Dollar Looks to Close Sixth Bullish Quarter, What are the Drivers Ahead?

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  • Dollar Looks to Close Sixth Bullish Quarter, What are the Drivers Ahead?
  • Euro Traders Looking at Slovenia, Italy as Next Systemic Crisis Risk
  • British Pound Still Weak Despite Questionable Stimulus Outlook Next Week
  • Japanese Yen: Government Sets Wheels in Motion to Ensure BoJ Stimulus
  • Australian Dollar Approaching RBA Decision with Increased Optimism
  • Canadian Dollar Unable to Capitalize on GDP – A Lesson in What Matters
  • Gold Ends Quarter Building Congestion on Low Volume, ETF Divesting

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Dollar Looks to Close Sixth Bullish Quarter, What are the Drivers Ahead?

While the quarter is over for the US capital markets with exchanges closed for the Good Friday holiday, the Dow Jones FXCM Dollar Index (ticker = USDollar) still has one more day to break from its fundamentally-tense meander between 10,500 and 10,400 and revive a new trend before Q2. This is unlikely to happen, however, considering a good portion of the speculative world will be offline until next week. Meanwhile, an observation of trader positioning – whether you believe in investor confidence or stimulus – the S&P 500 closed the day, week and quarter at a record high. Yet, the lowest volume level in 15 years – 32.96 billion shares – should keep risk bulls on their toes and dollar bulls ready.

Euro Traders Looking at Slovenia, Italy as Next Systemic Crisis Risk

The Cypriot markets reopened for the first time in nearly two weeks. And, while there was no doubt a feeling of anxiety amongst those trying to withdrawal funds, there were no immediate signs of an imminent liquidity crisis. The capital controls and consolidation of the nation’s two largest banks has effectively defused the most immediate threat to the fragile country. However, this is not an ‘all is clear’ sign for Euro traders. The threat remains the nagging fear that a bank levy and capital controls could be in store for other Euro-area economies. Is Slovenia next on the list after its 2022 bond yield surged 42 percent in two weeks? Or perhaps Italy after Bersani said a government couldn’t be formed?

British Pound Still Weak Despite Questionable Stimulus Outlook Next Week

With the modern stimulus approach invariably involving tremendous amounts of local sovereign debt, we have a relatively easy measure of market-based stimulus expectations (for all but the most mature programs) – the strength of the government bond market or weakness in yields. This is something we have seen play through readily in Japanese Government Bonds (JGBs) since the beginning of the year as the threats by the new Bank of Japan leadership have generated considerable interest. Yet, with the pound’s sizable drop since we started 2013 on the assumption that remit – allowances for the Bank of England (BoE) to stray from pure inflation targets – and a new Governor (Carney comes on in July), we would expect the same thing in gilt yields. Since mid-February, the 10-year gilt yield has dropped 22 percent from its peak. What happens then if the market is met with a mum BoE next week even with its greater freedom after such a run?

Japanese Yen: Government Sets Wheels in Motion to Ensure BoJ StimulusThe headlines were thick with official commentary this past session, but it wasn’t the kind of rhetoric that FX traders are looking for from the Japanese yen. Market participations have developed a very short-term focus on the fundamentals – not surprising given the yen’s incredible move over the past months. Given the level of commitment – and now expectation – directed towards an expansive stimulus program in Japan, there is little the masses are willing to move on short of a confirmation or rejection of expectations that the central bank will move up its ¥13 trillion-per-month program scheduled for January to a May start. However, we should take note a few things that have passed the wires recently. For data this morning, the February National CPI figures would also cement the nation’s state of deflation. That is where discussion of an LDP draft bill that could diminish the BoJ’s independence to comes in. Government-run stimulus…it’s a real possibility.

Australian Dollar Approaching RBA Decision with Increased Optimism

Looking ahead to next week, we have a Reserve Bank of Australian (RBA) rate decision scheduled for the early trading hours on Tuesday, April 2. Over the past two years, the approach of this particular event risk was assessed for what degree of bearish influence it would impose on the currency. In other words, currency traders would use the occasion to speculation on the likelihood of a rate cut – and if not an actual rate cut, how intense the commentary was towards ushering in a future easing move. This bearish / dovish risk has steadily dissipated, however, and this past month has seen the one year (12-month) outlook moved its closest to a ‘no change’ read since July 2011. The only element missing is the RBA’s commentary actually confirming that even keel. This past session, the one-year outlook actually dropped back to 25 bp cut (a three-week low) following the mild 2.1 percent consumer inflation reading from TD Securities. The next move is up to the RBA or wholesale risk.

Canadian Dollar Unable to Capitalize on GDP – A Lesson in What Matters

Despite data on the day that backed a strong Canadian economy, the country’s currency presented a particularly weak front Thursday. The Canadian dollar closed a bearish session against all of its major counterparts with the exception of the Australian dollar. From the calendar, the focus was on the January Gross Domestic Product (GDP) figures. Unlikely the first reading of the quarterly figures from other countries, the monthly numbers from Canada carry far less short-term market-moving impact. The 1.0 percent year-over-year pace of expansion was slightly better than expected and gave the USDCAD a quick jolt to the downside – but the strength was very quick to fade. Furthermore, this was only an uptick from the slowest pace of expansion since December 2009. This indicator – as well as the sharpest increase in upstream inflation pressures in five years – lacks for drive because it doesn’t tap a broad enough audience through rate expectations.

Gold Ends Quarter Building Congestion on Low Volume, ETF Divesting

Technical traders that monitor candlestick patterns would call gold’s session Thursday an ‘inside day’. The precious metal’s range fit neatly within the previous session’s extremes. That technical view is a sound reflection on fundamentals. Speculative participation in gold futures – aggregate open interest – dropped this week to its lowest level since August. In another measure of market interest, total Exchange Traded Fund (ETF) holdings of the commodity dropped for a third consecutive day to a seven-month low 78.76 million ounces. To give a sense of this shift in interest, open interest has dropped over 15 percent from the peak in November while ETF holdings are 7 percent off their own record highs in late December. The exodus from the precious metal has proven both consistent and heavy. At this point, momentum has shifted to the bears and the burden shifts to gold bugs to revive its luster before its drops below $1,550. The BoJ will be important next week.

**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

1:35

CNY

MNI Business Sentiment Indicator

Monthly poll of Chinese business executives; A leading indicator.

4:00

JPY

Vehicle Production (YoY)

-9.90%

Weaker yen does not benefit auto demand from foreign countries.

5:00

JPY

Construction Orders (YoY)

-3.70%

1Y Avg. 2.28; High 16.2; Low -13.8.

5:00

JPY

Housing Starts (YoY)

-1.80%

5.00%

1Y Avg. 6.86; High 25.2; Low -9.57.

5:00

JPY

Annualized Housing Starts

0.897M

0.863M

1Y Avg. 0.88; High 0.98; Low 0.84.

12:30

USD

Personal Income

0.80%

-3.60%

Sharp fall due to payroll tax hike.

12:30

USD

Personal Spending

0.60%

0.20%

Stronger job growth offsets tax hike.

12:30

USD

Personal Consumption Expenditure Deflator (MoM)

0.50%

0.00%

Fed’s effort in the MBS market has been reflected in the improving housing market, however, the multiplier effect on consumption will depends on consumer expectation.

12:30

USD

Personal Consumption Expenditure Core (MoM)

0.10%

0.10%

12:30

USD

Personal Consumption Expenditure Core (YoY)

1.30%

1.30%

12:30

USD

Personal Consumption Expenditure Deflator (YoY)

1.40%

1.20%

13:55

USD

U. of Michigan Confidence

72.6

71.8

Robust confidence suggested by equity and labor markets.

GMT

Currency

Upcoming Events & Speeches

-:-

JPY

Last Business Day of Japan’s Fiscal Year

-:-

USD

US Markets Closed for Good Friday Holiday

-:-

EUR

European Markets Closed for Good Friday Holiday

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

12.3539

1.8106

9.2295

7.7630

1.2399

Spot

6.5105

5.8119

5.8357

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

1.2946

1.5319

95.27

0.9569

1.0224

1.0496

0.8447

122.50

144.83

Resist. 2

1.2916

1.5290

94.97

0.9549

1.0208

1.0476

0.8427

122.05

144.39

Resist. 1

1.2887

1.5262

94.68

0.9529

1.0192

1.0457

0.8408

121.60

143.96

Spot

1.2828

1.5206

94.10

0.9489

1.0160

1.0418

0.8368

120.71

143.08

Support 1

1.2769

1.5150

93.52

0.9449

1.0128

1.0379

0.8328

119.82

142.21

Support 2

1.2740

1.5122

93.23

0.9429

1.0112

1.0360

0.8309

119.37

141.77

Support 3

1.2710

1.5093

92.93

0.9409

1.0096

1.0340

0.8289

118.92

141.34

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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