Euro Drops Against All Counterparts Amid Cyprus Wrangling

DailyFX

  • Dollar: Would a Dow Jones Industrial Average Lift the USD?
  • Euro Drops Against All Counterparts Amid Cyprus Wrangling
  • Japanese Yen Firms Up after BoJ Kuroda’s First Speech, What Did He Say?
  • British Pound: Where is the Evidence of Markets Projecting Rate Cuts?
  • Canadian Dollar Fiscal Plan Sees Spending at 23 Year Low, Hope For Recovery
  • New Zealand Dollar Post-GDP Rally the Strongest in Six Months but No Trend
  • Gold Glued to $1,615, Threatens Bullish Break with Plenty of Backing

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

Dollar: Would a Dow Jones Industrial Average Lift the USD?

Risk trends are looking heavy. The S&P 500 suffered its biggest daily drop in a month (0.8 percent) Thursday, which would usually lead us to expect to see a significant posturing from the US dollar for a break higher. Instead, the Dow Jones FXCM Dollar Index (ticker = USDollar) was red for the first time this week. Furthermore, where the equity indexes look prone to reversal, so too does the dollar after a hearty run higher. On a positioning basis, the greenback has enjoyed a hearty performance against its most liquid currencies; so it doesn’t have an easy over-sold rebound available to it. Brute force is needed to extend its drive – either through severe risk aversion or stimulus from the BoJ or ECB.

Euro Drops Against All Counterparts Amid Cyprus Wrangling

The Eurozone is facing the starkest threat of a member exiting the monetary union since the region’s debt / financial / confidence crisis began nearly three years ago…and that is saying a lot. After years of dealing with rescues in Greece, Ireland, Portugal and Spain; the will to continue with individual rescues is fading. Cyprus is particularly taxing on the region’s nerves because it adds to the issues that caused so much dissent in Greece. Representing only 0.2 percent of the region’s total GDP, housing a banking sector that was far too large for its economy and supporting the capital interests of non-European funds; the country is testing even the most forgiving. This past session, under the imminent threat that the nation’s biggest banks only had a ‘few hours’ of liquidity, action was taken by limiting ATM withdrawals to €260 and pushing forward a restructuring of the Bank of Cyprus and Cyprus Popular Bank. This may delay the ECB’s emergency liquidity cutoff and a move to tax unsecured accounts above €100,000 in the ‘bad bank’ at 40 percent may save €2.3 billion. But, Cyprus would still need €3.5 billion.

Japanese Yen Firms Up after BoJ Kuroda’s First Speech, What Did He Say?

Yen bears should be nervous. The currency’s massive depreciation these past six months has been built on a continuous escalation of stimulus vows. From a deflation-fighting government to a set inflation target to the commitment of an open-ended stimulus program come January 2014, each step has effectively raised the stakes and drove the yen a little further. The most recent push was based on the assumption that the new Bank of Japan (BoJ) Governor, Haruhiko Kuroda, would move forward the monthly 13-trillion-yen stimulus program so its stimulus effort can more quickly catch up – and surpass – the Fed’s balance sheet. Kuroda had his first chance as the newly anointed monetary policy leader to lay out his plan of aggressive expansion in his first press conference on Thursday morning. So, what did he give us? Instead of calling an emergency meeting to get the ball rolling, he softened his tone. While the BoJ can still move as early as the next official policy decision on April 4, there is a lot of speculation built in at these levels. Perhaps too much… And, what happens if risk aversion kicks in?

British Pound: Where is the Evidence of Markets Projecting Rate Cuts?Since the turn of the year, the sterling has collapsed over 1300 pips as speculation of a more aggressive stimulus regime from the Bank of England (BoE) gained traction. This week, Chancellor George Osborne has loosened the restraints on the central bank with by boosting the importance of growth and allowing temporary deviation from the inflation target. So, now fulfilled, why aren’t pound bears driving the currency even lower? This goes beyond the ‘buy the rumor, sell the news’ condition. There is little evidence that the policy authority is gearing up to introduce a stimulus effort to rival the Fed or BoJ. We are certainly more likely to see the next 25 billion pound increase in gilt purchases, but little has been done to open the door to an the currency war weapon du jour: the open-ended stimulus program.

Canadian Dollar Fiscal Plan Sees Spending at 23 Year Low, Hope For Recovery

Despite a notable round of event risk this past session, the Canadian dollar was a mixed bag Thursday. From the docket, we were looking at the January retail sales figures. The 1.0 percent increase through the month slightly beat expectations and was a merciful rebound from the biggest drop measured in two-and-a-half years. Yet, that brings up the assessment that the performance is likely a continuity of volatility in the series rather than the fundamental push that revives the BoC’s hawkish rhetoric. Far more interesting was the Finance Ministry’s budget. Minister Jim Flaherty announced that spending growth would average only 2.1 percent over the next five years – the slowest pace since 1990s – in a bid to return Canada to a surplus by April 2015. This is an ambitious effort and feels familiar. We’ve seen the UK do the same thing. And like its counterpart across the Atlantic, Canada is banking on strong global growth to offset their effort…

New Zealand Dollar Post-GDP Rally the Strongest in Six Months but No Trend

Over the past week, we have seen major thematic fundamental events (the Fed decision, BoJ transition, BoE remit, Cyprus crisis); but the most straightforward catalyst for the FX market seems to have been the New Zealand 4Q GDP report. This indicator certainly carries importance as a gauge of relative economic strength and a guide for monetary policy, but it doesn’t have the international nor lasting influence that the aforementioned catalyst have. Yet, through the end of Thursday’s session, we find the kiwi dollar has held onto its gains everywhere with the exception of NZDJPY. In fact, looking for a representative of this strength, the NZDUSD rally was the biggest in six months. That said, we find that this pair’s gains – while remarkable – didn’t bring us to new highs. The same is true of most of the crosses. Good volatility, not trend.

Gold Glued to $1,615, Threatens Bullish Break with Plenty of Backing

There is a glut of fundamental arguments to be made for a bullish drive for the world’s favorite precious metal. First, we begin with the removal of the commodity’s greatest counterpoint – the Federal Reserve delivered its policy decision and forecasts without detailing a time frame for stimulus withdrawal. Had the end of the open-ended QE3 program been fleshed out, a serious restraint on the US dollar would have been removed and the argument for seeking an alternative to traditional currencies with it. More than that, we are finding new reasons for investors to seek gold as an alternative to the world’s other primary currencies. The BoJ is now in the hands of officials dedicated to stimulus, the BoE was given the ability to deviate from inflation in the pursuit of easing and the ECB is looking at a very colorful reason to provide support to the system. With gold ETFs volume at the lowest levels this year and holdings at six month lows, there is fuel for a breakout.

**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 March Flash Business Sentiment Indicator

Predicts Chinese econ conditions 1 week before final, Feb. final at 61.79

9:00

EUR

German IFO - Business Climate

107.8

107.4

Business Climate shows strong uptrend over last 4 month, indicating positive econ sentiment in EU’s largest econ. Expectations growing faster than current assessment.

9:00

EUR

German IFO - Current Assessment

110.5

110.2

9:00

EUR

German IFO - Expectations

105

104.6

16:00

USD

Fed Revisions of Industrial Production

Fed revises industrial production and capacity utilization data through Q4 2012

-:-

EUR

Cyprus Parliament Debates Solidarity Fund, Capital Controls

-:-

EUR

Cyprus Fin Min at Economist’s Debate on Future

-:-

EUR

Portugal Releases Year-To-Date Budget Report

11:00

EUR

ECB Reports Weekly LTRO Repayment

12:45

USD

Fed's Raskin Speaks on Labor Market 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

12.3273

1.8188

9.3142

7.7617

1.2506

Spot

6.4652

5.7567

5.8427

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

1.3066

1.5247

97.13

0.9532

1.0315

1.0454

0.8351

126.04

146.89

Resist. 2

1.3036

1.5216

96.83

0.9511

1.0298

1.0435

0.8330

125.57

146.43

Resist. 1

1.3006

1.5185

96.52

0.9491

1.0282

1.0415

0.8310

125.11

145.96

Spot

1.2947

1.5122

95.91

0.9450

1.0249

1.0376

0.8270

124.18

145.04

Support 1

1.2888

1.5059

95.30

0.9409

1.0216

1.0337

0.8230

123.25

144.12

Support 2

1.2858

1.5028

94.99

0.9389

1.0200

1.0317

0.8210

122.79

143.65

Support 3

1.2828

1.4997

94.69

0.9368

1.0183

1.0298

0.8189

122.32

143.19

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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