Japanese Yen: G20 Doesn’t Name BoJ Manipulator, Rate Decision Next Week

DailyFX

  • Dollar Closes at Over Two Year High but Not Yet Trend Continuation
  • Japanese Yen: G20 Doesn’t Name BoJ Manipulator, Rate Decision Next Week
  • Euro: Italian Politics, Cyprus Debts, Greek Recession Enough for ECB Support?
  • British Pound Unfazed by Fitch Downgrade of UK, 1Q GDP Due
  • New Zealand Dollar Traders Ready for RBNZ Rate Decision
  • Australian Dollar May Find RBA Outlook Shift with CPI Jump
  • Gold Plunges a Second Week as ETFs Sell Most Physical Since September 2008

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

Dollar Closes at Over Two Year High but Not Yet Trend Continuation

After a day of extraordinary quiet, the dollar put in for a material drive higher to close the week Friday. A break from congestion in fact ushered the Dow Jones FXCM Dollar Index (ticker = USDollar) to its highest close in two and a half years. Yet, this achievement was largely technical as there was a clear dearth of conviction from both price action and the fundamental backdrop. Momentum was symbolically restrained by the midpoint of the dollar’s range for the past decade (10,560), but also finds practical check with EURUSD trading just above 1.3000 and USDJPY within stone’s throw of 100. Furthermore, even if all these boundaries are forced; it does not assure immediate and meaningful follow through. A breakout and trend are materially different states. Generating conviction requires a obtaining a speculative frequency that can align these very different assets. Time and time again, the most effective and devastating force is the capital flow that follows element risk appetite.

It is the recognition of how the various markets are postured that tells us just how exceptional and close-at-hand a critical shift in investor sentiment is. We have seen volatility indexes pick up from their multi-year lows, cross-market correlations return and the S&P 500 back into a popular reversal pattern. Match that uniformity to the fundamental headlines that have started to gain traction, and the possibilities are enticing. Looking for pressure sensitive event risk that can change the shape of the risk landscape through the coming week, the most prominent docket item is Friday’s US 1Q GDP report. However, we don’t have to wait until Friday for a break – in fact, that would be undesirable. A global reflection of overall growth and relative stimulus offers plenty of opportunity for a spark earlier in the week.

Two things to remember as we wade into the tightly-wound market: a trend shift doesn’t have to have a clear trigger and high potential scenarios are not necessarily high probability. With gold offering a great parallel, momentum itself encourages more action than indicators or headlines. And, though the risk aversion scenario offers exceptional trade potential; history reflects that it is the lower probability outcome.

Japanese Yen: G20 Doesn’t Name BoJ Manipulator, Rate Decision Next Week

With an impressive climb Friday from the yen crosses, USDJPY closed its third consecutive weekly advance. The move is universal amongst the pairings as the funding currency continues to suffer the bullying of the Bank of Japan’s (BoJ) unprecedented stimulus upgrade. The ¥7 trillion-per-month program announced at the April 4 policy decision fulfilled speculators expectations and steady risk trends allow the threat of consistent depreciation play out. That said, it is easy to distract the carry trade. Yield differentials on pairs like EURJPY and AUDJPY are at record lows and only tolerable because market participants have become acclimated to no volatility. Yet, if risk aversion kicks in, that changes quickly. Further fundamental highlights to watch in the come weak are the additional comments from the G20 meeting – again Japan has assumed complicity in its stimulus effort as officials have made no warning – as well as the BoJ rate decision Friday.

Euro: Italian Politics, Cyprus Debts, Greek Recession Enough for ECB Support?

We don’t have to reach very far to come up with a reason for investors to flee the euro. Yet, acclimation to the frequency of various troubles for the region has once again led to complacency. That passive condition can change quickly though, so we must keep an eye on the hot spots. Italy’s political gridlock continues with the immediate vote of a new president going into its fifth ballot Saturday. Greece’s consumer statistics last week (an 8.3 percent drop in income in 4Q) remind of the severe recession they face with unconquerable debts. Spain is expected to present its new deficit goals proposal Friday. And, Cyprus has announced it will eventually vote on its highly controversial bailout.

British Pound Unfazed by Fitch Downgrade of UK, 1Q GDP DueAn unexpected downgrade of the United Kingdom’s credit rating by Fitch this past Friday led to surprisingly little response from the sterling. This may be due to the fact that Moody’s had already disarmed the reaction to its losing ‘AAA’ status when it downgraded the country months ago, but it also may prove a simple delay as the weight of the reaction comes with London’s reaction on Monday. This will be something to account for at the start of the week, while the second half of the period belongs to Thursday’s 1Q UK GDP release. BoE members warned recently that the UK may have contracted slightly this past quarter, which would signal an official ‘triple dip’ recession.

New Zealand Dollar Traders Ready for RBNZ Rate Decision

The 10-year New Zealand government bond yield fell to its lowest level since July this past Friday – and before that previous swing low, we are into uncharted territory. The kiwi is exclusively an investment currency for the Forex market, but anemic yields do little to build favor. Of course, risk trends are a strong factor in direction moving forward; but the upcoming Reserve Bank of New Zealand (RBNZ) policy decision adds another element to that picture. If hope for that eventual rate hike fades further, the inequity in price and yield can shake the market.

Australian Dollar May Find RBA Outlook Shift with CPI Jump

If you want to see what effect a fall from grace can have for an investment currency, look no further than the Australian dollar. Yet, the 175 basis point draw on the benchmark rate seems to be nearing the end of its cycle. The policy body has maintained a dovish sentiment which has short circuited speculation of the eventual first rate hike in the next hawkish cycle. However, that could change if price pressure pick up as the consensus for the 1Q CPI prove accurate. The 2.8 percent expectation could revive pressure on the policy authority.

Gold Plunges a Second Week as ETFs Sell Most Physical Since September 2008

Four consecutive days of advance can wash away the bearish stain on gold this past week. Despite the consistency, Monday’s record-breaking collapse was forceful enough to ensure a 5.3 percent drop on the week (following the multi-year record 6.2 percent tumble the previous period). The metal looks like it has suffered a permanent shift in trend. The 2.03 percent drop in ETF holdings of gold down trend in open futures interest adds to that pressure. Yet, there is still an anti-currency / stimulus argument to be made. But are investors willing to seek harbor in this volatility?

**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

Credit Card Spending s.a. (MoM)

3.3%

Continual weakness in spending will reduce bets for rate cut this year as RBNZ concerns on an overvalued New Zealand dollar.

3:00

NZD

Credit Card Spending (YoY)

4.7%

5:00

JPY

Supermarket Sales (YoY)

-5.5%

Typically underperform compared to department store sales.

7:00

CHF

Money Supply M3 (YoY)

9.8%

Little change over the past 4M; Currency in circulation has switched into savings.

7:00

CHF

Real Estate Index Family Homes

419.3

Data based on small sample size

7:00

JPY

Convenience Store Sales (YoY)

-4.7%

Leading Indicator of domestic demand as consumers cut spending starting on small purchases in convenience stores.

9:00

EUR

Euro-Zone Government Debt-GDP Ratio

87.3%

Overall austerity slowed pace of increase from 2010- 2011(+1.9%)

12:30

USD

Chicago Fed Nat Activity Index

0.44

Range bounded between -1 to 1.

14:00

EUR

Euro-Zone Consumer Confidence

-23.5

Remained steady at -23 since 13.

14:00

USD

Existing Home Sales

4.98M

Although housing start rose in Mar, CPI does not show similar increase, suggesting momentum may see signs of slowing; Demand from individual home buyers (single family) is not as strong as expected, in line with weak NFP.

14:00

USD

Existing Home Sales (MoM)

0.8%

GMT

Currency

Upcoming Events & Speeches

SUN

ALL

G-20 Meeting

SUN

ALL

IMF and World Bank Spring Meeting

-:-

EUR

Slovenia Gov't has Banks Arrange International Investor Meetings

7:15

EUR

Spain Budget Minister Speaks at Banking Seminar

17:00

EUR

ECB's Noyer speaks in New York

18:30

GBP

BoE's Tucker speaks in New York

23:00

EUR

Troika Begins 10th Review of Irish Bailout Program

-:-

EUR

EU's Rehn and Fed's Dudley Host Transatlantic Conference

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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