Dollar Turns Eerily Quiet as S&P 500 Makes Tentative Break Lower

DailyFX

  • Dollar Turns Eerily Quiet as S&P 500 Makes Tentative Break Lower
  • Euro Fundamental Assessment Continues to Deteriorate
  • Japanese Yen an Opportunity for Speculators but a Lasting Driver?
  • British Pound Advances Again Despite BoE Weales, Carney’s Comments
  • Australian Dollar and New Zealand 10 Percent Overvalued?
  • Canadian Dollar: Carney Says Rate Hikes May Come Sooner
  • Gold Volatility and Volume Continue to Recede, Price and Demand Unimpressed

Range Trade Strategies work best in quiet market conditions - such as the Asia trading session

Dollar Turns Eerily Quiet as S&P 500 Makes Tentative Break Lower

Market conditions are offering conflicting signals – and it should alarm rather than soothe vigilant traders. On the one hand this past session, there were a number of signs of a return to congestion. The safe haven US dollar put in for an exceptionally quiet trading session and momentum cooled behind the capital markets’ violent swings. On the other hand, there is still an active backdrop of growing investor ‘fear’. Point in case, we find the VIX volatility index advanced to a new six-week high 17.6 percent and the extreme divergences in otherwise stalwart correlations (world equities – emerging market currencies, S&P 500 – US Treasury yields) have started to tighten. This speaks to a thinly veiled and uneasy calm. It isn’t difficult to spark dramatic capital shifts under these conditions, but do we have the fundamentals to sustain it?

It has been quite a while since we have seen the markets downshift to more staid price action, yet the majority remains suspect of a feigned sense of security. The potential for a serious shift in risk trends is dangerously clear. The risk and stimulus-sensitive S&P 500 notably slipped below its 50-day moving average for the first time this year and tentatively broke a six-week rising trendline support. That said, this break hasn’t fully cleared the congestion of the past few months – much less generate the telltale momentum of a new trend development. The dollar tells a similar story. The Dow Jones FXCM Dollar Index (ticker = USDollar) followed up its biggest rally in 10 months with one of the smallest daily trading ranges in years. Furthermore, it did so just at the cusp of resistance – that if broken would very likely lead the technical ranks to call a major bullish trend development. We see that same stretch with EURUSD (eying 1.3000) amongst other risk-sensitive pairs.

Yet, all of this is simply potential until a concerted fundamental drive is made. Rather than thinking of this in terms of data or indicators, we must see a concerted, market-wide effort to unwind risky exposure (stocks, high-yield currencies, speculative corporate debt, etc) and move into safe havens like the dollar. Looking for fodder that feeds that safe haven demand, there is relatively little to work with into the end of the week. For big ticket event risk, the G20 and IMF meetings carry the necessary weight to tap into the deeper concerns of sentiment.; yet these events are unlikely to touch upon these top shelf concerns. Unless there is a cascade in confidence, the shift may be left until next week.

Euro Fundamental Assessment Continues to Deteriorate

There was little working in the euro’s favor Thursday. The shared currency took a tumble against most of its counterparts this past session as the headlines produced little for bulls to work with. Though not the top headline, one of the most remarkable developments was a headline from EC President Dijsselbleom who said that the Cyprus bail-in was indeed a healthy option for monetary policy and that it could be used as a template for future decisions on tough spots. In other news, the Italian Parliament was unable to reach a vote for a new President – a concern for a country that looks to flounder between deep recession and a record-setting debt. Though the end of the week, there is little for Euro traders to be surprised with, but the persistent issues in regional financial troubles be monitored by those looking for systemic shocks.

Japanese Yen an Opportunity for Speculators but a Lasting Driver?

Over six months, the Japanese yen has proven a remarkable foil. The currency has provided dramatic gains for currencies ready to play carry counterpart. Through the past session, the yen crosses have put in for moderate gains despite the pullback in benchmark risk measures – like the S&P 500. From the low yield, BoJ-manipulated currency itself; an interesting set of interesting set of data surfaced. March trade figures reflected early Bank-of-Japan speculation which showed a speculative front-run effort as a record influx of foreign capital was placed with Japanese stocks according to weekly figures. Meanwhile, the March trade figures reported a 1.1 percent increase in exports.

British Pound Advances Again Despite BoE Weales, Carney’s CommentsThe sterling put in for a universal advance through this past session. That strength seemed to contradict traditional fundamentals however. On the docket, the national retail sales figures for March printed a notable shortfall while there was a notable drop in the benchmark 10-year gilt – though such a development can be argued a bullish development as it reflects demand. For headlines, policy officials proved prevalent. MPC member Martin Weale remarked that there was a marked probably that the UK will slip into negative growth through the first quarter to complete a triple dip recession. Meanwhile, future BoE’s Governor – Carney – verbally supported Fed guidance and said there was no debt cap

Australian Dollar and New Zealand 10 Percent Overvalued?

Is the Australian and New Zealand 10 percent overvalued? IMF Deputy Director Zhu thinks so. The assessment was made in the aftermath of general assessment s of risk trends and global growth factors, but the assessment nevertheless sticks. Is it an immediate driver for traders to work on? No. We have heard similar assessments from more senior policy makers. However, the value differential will linger with bulls.

Canadian Dollar: Carney Says Rate Hikes May Come Sooner

When will the Bank of Canada actually raise interest rates – sooner than many may expect according to Governor Carney. The contingency for a faster increase in the benchmark lending rate according to the central banker was a consistent advance in household debt. However, that threat has a time limit to it. Carney will be out in July. We have limited time to ramp up the rate hike pressure. Perhaps Friday’s CPI will provide.

Gold Volatility and Volume Continue to Recede, Price and Demand Unimpressed

Gold prices have finally overtaken $1,400 through the early trading hours of Friday. However, the bullish pressure does little to support the bullish move to offset that bear wave that defined the Friday / Monday tumble that introduced the meaningful bear wave below $1,525 support. A retracement of this dive, though, requires strength that fundamentals may not yet support. Volatility and volume figures have retreated from the week’s opening surge, but there is little capitulation for buying in ETF for open interest positioning for futures. Bulls await an anti-dollar drive.

**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 Flash Business Sentiment Indicator

58.39

Released one week ahead of official version

2:00

CNY

Conference Board China Leading Economic Index

1.3%

Provides a composite index of key leading indicators in Chinese economy, focused on near term

5:00

JPY

Coincident Index

92.1

May not reflect the change in confidence as it is before Kuroda’s announcement on aggressive stimulus on 04/04.

5:00

JPY

Leading Index

97.5

6:00

EUR

German Producer Prices (YoY)

0.70%

1.20%

Low commodity prices contribute to the low producer prices.

6:00

EUR

German Producer Prices (MoM)

0.10%

-0.10%

8:00

EUR

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

14.8B

Indicative of paying ability; The narrowed CA. surplus suggests more capital outflow from the Eurozone, which is euro negative

8:00

EUR

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

-4.5B

12:30

CAD

Consumer Price Index (MoM)

0.30%

1.20%

Well shy of the BoC target of 2% since 04/12; Previous rebound of 0.7 percentage points is due to higher gasoline prices; Subdued CPI signals weak domestic demand, yet BoC is unlikely to lower interest rate due to the fear of excessive borrowing and a housing bubble; The commodity-linked Canadian dollar likely dragged lower by commodity prices (i.e. gold)

12:30

CAD

Consumer Price Index (YoY)

1.10%

1.20%

12:30

CAD

CAD Bank Canada CPI Core (MoM)

0.20%

0.80%

12:30

CAD

Consumer Price Index Core (YoY)

1.40%

1.40%

12:30

CAD

Core CPI SA (MoM)

0.20%

0.40%

12:30

CAD

Consumer Price Index

122.7

12:30

CAD

Wholesale Sales (MoM)

0.30%

0.30%

12:30

CAD

Consumer Price Index SA (MoM)

0.20%

0.70%

GMT

Currency

Upcoming Events & Speeches

-:-

ALL

G20 Meeting

-:-

ALL

IMF and World Bank Annual Meeting

9:00

EUR

Bank of Portugal Releases Economic Indicators Report

10:30

USD

|| US Earnings – GE ($0.347)

16:00

USD

Fed's Stein Speaks on Credit Markets in Charlotte

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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