Japanese Yen Makes a Bullish Move, Is it Tradable?

DailyFX

  • Dollar Slides Alongside US Stocks as Long as VIX Remains Low
  • Japanese Yen Makes a Bullish Move, Is it Tradable?
  • Australian Dollar Traders: What to Expect of the RBA Rate Decision
  • Euro Financial Trouble Cautious Ahead of Slovenia Update
  • British Pound Firms as Rate Watchers Size Up Their Exposure
  • US Oil Ends a Five-Day Rally Just Below 98
  • Gold Builds Breakout Pressure with Volume Collapsing, Range Tightening

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

Dollar Slides Alongside US Stocks as Long as VIX Remains Low

The unusual, positive correlation between the safe haven US dollar and return-chasing US equity indexes persisted Monday. Though regaining some traction later in the session, the S&P 500 closed the day down 0.5 percent. At the same time, the Dow Jones FXCM Dollar Index (ticker = USDollar) eased off 0.3 percent and hovers precariously just above the 10,420-threshold. Both are at risk of shifting tides to a meaning bearish bias after impressive runs, but would fundamentals and market conditions support a hand-in-hand reversal it were to develop? Unlikely. Bouts of risk aversion measured in stock indexes these past weeks are merely range fodder rather than committed sentiment changes. That means, dedicated deleveraging and capital reallocation has never truly taken. Without the resolute drive to safety, we don’t have an equity bear wave, a committed surge in volatility measures (VIX) nor the negative correlation between shares and dollar.

Japanese Yen Makes a Bullish Move, Is it Tradable?

Congestion on the yen-based crosses had grown so constricted this past week that breakouts were inevitable. However, there is a critical difference between a simple technical breakout and one that is forced by a substantial fundamental change. The later type has the necessary elements to generate a lasting trend. So, what sort of move are we presented with in USDJPY’s close below 94.00 and AUDJPY’s break of 97.50 this past session? We are almost certain to see a major swell in volatility and possible trend move this week from the Japanese yen, but that drive is to be instigated by the heavily-anticipated Bank of Japan (BoJ) rate decision scheduled for Thursday. A withdrawal of speculative interest in the lead up to the event risk means that this attractive technical move will lose its fundamental drive and once again await guidance from the central bank. So, unless there is a strong risk aversion move between now and Thursday, playing a break is highly speculative.

Australian Dollar Traders: What to Expect of the RBA Rate Decision

The Australian dollar is offering us the telltale signs of expected volatility ahead. In the lead up to meaningful, high-potential-market-moving event risk; we typically see trends tempered and short-term volatility pick up. This often occurs due to investors pulling up stakes on day-to-day trading as they look avoid heavy being caught on the wrong side of a fundamental shift. The particular event risk making Aussie dollar traders so skittish this morning is the Reserve Bank of Australia (RBA) rate decision. Both market and economists expect the central bank to hold its course, but there is still considerable room for surprise in this meeting. Nearing the end of another easing cycle, we have seen strong growth / employment numbers even if inflation numbers are easing back. If language turns from ‘dovish’ to ‘neutral’, it could spur an AUDUSD rally.

Euro Financial Trouble Cautious Ahead of Slovenia UpdateThere is still clear sense of fear lurking beneath the surface for the Euro. Measuring relative risk in the region, we find the credit default premium between the Eurozone and US financial sector is holding at a seven-month high while the EU-US volatility index differential is trading only slightly off comparable highs. The lingering fear is a possible flash point for heavier Euro-based trading moving forward; but if there isn’t an active fundamental catalyst to pick up the cause, bearish pressure could soon ease. Looking through the fundamental headlines, there are still plenty of rumbles in Cyprus – but nothing that speaks to impending systemic risk to the region. Along the same lines, news from Reuters that Spain will downgrade its 2013 GDP forecast and upgrade its deficit target is a threat but still inert. Over the next 24 hours, we will watch to see whetherBank of Slovenia President Kranjec’s update on the country’s growth and financial health ushers in the next Cyprus.

British Pound Firms as Rate Watchers Size Up Their Exposure

There is little room for interest rate expectations to move for the sterling and Bank of England policy forecasts. At 0.50 percent, the benchmark rate is unlikely to be moved. However, modern central bank watchers – which we should all be at this point – don’t follow actual interest rates. We gauge currency impact on extracurricular stimulus moves. On that front, we find the 10-year government bond (Gilt) yield is stationed just above its four-and-a-half month low before the Bank of England’s (BoE) meeting later this week. Meanwhile, the British Chamber of Commerce released a report this morning suggesting the UK will avoid another recession. We’ll look for confirmation in the factory PMI report.

US Oil Ends a Five-Day Rally Just Below 98

Oil reopened Monday after an extended holiday weekend to a clear serious downshift in conviction. The week’s opening session recorded a modest $0.16 drop which ended an impressive 5.2 percent, 5-day rally that has driven the commodity to within striking distance of the $98 figure that capped the previous bullish wave back in January and February. The most recent run has been provided a few unflattering aspects. Aggregate futures volume has receded from the January’s swell and Brent oil’s (Europe’s standard) premium over the standard US Light Sweet grade that passes through Cushing Oklahoma (the US standard) has deflated to its lowest level since July. That being said, open interest in oil futures is not far from the record high exposure set back on March 12.These are conditions in which we must be vigilant of volatility.

Gold Builds Breakout Pressure with Volume Collapsing, Range Tightening

Last week’s sub-$25 range for gold was one of the smallest in the past two years, and Monday’s trading activity only took this restraint to even greater extreme. The market covered a sparse $5.70 range through the entire day. This level of inactivity is certainly remarkable, but it shouldn’t be fundamentally shocking. There are generally two things that have been in charge of gold’s movements over the past months – currency wars and the US dollar’s health – and neither fundamental driver was particularly marketing moving through the opening session. From the greenback, the 34 point drop was notable, but has yet to develop a new trend. Meanwhile, the wave of stimulus potential in the upcoming BoJ, BoE, ECB rate decisions and the NFPs-Fed makes for a risky bet before it hits. Meanwhile, the CBOE’s gold volatility index is not far from its record low while SPDR Gold ETF volume was below 4.5 million shares for only the 13th time over the past five years.

**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

0:00

NZD

ANZ Commodity Price

1.0%

80% of the increase is offset by the strong new Zealand dollar.

1:30

JPY

Labor Cash Earnings (YoY)

-0.2%

0.1%

Monthly labor survey; Prior reading revised downwardly by 0.6%.

3:30

AUD

Reserve Bank of Australia Rate Decision

3.0%

3.0%

Expected to remain unchanged.

5:30

AUD

RBA Commodity Price Index

91.1

Steady rebound from 11/12’s low

5:30

AUD

RBA Commodity Index SDR (YoY)

-7.2%

7:30

CHF

SVME-Purchasing Managers Index

50.4

50.8

May fell below 50 amid Cyprus turbulence and Italian debt auction.

7:45

EUR

Italian Purchasing Manager Index Manufacturing

45.3

45.8

Ticked lower after a3M increase.

7:50

EUR

French Purchasing Manager Index Manufacturing

43.9

43.9

Sharpest fall since 2009

7:55

EUR

German Purchasing Manager Index Manufacturing

48.9

48.9

Anchor manufacturing reports key to maintaining region-wide growth hopes.

8:00

EUR

Euro-Zone Purchasing Manager Index Manufacturing

46.6

46.6

8:00

EUR

Italian Unemployment Rate s.a.

11.8%

11.7%

Higher default risk in SMEs, which signals risk of more lay off ahead.

8:30

GBP

Purchasing Manager Index Manufacturing

48.8

47.9

Fell for three consecutive months

8:30

GBP

Net Consumer Credit

0.4B

0.4B

Policies eased credit condition, enhanced by FLS program and record low mortgage rate.

8:30

GBP

Mortgage Approvals

53.7K

54.7K

8:30

GBP

Net Lending Sec. on Dwellings

0.4B

0.1B

8:30

GBP

M4 Money Supply (MoM)

0.9%

8:30

GBP

M4 Money Supply (YoY)

-0.8%

8:30

GBP

M4 Ex IOFCs 3M Annualised

5.0%

5.6%

9:00

EUR

Euro-Zone Unemployment Rate

12.0%

11.9%

Cyprus and cold weather weighted on employers’ confidence to hire.

12:00

EUR

German Consumer Price Index (MoM)

0.4%

0.6%

On year, inflation fell to the lowest level since 12/10; Consistent with the 2 year low EU inflation; Lower inflation is Euro negative.

12:00

EUR

German Consumer Price Index (YoY)

1.3%

1.5%

12:00

EUR

German CPI - EU Harmonised (MoM)

0.3%

0.8%

12:00

EUR

German CPI - EU Harmonised (YoY)

1.7%

1.8%

13:45

USD

ISM New York

58.8

Amid the mixed US economic releases, expectation and confidence are boosted by comments from Fed officials.

14:00

USD

IBD/TIPP Economic Optimism (APR)

45.5

42.2

14:00

USD

Factory Orders

2.9%

-2.0%

23:01

GBP

BRC Shop Price Index (YoY)

1.1%

Timely measure of price inflation.

GMT

Currency

Upcoming Events & Speeches

-:-

CNY

ASEAN, China, Japan Fin Mins and Central Bankers Meet

-:-

RUB

Russian Central Bank Decision

-:-

RUB

Russian GDP (4Q A)

10:00

EUR

ECB’s Kranjec Presents Slovenia Economic, Bank Outlook

16:20

EUR

ECB’s Coeure, Brazil’s Pereira Speak on Currency Wars

17:00

USD

Fed's Kocherlakota Speaks on Monetary Policy in North Dakota

17:30

USD

Fed's Lockhart Speaks in Alabama

23:30

USD

Fed's Evans, Lacker Speak on Monetary Policy in Richmond

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

12.3507

1.8056

9.1968

7.7628

1.2386

Spot

6.5069

5.8005

5.8181

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

1.2971

1.5338

94.21

0.9543

1.0230

1.0516

0.8461

121.39

143.41

Resist. 2

1.2941

1.5309

93.92

0.9523

1.0214

1.0497

0.8441

120.94

142.97

Resist. 1

1.2911

1.5281

93.63

0.9503

1.0198

1.0477

0.8421

120.49

142.53

Spot

1.2852

1.5224

93.05

0.9463

1.0166

1.0438

0.8381

119.59

141.66

Support 1

1.2793

1.5167

92.47

0.9423

1.0134

1.0399

0.8341

118.69

140.78

Support 2

1.2763

1.5139

92.18

0.9403

1.0118

1.0379

0.8321

118.24

140.34

Support 3

1.2733

1.5110

91.89

0.9383

1.0102

1.0360

0.8301

117.79

139.90

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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