Dollar and S&P 500 Ready for Fed Rate Decision

DailyFX

  • Dollar and S&P 500 Ready for Fed Rate Decision
  • British Pound Awaits UK Budget, BoE Go Ahead for Stimulus
  • Euro Tests Four Month Lows as Cyprus Plan Rejected
  • Japanese Yen: What will Kuroda Do in His First Day at the BoJ Reins
  • New Zealand Dollar Weighs RBNZ Warnings against 4Q GDP
  • GoldClimbs a Fourth Day, Focus Shifts from Euro Risk to Stimulus

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Dollar and S&P 500 Ready for Fed Rate Decision

The dollar finally regained its composure this past session as fear of a systemic risk spread starts to creep back into the picture. With the Eurozone / Cyprus troubles deepening and the Federal Open Market Committee (FOMC) decision due ahead, we have the kind of heavy event risk that can revive true fear and in turn resync fundamental correlations rooted in investor sentiment. On the other hand, having so many big-ticket fundamental trends on tap creates a larger possibility of ‘crosswinds’. For example, if the euro regains ground and stalls the dollar through its most liquid pairing – EURUSD – it can temper the influence of a ‘favorable’ Fed stimulus outcome. We have to traverse this minefield carefully and keep a close eye on how the different fundamental themes interact.

There are two systemic themes facing the dollar through the immediate future: the navigation of Fed stimulus and weight of underlying risk trends. Already this week, we have seen the early return of the familiar ‘risk trend’-based correlations. With the EURUSD sliding, yen crosses gapping lower and the S&P 500 down for three consecutive days; the usual suspects are once again moving in concert. However, the source of this drive is still lacking for the clout necessary to tip the scales to the ‘fear’ or ‘greed’ extremes and drive the trend that can keep correlation and momentum in place. The Cyprus story (more on that below) can certainly spur global risk through Eurozone financial crisis waves, but that is still a few steps of uncertain escalation ahead. A way to throttle speculative appetite and the dollar immediately though is through the Fed decision.

At the last FOMC gathering, the group offered familiar vows, chief among them that policy would remain accommodative until the unemployment rate was seen returning to 6.5 percent and the inflation forecast remains below 2.5 percent. However, the statement also suggested that policy would still be ‘accommodative’ when the quantitative easing effort is halted and reversed (focusing in on interest rates). Since that meeting, we have seen the US jobless rate dropped to a four-year low 7.7 percent and Chairman Ben Bernanke said in Congressional testimony that the discussion of the QE exit would begin ‘soon’.

For traders (FX and capital market), the interest is not in seeing discussion of a rate hike. There is little to no expectation of that until at least mid-next year. The real market moving aspect of this event is any hint that the Fed’s as-of-yet unrivaled stimulus drive will end – just as speculation of Bank of Japan and Bank of England efforts ramp up. The consensus is for the Fed to play it safe and not provoke a highly-sensitive equity market into a tumble with talk of a clear time frame for a stimulus exit. However, there is plenty of opportunity for the masses to extract that information for themselves. With this Fed decision, we have more than just the policy decision and statement. This quarterly event brings with its forecasts for growth, inflation and interest rates along with Bernanke’s press conference. And, it is interesting to note that the time between the policy decision and ‘presser’ has been reduced to 30 minutes – likely an effort to stem negative speculation on perceptible change.

British Pound Awaits UK Budget, BoE Go Ahead for Stimulus

Risk trends could carry significant influence over the sterling’s next move, but there is plenty of native event risk to make a systemic shift behind the currency all on its own. The morning opens up with top-tier – but ‘standard’ – event risk. The February labour data is known for its influence over volatility and leading assessment of general growth trends. However, it is the least influential event on the UK docket. The Bank of England (BoE) minutes cross the wires at the same time, but its report on the vote count for more stimulus at the last policy gathering (last go around, 3 members voted for more gilt purchases) will be seen as a shot in the competitive stimulus wars. Top billing, though, goes to Chancellor Osborne’s 2013 budget. We see how committed the government can hold to its austerity drive, reflection on economic collateral damage and targets for both. Where traders are really looking though is any allowances for the BoE to bolster its stimulus effort.

Euro Tests Four Month Lows as Cyprus Plan RejectedThe unprecedented Cyprus bailout preconditions have effectively revived fears of systemic Eurozone financial troubles. This past session, the Cypriot Parliament firmly rejected an adapted proposal of the bank levy – taking money from deposits to partially fund the country, banking systems rescue – that President Anastasiades, Finance Minister Sarris and EU officials initially agreed to. Though accounts under €20,000 would have been spared, the measure received 36 votes against, 19 abstentions and no votes in favor. This situation is a mess. A second vote on a revised program is likely in the coming days. Otherwise, a return to Euro-area authorities will not likely yield any more favorable conditions as there is an adamant stand against another Greek-style rescue. If Cyprus passes a bank level, it will set a dangerous precedent for fragile confidence in Greece, Spain and Italy. And, as we wait, questions churn as to whether the ECB will cut off liquidity to Cyprus banks

Japanese Yen: Kuroda Takes the BoJ Reins, Market Waiting

It’s official. The Bank of Japan (BoJ) is now headed by Haruhiko Kuroda. Now it is time for the vocal stimulus supporter to offer satisfaction to those speculating on a significant escalation of the central bank’s efforts. There is no doubt a contingent of the market is expecting immediate moves by the BoJ – moving forward the 13 trillion yen-per-month program would be most influential. But so far Kuroda is mum for the holiday.

New Zealand Dollar Weighs RBNZ Warnings against 4Q GDP

Trade – a vital component of the New Zealand economy – proved weaker in the fourth quarter than economists had expected with a NZ$3.255 billion deficit. That is notable, but not as influential as the unsettled risk theme that lies before us nor tomorrow’s 4Q GDP release. The economy is seen growing 0.9 percent last quarter according to the consensus forecast, but given RBNZ Wheeler’s warnings, a miss could stir bears.

GoldClimbs a Fourth Day, Focus Shifts from Euro Risk to Stimulus

A slow return of systemic risk in the Eurozone. The possibility that the BoJ and BoE are on the cusp of new swells in stimulus. Concern that the Fed may lay out its exit plan. There is a lot going on for gold. The fourth consecutive advance for the precious metal is riding on the Cyprus news. Yet, top concern Wednesday is what the Fed does. If there is a rough QE exit time frame, this is another benchmark that will suffer.

**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

7:00

EUR

German Producer Prices (MoM)

0.20%

0.80%

1Y Avg. 0.1; High 0.8; Low -0.4.

7:00

EUR

German Producer Prices (YoY)

1.50%

1.70%

Decline in energy costs contribute to slower growth of producer prices

9:00

EUR

Euro-Zone Current Account n.s.a. (euros)

27.0B

Imbalance contributes to the balance of payment surplus, consistent with outflow of funds.

9:00

EUR

Euro-Zone Current Account s.a. (euros)

13.9B

9:30

GBP

Claimant Count Rate

4.70%

4.70%

Recent decline eased opposition to PM Cameron’s austerity plan.

9:30

GBP

Jobless Claims Change

-5.0K

-12.5K

9:30

GBP

ILO Unemployment Rate (3M)

7.80%

7.80%

Stayed within 7.7-7.9 for 5 months.

9:30

GBP

Employment Change (3M/3M)

140K

154K

Increased for 3M; 3Y Avg.

10:00

CHF

ZEW Survey (Expectations)

10

8M steady upward trend; Ongoing Cyprus crisis offer downside risk.

11:00

USD

MBA Mortgage Applications

-4.70%

Subjected to seasonal changes.

13:00

CAD

Teranet/National Bank HPI (MoM)

-0.30%

Missed expectations for six months.

13:00

CAD

Teranet/National Bank HPI (YoY)

2.70%

14:30

USD

DOE U.S. Crude Oil Inventories

2624K

Refiner remains cautious amid uncertainties on Fed exit strategy.

15:00

EUR

Euro-Zone Consumer Confidence

-23.2

-23.6

Cyprus sovereign debt crisis could weigh on Eurozone confidence.

18:00

USD

Federal Open Market Committee Rate Decision

0.25%

0.25%

Attention on committees’

Votes on the agenda of exit strategy; Their determination to stick with the 2 threshold levels for exit strategy is key for expectation.

21:45

NZD

Gross Domestic Product (YoY)

2.30%

2.00%

Depends on the recovery pace and demand in China; High kiwi dollar and weak demand could weigh on the New Zealand’s economy.

21:45

NZD

Gross Domestic Product (QoQ)

0.90%

0.20%

23:50

JPY

Adjusted Merchandise Trade Balance (Yen)

-¥1099.4B

-¥678.9B

Easing policies has limited effect on merchandise trade; deflation problem persisted.

23:50

JPY

Merchandise Trade Balance Total (Yen)

-¥855.9B

-¥1630.9B

23:50

JPY

Merchandise Trade Imports (YoY)

15

7.3

Trade deficit is expected as the weaker yen affect the export before it benefits export.

23:50

JPY

Merchandise Trade Exports (YoY)

-1.7

6.4

23:50

JPY

Foreign Buying Japan Stocks (Yen)

¥1121.9B

Foreign investment in Japan’s bonds ratcheted up to a record high (Foreign investment represents 60-67% trading activities). Abe’s policy is a catalyst to Japan’s equities market.

23:50

JPY

Japan Buying Foreign Bonds (Yen)

¥764.4B

23:50

JPY

Japan Buying Foreign Stocks (Yen)

-¥269.6B

23:50

JPY

Foreign Buying Japan Bonds (Yen)

-¥838.2B

GMT

Currency

Upcoming Events & Speeches

9:30

GBP

Bank of England Releases Monetary Policy Committee Minutes

12:30

GBP

U.K. Chancellor Osborne Presents 2013 Budget to Parliament

18:00

USD

Fed Releases Summary of Economic Projections

18:30

USD

Fed's Bernanke Holds Press Conference in Washington

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

5.8200

Spot

12.4387

1.8256

9.2622

7.7613

1.2519

Spot

6.4700

5.7898

5.8420

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

1.2998

1.5234

96.15

0.9561

1.0338

1.0451

0.8315

124.05

145.21

Resist. 2

1.2967

1.5201

95.85

0.9539

1.0321

1.0431

0.8295

123.59

144.75

Resist. 1

1.2936

1.5167

95.55

0.9518

1.0304

1.0411

0.8275

123.13

144.29

Spot

1.2874

1.5101

94.94

0.9474

1.0269

1.0371

0.8234

122.22

143.37

Support 1

1.2812

1.5035

94.33

0.9430

1.0234

1.0331

0.8193

121.31

142.45

Support 2

1.2781

1.5001

94.03

0.9409

1.0217

1.0311

0.8173

120.85

141.99

Support 3

1.2750

1.4968

93.73

0.9387

1.0200

1.0291

0.8153

120.39

141.53

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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