Dollar Starting to Lose Ground with EUR/USD, USD/JPY

DailyFX

  • Dollar Starting to Lose Ground with EUR/USD, USD/JPY
  • Euro Gains Limited Ground on News of Cyprus, Greek Rescue Payments
  • Japanese Yen Given Another Reprieve by G7, but Does that Keep the Yen Falling?
  • New Zealand Dollar: Look Beyond Immediate Volatility In Morning Data
  • Australian Dollar: Federal Budget Expected to Reflect Impact of High Aussie Dollar
  • Swiss Franc: Does a Retail Sales Plunge or Shift in Swiss Rates Matter More?
  • Gold Slides Below $1,440 as Volume Drops and Volatility Jumps

Dollar Starting to Lose Ground with EUR/USD, USD/JPY

Through Monday’s close, the Dow Jones FXCM Dollar Index (ticker = USDollar) managed to close a third consecutive day in the green. That is the longest series of gains from the benchmark in five weeks – and a worthy move in a break through a key level like 10,600. And yet, that may be the entire foundation to the benchmark currency’s strength. If the dollar’s progress is merely breakout momentum via the Index’s move through the mid-point of the past decade’s range, USDJPY’s move beyond 100 and AUDUSD slide below parity; it will likely be difficult to sustain momentum. We have seen a very similar set of circumstances guide gold around a month ago. The aggressive break below $1,500 was certainly the culmination of overwrought expectations from a flagging alternative store of wealth that paid no yield; but its momentum was defined by a tripping a dense round of entry and stop orders. After these order play through, the speculative run ends and requires genuine fundamental support to keep running. The dollar needs another push. It needs a definitive turn in the US equities and stimulus expectations.

Euro Gains Limited Ground on News of Cyprus, Greek Rescue Payments

Encouraging headlines out of the Eurozone are no longer actual bullish updates – such as the economies growing at a strong pace or higher rates of return drawing in more capital. Instead, ‘positive’ news from the region is more of the cut of deferring another crisis state. That was the feeling drawn from the headlines this past session. Following discussions on both Cyprus’ and Greece’s austerity efforts, officials announced the approval of a €2 billion for the former and €7.5 billion for the latter. Though, we have seen too many time before that these funds are just minor milestones in a much longer-term fix. There are plenty of dangers ahead - and the market is will maintain is skepticism. Meanwhile, rating agency Standard & Poor’s took the opportunity to project a Eurozone recession in 2013. That reminds the market of 1Q GDP Wednesday.

Japanese Yen Given Another Reprieve by G7, but Does that Keep the Yen Falling?

It is almost humorous to see the ‘interpretations’ of the G7 meetings by different policy officials. From Japan, the assessment was that there was no concern raised about the level of the Japanese yen and global leaders were implicitly supportive of the country’s efforts to this point to ‘beat deflation’. However, according to German Finance Minister Schaeuble, there was an ‘intense’ discussion on the matter. What matters to the yen and other currencies engaged in the unnamed FX war (or ‘competitive devaluation’ if we want to avoid the full term) is what actions are taken to interrupt the current policy. In this case, nothing changed. However, that doesn’t fundamentally alter the Japanese currency’s outlook. This currency is at the beck and call of risk trends. If risk slides, deleveraging overextended and underfunded carry trades will follow quickly.

New Zealand Dollar: Look Beyond Immediate Volatility in Morning DataThere is an appetite amongst many FX traders to only view data for its short-term impact on volatility. However, there is often a lot to garner about the medium-term bearings in many important fundamental updates. That is the case with the event risk we have seen this morning. The retail sales data for the first quarter reportedly rose 0.5 percent – missing both expectations and printing well below the previous quarter’s performance. That adds to a pressure on the monetary policy authority to consider keeping rates at record lows for a longer period of time if not debate the merits of further easing. Meanwhile, the foreign holdings of government bonds taps directly into why the global FX market cares about the kiwi. In April, 69 percent of bonds were held by foreign interest - the highest since October 2009 – outlining carry appetites…

Australian Dollar: Federal Budget Expected to Reflect Impact of High Aussie Dollar

The economic docket for the Australian dollar for the opening 24 hours of trade this week was particularly heavy. Locally, lending data for March unexpectedly swelled (housing based lending hit a four-year high in March) and business conditions ticked up from an equivalent period low. For pull though, theChinese data likely carries more interest for a market that links interest rates and growth to exports. All of the major releases – industrial production, fixed investment and retail sales – missed the mark. This is yet reason for bears to retain control. Yet, will a winded US dollar offer a break before AUDUSD sets a new bear record. The pair has already dropped for six consecutive trading days – the longest series of declines in nearly a year; and we haven’t seen a 7-day slide since 2005. Yet, if the greenback capitulates – either on its own or due to risk trends – the investment currency may go in for a recovery. The Aussie headlines may also help to decide the currency’s fate over the next 24 hours. The Federal Budget is due at 9:30 GMT, and Treasury Swan’s preemptive concern about the Aussie dollar effects is disconcerting.

Swiss Franc: Does a Retail Sales Plunge or Shift in Swiss Rates Matter More?

Another ‘data versus fundamental’ theme was measured out in the Swiss franc’s performance Monday. Through the end of this past week, the currency dropped over 210 pips against the dollar and 125 pips versus the Euro. Monday, however, that drive was curbed. That is a significant and intrinsic shift from the troubled safe haven currency. We could look to the economic docket for the motivation for the change in tempo. Yesterday, retail sales data showed a 0.9 percent drop in the year through March. Historically speaking, that is the fifth largest in eight years an seriously undermines growth expectations. That is hardly an encouraging sign and contradicts the currency’s performance. Yet, does standard economic fodder set the stage for the franc? Perhaps more influential was the rise in Euro-area yields (sovereign and market-based) as well as a rise in short-term Swiss yields – a sign of rising demand for harbor in the country’s credit market.

Gold Slides Below $1,440 as Volume Drops and Volatility Jumps

For two weeks, gold managed to hold its head above $1,440 – technical traders will recognize that figure as roughly the 38.2 percent Fibonacci retracement of the epic 2008 to 2011 rally. That floor, however, has given way the opening trading session for the week. Along with the first three consecutive-day decline from the precious metal since the opening week of April, we are seeing the end of a ‘corrective’ phase. The advance that has carried the precious metal up from its two month low was a retracement of the aggressive two-day drop on April 12 and 15. The difference between correction and genuine trend is persistence. The former only has enough strength to correct a portion of the preceding move. The latter continues under its own power. While Monday’s drop does not necessarily instigate a new, long-term bear trend; it does snuff the bulls’ easy regain of control. A catalyst is needed, and a dollar drive or global stimulus shift are the most prominent opportunities. In the meantime, volume on the SPDR Gold Trust slipped to its lowest level since April 8 while the CBOE’s Gold Volatility Index jumped to 25 percent.

**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

3:00

NZD

Non Resident Bond Holdings (APR)

68.3%

6:00

EUR

GermanCPI (MoM) (APR F)

-0.5%

-0.5%

6:00

EUR

GermanCPI (YoY) (APR F)

1.2%

1.2%

6:00

EUR

GermanCPI - EU Harmonised (MoM) (APR F)

-0.5%

-0.5%

6:00

EUR

GermanCPI - EU Harmonised (YoY) (APR F)

1.1%

1.1%

6:00

EUR

German Wholesale Price Index (MoM) (APR)

-0.2%

6:00

EUR

German Wholesale Price Index (YoY) (APR)

0.3%

6:00

JPY

Machine Tool Orders (YoY) (APR P)

-21.5%

6:45

EUR

French Current Account (euros) (MAR)

-4.9B

8:00

EUR

Italian CPI - FOI Index ex Tobacco (APR)

1.3

106.9

8:00

EUR

Italian CPI - EU Harmonized (YoY) (APR F)

1.3%

8:30

EUR

Italian General Government Debt (MAR)

2017.6B

9:00

EUR

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

0.5%

0.4%

9:00

EUR

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

-2.1%

-3.1%

9:00

EUR

Euro-Zone ZEW Survey (Eco Sentiment) (MAY)

24.9

9:00

EUR

German ZEW Survey (Economic Sentiment) (MAY)

40.0

36.3

9:00

EUR

German ZEW Survey (Current Situation) (MAY)

9.9

9.2

11:30

USD

NFIB Small Business Optimism (APR)

89.8

89.5

12:30

USD

Import Price Index (MoM) (APR)

-0.5%

-0.5%

12:30

USD

Import Price Index (YoY) (APR)

-2.7%

23:50

JPY

Tertiary Industry Index (MoM) (MAR)

-0.7%

1.1%

GMT

Currency

Upcoming Events & Speeches

3:45

JPY

Japan to Sell 30-Year Bonds

6:00

USD

Fed's Charles Plosser Speaks on Monetary Policy

7:30

EUR

European Union Fin Min Meeting

-:-

EUR

European Banking Authority Shareholders Meeting

-:-

EUR

Bank of Portugal Releases 2012 Annual Report

9:30

AUD

Australia Federal Budget

15:00

USD

New York Fed Releases Household Debt Report

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

12.1456

1.8077

9.1336

7.7611

1.2392

Spot

6.5902

5.7261

5.7868

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

1.3129

1.5443

102.78

0.9620

1.0169

1.0074

0.8381

133.94

157.42

Resist. 2

1.3101

1.5412

102.47

0.9597

1.0152

1.0050

0.8358

133.50

156.95

Resist. 1

1.3072

1.5381

102.16

0.9575

1.0136

1.0027

0.8335

133.05

156.49

Spot

1.3016

1.5319

101.54

0.9530

1.0103

0.9980

0.8288

132.16

155.55

Support 1

1.2960

1.5257

100.92

0.9485

1.0070

0.9933

0.8241

131.27

154.62

Support 2

1.2931

1.5226

100.61

0.9463

1.0054

0.9910

0.8218

130.82

154.15

Support 3

1.2903

1.5195

100.30

0.9440

1.0037

0.9886

0.8195

130.38

153.68

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

Sign up for John’s email distribution list, here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

View Comments (0)