. Looking ahead, Thursday is the last trading day of the first quarter; so be careful of repositioning volatility.

Euro Tumbles to Four Month Low as Systemic Crisis Fears Balloon

Euro traders’ focus remains on the situation in Cyprus. At this point, the scenarios to the country’s future are well-known. And, while none of the paths are particularly encouraging; the kind of fear that transitions from country fear to regional fear isn’t as volatile. That said, each step in implementing the very unpopular capital controls and eventual bank levy on the nation’s financial system is a slow upgrade to the Eurozone’s pain. In this slow constriction on the country’s capital, investors see a truly disturbing precedence being set that can potentially be used by Greece, Spain or even Italy in the future. And, even if the probabilities are relatively low, the implications are so severe that the influence is strong. In the end, it is how the market bears the news that really matters to traders. On that front, Euro-region financial institution credit default risk continues to swell while sovereign yields for Spain, Greece and Slovenia (the next hot spot?) extended rallies. Tomorrow, as with the US, is the last trading day of the quarter for Europe with Cyprus set to open and the ECB expected to publish national bank deposit numbers.

British Pound Drops 80 Pips after BoE Warns on Banking Sector

The Sterling took a dive this past session, and some traders seemed to confuse the catalyst. While the updated 4Q GDP figures were certainly important in the bigger picture – tipping into a ‘triple dip’ recession carries a certain amount of concern for investors – this data was hardly surprising. As the final read for the indicator, we have seen no change to the previous 0.3 contraction and the components’ changes were not particularly dramatic. Where the data was priced in, the outcome of the Bank of England’s Capital Report offered a measurable level of surprise. According to the policy group, the region’s lenders have a 25 billion pound shortfall for capital. This ‘stress test’ is just as troubled as its US and Eurozone counterparts. Elsewhere, news circulated that Egan-Jones downgraded the UK another step from AA- to A+.

Japanese Yen Feels Same Risk Aversion Wave as Dollar, Needs Much MoreLike the US currency, the Japanese yen was feeling the positive effects of risk aversion. Hardly a safe haven under the threat of massively distorting monetary policy programs, the currency instead responded through its carry trade role. While yields are still low on a historical level and there is limited participation in high-risk, low-volatility dependent investment strategies; the Bank of Japan’s (BoJ) efforts to drive its currency lower has ensured this vein of carry trade certainly makes it into the realm of overextended. Therefore, as risk tapers as it did this past session, FX traders look to remove some exposure from these lofty heights. However, a true yen cross drop will require a lot more fundamental drive than the temporary setback witnessed Wednesday. With the BOJ expected to usher in the second coming of stimulus next week, many yen traders are firmly planted. In this morning’s session, BoJ Governor Kuroda will talk to the Upper House, but he is unlikely to divulge much more.

Canadian Dollar Fights Back Risk Trends with Biggest Jump in CPI in 22 Years

The Canadian docket held a modest level of market-moving potential this past session, but the inflation data squeezed as much impact out of the market that it could. The implementation of a new sales tax already lifted the economists’ expectations for the February Consumer Price Index (CPI) data, but even their aggressive projections proved restrained. The 1.2 percent jump in the basket last month was the biggest swell since 1991. The level of surprise was enough to drive the Canadian dollar higher, but momentum would naturally be sabotaged by fundamentals. Inflation matters because it leverages interest rate expectations – something the loonie is particularly interested in. And, while the 1.2 percent annual figure increase picks up the pressure; this unusual increase is unlikely to set the Bank of Canada on pace for a hike.

Swiss Franc to Have its Safe Haven Appeal Tested

As the Eurozone’s financial troubles become more established, we will see the Swiss franc pick back up its mantle of safe haven. Of course, the currency no longer plays the part of a global ‘safe haven’ whereby a jump in fear leads pairs like USDCHF, GBPCHF and CADCHF to declines. Rather, this currency is specifically the foil of the Euro. To most other franc pairings (outside of EURCHF), the currency is essentially interchangeable for the euro – a side effect of introducing a floor. However, the EURCHF is perhaps the best gauge of systemic financial crisis in the broader European region that we have. With the knowledge that there is a hard floor at 1.2000 for the pair, the closer we come to that threshold, the less speculative participation there is and the greater the flow of capital committed to simply seeking stability.

Gold Starts to Taste the Anti-Euro Flows

Having stumbled the previous three trading days, gold finally posted a positive close Wednesday. Yet, there was certainly a lack of strength behind the commodity’s move. Not only does the 0.3 percent advance fail to erase the losses since Friday and fall well short of even returning to well-worn resistance in $1,617, it notable lacks for participation. Looking at commodity and ETF turnover on the day, we still see the steady downtrend in volume; while total physical holdings by exchange-traded products maintains the consistent unwinding. In other words, the day’s advance was far from convincing of trend. Fundamentally, the Euro-region financial concerns seem to have enough traction to lead capital into an alternative to assets and accounts denominated in the troubled currency. Should this situation continue to heat up and talk of renewed stimulus effort follow behind, gold will be in a particularly good position to take advantage.

**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

0:01

GBP

GfK Consumer Confidence Survey

-27

-26

Lower GDP forecast may weigh on consumer confidence.

0:30

AUD

Private Sector Credit (YoY)

3.5%

3.6%

The effect of rate cuts in 2012 showed signed of tapering off.

0:30

AUD

Private Sector Credit (MoM)

0.3%

0.2%

The effect of rate cuts in 2012 showed signed of tapering off.

Steady increasing profits led by agri. food processing and electricity.

1:30

CNY

Industrial Profits YTD (YoY)

5.3%

2:00

NZD

Money Supply M3 (YoY)

6.4%

Broadest measure of money supply

7:00

GBP

Nationwide House Prices s.a. (MoM)

0.2%

0.2%

BoE may extend its FLS program to maintain a low mortgage rate.

7:00

GBP

Nationwide House Prices n.s.a. (YoY)

0.9%

0.0%

7:00

EUR

German Retail Sales (MoM)

-0.6%

3.0%

7:00

EUR

German Retail Sales (YoY)

-1.2%

2.4%

8:55

EUR

German Unemployment Change

-2K

-3K

Unemployment rate has stayed at 6.9% for 5 consecutive months.

8:55

EUR

German Unemployment Rate s.a.

6.9%

6.9%

9:00

EUR

Euro-Zone M3 s.a. (YoY)

3.2%

3.5%

3Y steady uptrend.

9:00

EUR

Euro-Zone M3 s.a. (3M)

3.3%

3.5%

9:30

GBP

Index of Services (3Mo3M)

-0.2%

-0.1%

Measure of monthly movements in gross value added for the service industries.

9:30

GBP

Index of Services (MoM)

0.3%

-0.4%

12:30

CAD

Gross Domestic Product (MoM)

0.1%

-0.2%

Monthly report a timely update, but lacking for market movement

12:30

CAD

Gross Domestic Product (YoY)

0.9%

0.8%

12:30

USD

Gross Domestic Product (Annualized)

0.5%

0.1%

Personal consumption dropped nearly to 2010’s low, consumer cautious after budget cut.

12:30

USD

Personal Consumption

2.1%

2.1%

12:30

USD

Core Personal Consumption Expenditure (QoQ)

0.9%

0.9%

12:30

USD

Initial Jobless Claims

338K

332K

Ticked higher after a 4W decline.

12:30

USD

Continuing Claims

3041K

3053K

More manufacturing jobs creation has helped lower continuing claims.

13:45

USD

Chicago Purchasing Manager

56.3

56.8

Higher commodity prices have boosted producers’ sentiment.

23:30

JPY

National Consumer Price Index (YoY)

-0.7%

-0.3%

Despite the massive stimulus program, structural problems persist. Weaker yen led to higher imported goods, thereby lowering disposable income and holding back inflation expectation.

Jobless rate on a steady downtrend. Population decline and aging is a key concern.

23:30

JPY

National CPI Ex Food, Energy (YoY)

-0.9%

-0.7%

23:30

JPY

National Consumer Price Index Ex-Fresh Food (YoY)

-0.4%

-0.2%

23:30

JPY

Jobless Rate

4.2%

4.2%

23:30

JPY

Job-To-Applicant Ratio

0.86

0.85

23:30

JPY

Household Spending (YoY)

0.1%

2.4%

23:50

JPY

Industrial Production (MoM)

2.5%

0.3%

1Y Avg. -0.5; High 2.4; Low -4.1.

23:50

JPY

Industrial Production (YoY)

-8.4%

-5.8%

1Y Avg. -1.3; High 33.1; Low -38.6.

GMT

Currency

Upcoming Events & Speeches

01:00

JPY

BOJ Governor Kuroda to Speak at Parliament

-:-

EUR

Cyprus Markets Expected to Reopen

9:30

EUR

ECB Publishes National Bank Deposits, Balance Sheets

11:00

EUR

ECB Reports Weekly LTRO Repayment

-:-

USD

Last Trading Day before Quarter End (1Q)

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

5.8300

6.1150

Resist 1

12.9000

1.9000

9.5500

7.8075

1.3250

Resist 1

6.8155

5.7955

5.8620

Spot

12.3273

1.8188

9.3142

7.7617

1.2506

Spot

6.4652

5.7567

5.8427

Support 1

12.2385

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

1.3066

1.5247

97.13

0.9532

1.0315

1.0454

0.8351

126.04

146.89

Resist. 2

1.3036

1.5216

96.83

0.9511

1.0298

1.0435

0.8330

125.57

146.43

Resist. 1

1.3006

1.5185

96.52

0.9491

1.0282

1.0415

0.8310

125.11

145.96

Spot

1.2947

1.5122

95.91

0.9450

1.0249

1.0376

0.8270

124.18

145.04

Support 1

1.2888

1.5059

95.30

0.9409

1.0216

1.0337

0.8230

123.25

144.12

Support 2

1.2858

1.5028

94.99

0.9389

1.0200

1.0317

0.8210

122.79

143.65

Support 3

1.2828

1.4997

94.69

0.9368

1.0183

1.0298

0.8189

122.32

143.19

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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