Dollar Retreats Before Key Fed Officials Weigh In on QE3

DailyFX

  • Dollar Retreats Before Key Fed Officials Weigh In on QE3
  • Japanese Yen: Are Officials Now Trying to Put a Top on USDJPY?
  • Australian Dollar Steadies after Hefty Slump, RBA Minutes on Tap
  • Euro Gains as Market Glosses Over Troublesome Headlines
  • British Pound Takes in Round of Inflation Data for Stimulus Outlook
  • New Zealand and Canadian Dollar to Scour Event Risk for Policy Clues
  • Gold Posts First Advance in 8 Days, Biggest Advance in 11 Months

Dollar Retreats Before Key Fed Officials Weigh In on QE3

Having charged forward under one of the strongest two-week advances in nearly 18-months, the Dow Jones FXCM Dollar Index (ticker = USDollar) was in for a breather. That is as far as we should interpret Monday’s rather sharp decline. The aggregate measure for the benchmark currency dropped 0.6 percent for the biggest daily decline since September 7 – the heave to the final stage of the second quarter decline before embarking on the current 1,000-plus point advance. Fundamentally-speaking, it would be easy to connect headline fodder to this move. From a risk front, the S&P 500 and other benchmarks were little moved from their record highs. On the stimulus front, vocal policy dove Chicago Federal Reserve President Charles Evans offered up remarks that suggests his vote at the June Federal Open Market Committee meeting would be to keep the scope of the QE3 stimulus program in place through the foreseeable future.

Both the undercurrent for investor confidence and the timing of the Federal Reserve’s inevitable exit from its open-ended stimulus program are principal drivers for the dollar’s larger trends. Yet, what we have seen to start this week doesn’t represent a significant change nor revelation from the respective themes’ bearings. Currently, the 20-day (one calendar month) simple correlation between the dollar and S&P 500 stands at 0.82 – a very high, positive relationship. Expecting a day where capital markets are virtually unchanged to redefine the dollar’s bearings is a stretch. That being said, if there were a strong and momentum-bound drive from risk-sensitive markets (particularly risk aversion); the dollar would no doubt fall back into line – as would virtually every market. As for Fed member Evans’ comments, he is known as a steadfast dove. The only thing that was off script from his speech was his remark that he has tried to resist talk about tapering – suggesting there is growing voice internally towards such a move. That is actually a modestly hawkish revelation and thereby dollar bullish and risk trend bearish. If we want to see QE speculation change, watch the ‘fence-sitting’ voters. We have two (Dudley and Bullard) due to speak tomorrow.

Japanese Yen: Are Officials Now Trying to Put a Top on USDJPY?

There have been a few glaring ‘slip ups’ when it comes to the uniform campaign amongst Japanese officials to talk down their currency over the past six months. Yet Japan’s Economy Minister, Akira Amari, may have signaled an unofficial but intended shift in this effort early Monday. The politician reflected on discussion in the market that the yen has already corrected ‘a lot’ of its excessive gains and noted that excessive losses could also lead to problems. This he said, was the Ministry and central bank’s job to ‘minimize’. This is a shift that likely answers a need to dodge G7 accusations of manipulation and a response to the unfavorable surge in JGB yields. Unlike the Fed’s QE influence of driving Treasury yields lower to reduce lending costs, the end of deflation spells a risk for those collection Japanese bonds’ anemic yields.

Australian Dollar Steadies after Hefty Slump, RBA Minutes on Tap

The Australian dollar has tumbled against its US counterpart these past two weeks, but that isn’t necessarily a reflection of the former’s pains. Where AUDUSD dropped over 500 pips, fellow safe haven and carry trade candidate AUDJPY has refused to light the fuse with its frequent tests of 100. While the Aussie isn’t as weak as the benchmark dollar pairing suggests, it is certainly showing trouble. A committed effort to unwind expensive carry trades can make quick work of the currency. Meanwhile, the RBA minutes can tell us how long the rate cuts continue.

Euro Gains as Market Glosses Over Troublesome HeadlinesWith the exception of EURNZD, the euro managed an advance against all its liquid counterparts. We are back to the point where less bad news is good news. We have seen periods like this plenty of times in the past as the appetite for buying depressed Euro-based assets meets a balance of confidence that policy officials will be able to maintain the status quo – long-term fixes aren’t necessary for short-term speculation. Meanwhile, the Cypriot President forecasted an 8.7 percent GDP drop in 2013 and Spain’s debt-to-GDP hit a record. Dry kindling...

British Pound Takes in Round of Inflation Data for Stimulus Outlook

There is still considerable monetary policy-based speculation behind the British pound, it just happens to be relatively stable. Many believe that when Governor-designate Mark Carney takes the helm in a few months that he will bring a more aggressive easing policy with him. Yet, it is difficult to confirm these expectations given his comparatively neutral approach to these topics recently. Nevertheless, traders will look to the swell of inflation data (consumer, producer and retail) due in the upcoming session with a view tipped towards stimulus.

New Zealand and Canadian Dollar to Scour Event Risk for Policy Clues

There are two things important to carry currencies like the New Zealand and Canadian currencies: the level and bearing of their rates of return (yield) and the appetite for risk. While the FX market is materially more skeptical of the balance between income and future volatility risk, there is still a considerable tolerance and appetite keeping sentiment levels buoyant. Looking at the docket for the upcoming session, we may alter the individual currency’s connection somewhat. The RBNZ’s two-year inflation outlook is due and BoC Governor Carney is set to speak.

Gold Posts First Advance in 8 Days, Biggest Advance in 11 Months

A 2.5 percent rally for gold Monday represents the sharpest climb for the beleaguered commodity since last June. In fact, looking more closely at the details of activity levels: volume on the benchmark ETFs showed the heaviest turnover in a month; the CBOE’s Gold volatility index held above 25 percent and futures open interest is at a two-month high. This all suggests growing interest and elevated participation level; but where we progress from here will be more reliant on the fundamental conditions that develop. A serious area of support for the precious metal this past session was no doubt the poor showing from the US dollar. As the primary pricing instrument for the commodity and its position as the benchmark ‘currency’, the implications are direct. Yet, the medium-term outlook still paints a very troublesome picture for gold bugs. Should risk appetite continue to rise, the metal will be struggle without a yield. And, should a drive towards safety develop a head of steam; the volatility from April is a cold reminder that there is limited appeal in using this commodity as a substitute fiat.

**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

0:00

AUD

Conference Board Leading Index (MAR)

0.3%

3:00

NZD

RBNZ 2-Year Inflation Expectation (2Q)

2.2%

3:00

NZD

Credit Card Spending s.a. (MoM) (APR)

-0.3%

3:00

NZD

Credit Card Spending (YoY) (APR)

3.6%

4:30

JPY

All Industry Activity Index (MoM) (MAR)

-0.4%

0.6%

5:00

JPY

Supermarket Sales (YoY) (APR)

1.7%

6:00

EUR

German Producer Prices (MoM) (APR)

-0.1%

-0.2%

6:00

EUR

German Producer Prices (YoY) (APR)

0.1%

0.4%

7:00

CHF

Money Supply M3 (YoY) (APR)

9.9%

8:30

GBP

Producer Price Index Input n.s.a. (MoM) (APR)

-1.3%

-0.1%

8:30

GBP

Producer Price Index Input n.s.a. (YoY) (APR)

0.3%

0.4%

8:30

GBP

Producer Price Index Output n.s.a. (MoM) (APR)

0.2%

0.3%

8:30

GBP

Producer Price Index Output n.s.a. (YoY) (APR)

1.4%

2.0%

8:30

GBP

Producer Price Index Output Core n.s.a. (MoM) (APR)

0.3%

0.1%

8:30

GBP

Producer Price Index Output Core n.s.a. (YoY) (APR)

0.9%

1.3%

8:30

GBP

Consumer Price Index (MoM) (APR)

0.4%

0.3%

8:30

GBP

Consumer Price Index (YoY) (APR)

2.6%

2.8%

8:30

GBP

Core Consumer Price Index (YoY) (APR)

2.3%

2.4%

8:30

GBP

Retail Price Index (APR)

249.9

248.7

8:30

GBP

Retail Price Index (MoM) (APR)

0.5%

0.4%

8:30

GBP

Retail Price Index (YoY) (APR)

3.1%

3.3%

8:30

GBP

Retail Price Index Ex Mort Int.Payments (YoY) (APR)

3.0%

3.2%

8:30

GBP

DCLG UK House Prices (YoY) (MAR)

2.0%

1.9%

23:50

JPY

Adjusted Merchandise Trade Balance (Yen) (APR)

-605.8B

-922.0B

23:50

JPY

Merchandise Trade Balance Total (Yen) (APR)

-637.3B

-362.4B

23:50

JPY

Merchandise Trade Exports (YoY) (APR)

5.5

1.1

23:50

JPY

Merchandise Trade Imports (YoY) (APR)

6.9

5.5

GMT

Currency

Upcoming Events & Speeches

1:00

AUD

Australia Sells A$150-250 Mln in 9-Year Index Linked Bonds

1:30

AUD

Reserve Bank of Australia Meeting Minutes

-:-

EUR

IMF Visits Madrid for 3rd Banking Sector Monitor

7:25

EUR

ECB's Erkki Liikanen Speaks on Euro Economy

10:00

EUR

Bundesbank Monthly Report

15:30

USD

Fed's James Bullard Speaks on Monetary Policy

16:30

USD

BoC Governor Mark Carney Speaks on Canadian Economy

17:00

USD

Fed's William Dudley Speaks on Monetary Policy

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

12.2971

1.8408

9.4403

7.7626

1.2541

Spot

6.6562

5.7841

5.8336

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

1.3000

1.5380

103.56

0.9770

1.0325

0.9914

0.8276

133.53

157.85

Resist. 2

1.2971

1.5348

103.24

0.9745

1.0304

0.9888

0.8251

133.09

157.38

Resist. 1

1.2942

1.5317

102.91

0.9721

1.0284

0.9863

0.8226

132.64

156.92

Spot

1.2884

1.5254

102.27

0.9672

1.0242

0.9811

0.8176

131.76

156.00

Support 1

1.2826

1.5191

101.63

0.9623

1.0200

0.9759

0.8126

130.88

155.07

Support 2

1.2797

1.5160

101.30

0.9599

1.0180

0.9734

0.8101

130.43

154.61

Support 3

1.2768

1.5128

100.98

0.9574

1.0159

0.9708

0.8076

129.99

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

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