Forex: Dollar Rallies while S&P 500 Retreats, Neither Looks Confident Yet

DailyFX

Talking Points:

  • Dollar Rallies while S&P 500 Retreats, Neither Looks Confident Yet
  • Euro Breaks 1.3700 but a Bear Trend Requires a Bigger Push
  • Yen Once Again Disagrees with Equity, EM Risk Assessment

Dollar Rallies while S&P 500 Retreats, Neither Looks Confident Yet

The Dow Jones FXCM Dollar Index (ticker = USDollar) posted its biggest rally since January 30 at the same time that the S&P 500 was rejected the third time this week at the now-ubiquitous 1,850-level. To some, that is a sign of genuine risk aversion. If it is, it isn’t a very convincing sign…yet. For the safe haven currency, the day’s rally was not a record breaker nor have we materially erased the losses suffered through mid-February. Furthermore, the greenback’s performance against individual counterparts through the session was uneven. If we were to lay our sentiment assumptions on the equity index – a more susceptible barometer – the picture is even less persuasive. Though the S&P 500 was rejected from the well-trodden ceiling, the market has yet to tip into a lasting reversal.

In general, the absence of a strong ‘risk appetite’ drive does not mean that we are in turn caught in an intensive ‘risk aversion’ current. Consolidation and indecision are a common median. Yet, given the tightening noose around the US equity indexes, a high profile technical beak is likely due before the end of the week. The burden is translating a volatility event – even one as media-worthy as a stock market breakout – into a systemic shift in market exposure. In terms of ‘probability’, a five-year bull trend for capital markets built on confidence fed by stimulus is more likely to continue. However, for ‘potential’, a forced unwinding of record leverage is far more potent than a wave of new buying interest at record highs and 15-year low participation.

Looking for fundamental fodder for the dollar that doesn’t focus on the bursting seams of risk trends, growth and monetary policy are still topics of merit. This past session, we found the found opposing housing sector readings with January new home sales rising to the fastest pace in five years while mortgage applications for home purchases fell to their lowest level in since 1995 through this past week. Coming up, we have durable goods orders figures for January. Though important, these figures don’t tap the ‘big picture’. Far more interesting will be the monetary policy ruminations. Fed Chair Janet Yellen will finally testify before the Senate today, and other central officials are also set to speak.

Euro Breaks 1.3700 but a Bear Trend Requires a Bigger Push

Perhaps one of the most impressive moves in the FX market Wednesday, EURUSD finally managed to break a week-and-a-half worth of congestion when it stumbled below 1.3700. Yet, that was a hardly a definitive move. Activity levels (measured by the 10-day average true range) on EURUSD are at their lowest levels since July 2007. And, given the exceptionally tight band on trading this past week, a short-term breakout was a necessity. To drive the Euro to a definitive bear trend, something deeper needs to be stir. That touching point for this second most liquid currency may be the ECB’s monetary policy plans. According to Bloomberg’s survey, six of the 17 participating economists expect some easing of the benchmark rate. Extracurricular policy options are another aspect being floated. Friday’s inflation data will help gauge potential.

Yen Once Again Disagrees with Equity, EM Risk Assessment

Once again, the Yen crosses were a sanity check for sentiment diviners working off the failed equity run and dollar rally this past session for their assessment. Where EURJPY and AUDJPY made mildly provocative moves, the rest of the crosses were holding their ranges. Coming up, we may see the other side of the fundamental scales tip and dislodge the Japanese currency. Conviction in a BoJ stimulus upgrade come April has cooled substantially as of late. With a round of employment, consumption, manufacturing and inflation data; we’ll have a comprehensive view.

British Pound: GDP Unrevised on Unflattering Details, BoE Members Say ‘No Hike’

The updated 4Q UK GDP figures Wednesday offered better detail on where the economy is strengthening and where it is still limping. The 0.7 percent quarterly growth reading was unchanged from the initial report and the annual figure was still at its fastest clip since 1Q 2008. Details showed private consumption cooled more than expected while exports and fixed investment were stronger than initial reported. Meanwhile, BoE officials were on the wires. David Miles and Spencer Dale both remarked that rate hikes are not imminent. That said, neither the sterling nor medium-term Gilt yields (the ‘belly’ of the curve) are capitulating on the built up rate premium.

Australian Dollar Tumbles after Sharp Drop in 4Q Business Investment

While local economic data is important for the Aussie dollar, regular indicators’ ability to alter RBA expectations are typically rather limited. Yet, the 4Q private capital expenditure report from this morning certainly generated heat with a near 45-pip tumble from AUDUSD after its release. The 5.2 percent drop is the biggest since 3Q 2009 and second largest in 15 years. Aussie 2-year yields plunged 3 percent on the news.

Swiss Franc May Face Breakouts but GDP May Not Provide

Historically, Switzerland’s quarterly GDP report is a tame market-mover. The data doesn’t often deviate far from the market consensus and the preoccupation with the franc’s link to the Euro often anchor the currency. That said, a market that is unprepared is one that is more prone to surprises. The report is expected to show 0.4 percent growth on the quarter and 2.0 percent on an annual measure. Watch EURCHF.

Emerging Markets: Brazil Hikes Rates, China Fears Enduring

Interest rates are an important tool for Emerging Markets as it is frequently needed to curb inflation and pinch off capital outflow. Nevertheless, the Brazilian Central Bank’s decision to hike the benchmark rate 25 bp to 10.75 percent didn’t seem to give the Real much of a boost. The market had fully priced in the move. Coming up, the country will release its 4Q growth figures. Meanwhile, the MSCI EM ETF was little changed on the day and most currencies in the group dropped. Keep a close eye on China headlines as talk of trouble boiling to the surface are growing.

Gold Breaks Stride but Silver Suffers Biggest Drop in 4 Weeks

The biggest dollar jump in a month is worth a 0.8 percent slide from gold. The precious metal broke a four-day bull run with its retreat before $1,350. That said, the commodity has not fully turned off its trend. Silver, on the other hand, is in a more precarious position. A sharp 2.8 percent tumble has brought February’s momentum to an abrupt halt and reinstalled $21.50 as resistance.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

Private Capital Expenditure (4Q)

-1.3%

3.6%

Last figure was the best since early 2012.

6:45

CHF

GDP (QoQ) (4Q)

0.4%

0.5%

With SSI positioning at an extreme, a print deviating from estimates here may have a large impact on price action.

6:45

CHF

GDP (YoY) (JAN)

2.0%

1.9%

7:00

EUR

German Import Price Index (YoY)

-2.4%

-2.3%

Inflation figures tap into larger deflation fears, but the German jobs figures are more consistent market mover

7:45

EUR

Consumer Confidence (FEB)

86

86

8:55

EUR

German Unemployment Change (000's) (FEB)

-10K

-28K

8:55

EUR

German Unemployment Rate (FEB)

6.8%

9:00

EUR

M3 3-month average (FEB)

1.20%

1.30%

Last M3 growth rate figure was the lowest since the 2nd/3rd quarter of 2010.

9:00

EUR

M3 Money Supply (YoY) (FEB)

1.1%

1.0%

9:00

EUR

Italy Business Confidence (FEB)

98

97.7

Momentum is slowing in Business Confidence after touching two year highs about 90.

9:00

EUR

Italy Euronomic Sentiment (JAN)

86.8

10:00

EUR

Consumer Confidence (FEB F)

-12.7

-12.7

Highest since mid 2011.

13:00

EUR

German CPI (YoY)(FEB P)

1.3%

1.3%

Disappointing CPI figures here could put pressure on the Euro ahead of the March ECB meeting.

13:00

EUR

German CPI EU Harmonized (YoY) (FEB P)

1.1%

1.2%

13:30

USD

Durable Goods Orders (JAN)

-1.6%

-4.2%

Price action following the print may be muted by the fact market participants will be waiting for Dr. Yellen to begin her testimony in front of the Senate at 15:00GMT.

13:30

USD

Durables Ex Transportation (JAN)

-0.3%

-1.3%

13:30

USD

Cap Goods Orders Nondef Ex Air (JAN)

-0.2%

-0.6%

13:30

USD

Cap Goods Ship Nondef Ex Air (FEB 22)

-1.0%

0.6%

13:30

USD

Initial Jobless Claims (FEB 15)

335K

336K

13:30

USD

Continuing Claims (FEB 23)

2995K

2981K

21:45

NZD

Building Permits (MoM) (FEB)

-3.5%

7.6%

Estimates call for the worst print since early 2013.

23:15

JPY

Markit/JMMA Manufacturing PMI (FEB)

56.6

Estimates call for a YoY nationwide print equal to levels not seen since early 2008. Any severe print to the downside could lead to a weaker yen as market participants speculate on BoJ action this spring.

23:30

JPY

Overall Household Spending (YoY) (JAN)

0.5%

0.7%

23:30

JPY

Jobless Rate (JAN)

3.7%

3.7%

23:30

JPY

Natl CPI (YoY) (JAN)

1.3%

1.6%

23:30

JPY

Natl CPI Ex Fresh Food (YoY) (JAN)

1.3%

1.3%

23:30

JPY

Natl CPI Ex Food, Energy (YoY) (FEB)

0.7%

0.7%

23:50

JPY

Industrial Production (MoM) (JAN P)

2.8%

0.9%

23:50

JPY

Industrial Production (YoY) (JAN)

9.4%

7.1%

23:50

JPY

Retail Trade (YoY) (JAN)

3.8%

2.5%

23:50

JPY

Large Retailers' Sales (FEB)

1.0%

0.2%

GMT

Currency

Upcoming Events & Speeches

0:30

USD

Fed's Pianalto Speaks on Career in Wooster, Ohio

7:00

JPY

BOJ Board Member Sato Speaks at IBA in Tokyo

15:00

USD

Fed's Yellen Testifies to Senate on Monetary Policy

15:30

USD

Fed's Fisher Speaks on Financial Stability Panel in Frankfurt (FEB)

20:15

USD

Fed's Lockhart, George to Speak on Banking Outlook in Atlanta (JAN)

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

14.0200

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.5800

2.3000

11.8750

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

13.2388

2.1785

10.8853

7.7558

1.2627

Spot

6.4839

5.4204

6.0378

Support 1

13.0000

2.1000

10.2500

7.7490

1.2000

Support 1

6.0800

5.3350

5.7450

Support 2

12.6000

1.7500

9.3700

7.7450

1.1800

Support 2

5.8085

5.2715

5.5655

INTRA-DAY PROBABILITY BANDS 18:00 GMT

CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.3860

1.6812

103.23

0.8946

1.1024

0.9093

0.8379

142.25

1340.67

Res 2

1.3837

1.6781

102.99

0.8928

1.1005

0.9072

0.8358

141.88

1335.05

Res 1

1.3813

1.6750

102.75

0.8910

1.0986

0.9050

0.8336

141.51

1329.43

Spot

1.3766

1.6688

102.26

0.8873

1.0947

0.9007

0.8294

140.77

1318.20

Supp 1

1.3719

1.6626

101.77

0.8836

1.0908

0.8964

0.8252

140.03

1306.97

Supp 2

1.3695

1.6595

101.53

0.8818

1.0889

0.8942

0.8230

139.66

1301.35

Supp 3

1.3672

1.6564

101.29

0.8800

1.0870

0.8921

0.8209

139.29

1295.73

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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