Dollar Traders Look for Risk Trend Surge with 1Q GDP

DailyFX

  • Dollar Traders Look for Risk Trend Surge with 1Q GDP
  • Japanese Yen: BoJ Made its Move Last Decision, Yen’s Turn?
  • Euro: Economists and Media Expect ECB Rate Cut, Not the Market
  • British Pound Rallies after Strong UK GDP Thwarts Triple Dip Recession
  • Australian Turns Higher with Solid Risk Trends, Robust Bond Auction
  • New Zealand Dollar Doesn’t Extend Rally with Trade Data, Overbought?
  • Gold Posts Best Day in 10 Months, Volume and Open Interest Still Fading

Dollar Traders Look for Risk Trend Surge with 1Q GDP

The dollar retreated this past session asbenchmarks for risk-sensitive capital markets reflected buoyancy behind yielding chasing and the struggles of the currency’s primary counterparts seemed to temper. This is a passive shift in market sentiment, however, easily shattered by an active fundamental catalyst. It so happens that we will be presented with a well-suited catalyst for speculative appetites as well as direct dollar asset interest in the upcoming New York session.

In an already dense economic docket for the majors this past week, the first read of the United States’ gross domestic product (Advanced 1Q GDP) is arguably the furthest reaching release. A temperature gauge for the world’s largest economy, the connections to market-wide sentiment are clear. If the US economy falls below investors’ expectations, the largest consumer nation in the world will sabotage the goals of so many trade partners whose express agenda it is to ‘export their way to growth’. And so it is that the world’s largest economy can direct the tides of sentiment not just American investors but those around the world as well. Offering a look into the unpredictable nature of risk trends, this past session fund tracker Lipper reported that $7.8 billion was withdrawn from US ETFs - the biggest weekly outflow since July of last year – in a sign that the high market levels are making investors anxious. That disconnect is reflected in many avenues in the market. Open interest in popular speculative derivatives (big contract S&P 500 futures) are at 15-year lows, the overall rate of return on global markets hovers off generational lows and unemployment levels are still unbearably high.

All the elements for a serious unwind of speculative exposure are there. Yet, there is one essential aspect of the capital markets that keeps traders in the pool and offers a bullish contribution of its own: central bank support (also referred to as stimulus). If a deep-pocketed Fed will maintain its bid, many risks will remain subdued and there is a trade opportunity to frontrun. This is another aspect to remember for the US GDP report. Recently, the media has presented a debate between whether the Fed will taper its QE3 program before year end or if it will actually boost its support. If the economy accelerates to 3.0 percent as expected, would the central bank favor an early trim to the support?

Japanese Yen: BoJ Made its Move Last Decision, Yen’s Turn?

Back on April 4, the Bank of Japan – led by new Governor Kuroda – announced a shift forward in its open ended stimulus regime…as expected. The market had priced in an ‘escalation’ of stimulus by the central bank well before the group actually met and decided a ¥7 trillion yen per month program should be enacted immediately. With the upgraded effort to devalue the nation’s currency, the saw USDJPY and other pairs continue their march higher; but the drive cooled more quickly than many had suspected. With a central bank pursuing an unprecedented (in terms of scale to GDP) stimulus program and risk trends still stable, we would expect a consistent run. Yet the 100-level curtailed appetite. Unless the BoJ further upgrades – of stokes expectations of future upgrades – their efforts they will not be furthering the drive beyond their current commitments. That leaves the responsibility for the next move squarely on speculators. Regardless a breakout is almost certain.

Euro: Economists and Media Expect ECB Rate Cut, Not the Market

A new theme is developing in the fundamental corners of the FX market. Discussion and speculation of an impending European Central Bank (ECB) rate cut has captured the imagination of economist and journalist. Yet, it is clear that the market is not yet on the same page. Looking at Bloomberg’s consensus, 27 economists now expect a 25bp cut in the benchmark rate to 0.50 percent versus 18 that are forecasting no change. That is a considerable change in the stakes. The financial media seems to be on the same page with countless stories that have expounded the reasons why a cut would be justified. That said, we can see that the EURUSD is not taking heed as it refuses to give in to momentum below 1.3000. Similarly, swaps show no pricing a cut next week. This will shape the dynamic of whether it is a market moving event.

British Pound Rallies after Strong UK GDP Thwarts Triple Dip RecessionThe sterling forged a breakout from congestion as expected this past session with the help of heavy market-moving event risk: the UK’s 1Q GDP reading. Given the abnormal inactivity on pairs like GBPUSD, a sharp reaction to the data with meaningful short-term follow through was inevitable. However, the consistency behind the move beyond the normal 8 hour window of data absorption depends on how the data influenced the deeper market themes. The 0.3 percent growth reported was a best case scenario for medium-term trend generation. Avoiding a ‘triple dip’ recession, the sterling was given additional support behind its unwinding of excessive BoE stimulus expectations.

Australian Turns Higher with Solid Risk Trends, Robust Bond Auction

While the Australia dollar failed to gain traction on other fundamentally distracted pairings (GBPAUD, AUDJPY), the market favorite AUDUSD reflected some fundamental improvement for the currency. We can point to rising US and Asian equities as a justification for the carry advance, but this is likely moreso a recovery from depressed levels as a 10-year bond auction shows hearty demand on the higher level.

New Zealand Dollar Doesn’t Extend Rally with Trade Data, Overbought?

Since the Reserve Bank of New Zealand delivered its tepid assessment of conditions and policy moving forward, the New Zealand dollar has exuded remarkable strength. Yet, we are starting to hit significant levels amongst its crosses. NZDUSD, GBPNZD and NZDCHF are at levels that require serious commitment to drive further. If a two-year high, NZ$718 million trade balance can’t upgrade the move…

Gold Posts Best Day in 10 Months, Volume and Open Interest Still Fading

Gold rallied 2.5 percent this past session – the strongest advance from the precious metal since late June. Yet, this momentum is still not innate to the strength of the metal. Rather, this impressive drive is a derivative of the massive drop from the commodity over a week ago. We are still retracing the destructor bears had wrought in other words. Volume ticked higher from previous sessions, but the pace is still lacking the conviction that says bulls are charging back towards $1,600 and beyond. In the meantime, ETF holdings of gold hit a new 16 month low.

**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 April Business Sentiment Indicator

Monthly poll of business executives; Provides timely measure of economic condition.

6:00

EUR

German Import Price Index (MoM)

-0.10%

0.30%

Low commodity prices will lower production cost and import price.

6:00

EUR

German Import Price Index (YoY)

-2.30%

-1.60%

7:00

CHF

KOF Swiss Leading Indicator

0.98

0.99

Preliminary reading of GDP growth 6 month ahead.

8:00

EUR

Euro-Zone M3 s.a. (YoY)

3.00%

3.10%

Currently at 12-month m.a; More capital inflow is euro positive.

8:00

EUR

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

3.20%

3.30%

12:30

USD

Gross Domestic Product (Annualized)

3.10%

0.40%

Lower-than-expected GDP data could reduce bets for asset purchase program curtailment; Fundamentally USD positive.

12:30

USD

Personal Consumption

2.80%

1.80%

12:30

USD

Gross Domestic Product Price Index

1.40%

1.00%

12:30

USD

Core Personal Consumption Expenditure (QoQ)

1.10%

1.00%

13:55

USD

U. of Michigan Confidence

73.5

72.3

Fell back to 07/12 low, signaling weakness in confidence.

GMT

Currency

Upcoming Events & Speeches

JPY

Bank of Japan Rate Decision

JPY

Bank of Japan Monetary Policy Statement

3:00

JPY

BOJ Policy Meeting and Release Outlook Report

6:30

JPY

BoJ Governor Kuroda Post MPM press conference

8:00

CHF

SNB President Jordan Speaks at Annual Shareholders Meeting

10:00

EUR

ECB Announces 3-Year LTRO Repayment

11:00

EUR

Spain Presents New Deficit Goals Proposal

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

12.1752

1.7929

9.0974

7.7651

1.2401

Spot

6.4509

5.7383

5.7299

Support 1

12.0470

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

1.3101

1.5448

98.87

0.9419

1.0242

1.0460

0.8510

128.69

151.42

Resist. 2

1.3074

1.5420

98.54

0.9400

1.0226

1.0441

0.8490

128.21

150.95

Resist. 1

1.3046

1.5392

98.22

0.9382

1.0209

1.0422

0.8471

127.74

150.48

Spot

1.2991

1.5336

97.57

0.9344

1.0176

1.0383

0.8432

126.79

149.55

Support 1

1.2936

1.5280

96.92

0.9306

1.0143

1.0344

0.8393

125.84

148.61

Support 2

1.2908

1.5252

96.60

0.9288

1.0126

1.0325

0.8374

125.37

148.15

Support 3

1.2881

1.5224

96.27

0.9269

1.0110

1.0306

0.8354

124.89

147.68

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

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