Yen Cross Bulls Want Reassurance of April QE Upgrade

DailyFX

Dollar: Plenty of Potential Sparks for Rally

There is a concept of asymmetrical potential for any currency or market. While there may be a higher possibility for certain outcomes, their impact is generally more restrained. Alternatively, the ‘less likely’ can generate far greater volatility and follow through. Such is the dollar’s position. While risk appetite trends are pointing higher through benchmarks like the S&P 500 and the market seems to be brushing off the negative implications of Taper, the progress these considerations engender are consistently tepid. What would happen if the alternative were to take? In the event of a risk plunge, the dollar’s relationship to volatility measures would leverage significant gains on haven-seeking capital inflows. And, in the 12-month rate forecast measures in overnight swaps, the market is pricing in the first vestiges of the first Fed rate hike.

Euro Strength Troubling the ECB?

Following the decision to keep their existing programs in place last week, it seemed the ECB had put to rest the idea of more stimulus to support the economy or fend off deflation. At least, that was the interpretation by the euro when drove EURUSD above 1.3850 and on to two-year highs. Yet, a pass now, does not ensure a permanent suspension of more support. Furthermore, the shared currency can face trouble on different fronts outside of its own making. ECB Noyer this past session seemed to sound the policy, early warning bell when he said the euro’s gain presents unwanted pressure on economic activity and prices. With LTRO repayments accelerating and growth easing, pressure is building.

Yen Cross Bulls Want Reassurance of April QE Upgrade

As expected, the Bank of Japan (BoJ) maintained its policy bearings by keeping the benchmark rate at 0.10 percent and the monetary base target at ¥270 trillion. That said, this outcome further contributes to the doubts that have eroded the steady advances for the yen crosses and Nikkei 225. There are two general means for USDJPY and other yen crosses to continue their climb: either the global financial markets show an insatiable demand for any-and-all-yield to override the otherwise anemic carry in these pairs; or the Japanese central bank adopts further efforts to devalue the currency. There is little jawboning of a QE upgrade next month with the tax hike, and these pairs are up 15-45 percent…

Australian Dollar Bullish Reverses on Wave of Chinese Data

Though it didn’t secure reassuring follow through at the time, AUDUSD nevertheless won a meaningful, bullish breakout to three-month highs last week above 0.9080. That tentative bull trend was collapsed to start the week however. The data from the Aussie docket hasn’t been particularly market-moving, but the troubles from China have been imported by the high-yield currency. Last week was already ending on a weak foot for Australia’s largest trade partner when the Shanghai Chaori missed its interest payment – the first on-shore default. While a minor move and reassuring for a stable credit market, there are a lot of non-performing loans out there and the forthcoming risk could curb future lending (a key source of the country’s growth). February’s surprisingly steep Chinese trade deficit ($22.99 billion) only added more fuel.

British Pound Stumbles, BoE Talks Forward Guidance Today

The sterling took a tumble Monday morning against most of its major counterparts – with the exception of the Aussie dollar. The fundamental tinder on hand was relatively light. From the docket, Llyod’s employment confidence survey for February held at its highest level since March 2005. On the rates front, BoE member Charlie Bean remarked that rates would only raise gradually; and he also commented that further pound gains would hurt UK exporters. These statements were not particularly shocking – thereby it is unlikely to have a lasting impact. Meanwhile, event risk ahead may better be able to pull its weight. Manufacturing activity figures for January and the NIESR GDP estimate for February are noteworthy updates. The real impact though rests with the scheduled testimony for BoE Governor Carney and members Fischer, Miles and Weale to the Parliament’s Treasury Committee on their February inflation report, which came with a change in forward guidance.

New Zealand Dollar: Rate Forecasts Swell Ahead of RBNZ’s First Hike

The rates and FX market have priced in a near-term RBNZ rate hike for some months. In fact, overnight index swaps have priced in a near assurance of a 25 bp hike from the central bank at this week’s meeting since the last one ended (January 29). Such a hawkish lean certainly amplifies the appeal of the kiwi during ‘risk on’ periods where the market seeks out higher return; but without an innate appetite for yield-at –any-cost, that bullish interest doesn’t reach very far. What the kiwi needs – aside from a market-wide, bullish drive – is a more robust rate outlook beyond a March 12 (Wednesday) hike. On that point, the 12 month forecast is now up to 132 bps – the highest since July 2010.

Emerging Markets Slip, High-Yield Climbs

An interesting article from Reuters Monday referred to data from EPFR which that since the beginning of last year Emerging Market-based ETFs have suffered $38 billion in outflows while high-yield corporate bond funds (based in the developed world) have drawn $22 billion of capital. This is a great assessment of global investors’ appetite for risk and yield. Rather than seeing capital flee all assets deemed ‘risky’ for the safety of a safe haven like Treasuries, we typically find there is a tiered appeal for exposure. In this comparison, we find investors are withdrawing from EM, but are willing to chase risk and return in safer confines (risky assets in bigger, better-regulated markets). For more immediate concerns, we will keep a close watch on China’s dealings with its credit health, Russia-Ukraine standoff progress and protests in Venezuela.

Gold Working Towards Another Technical Breakout

The momentum behind gold’s near three-month advance is cooling, but the market retains its course…for now. Spot gold was virtually unchanged for the day, leaving the $1,350 ceiling looming overhead. Gauging appetite underneath the metal, we find volume on the SPDR Gold Shares ETF Monday was the lightest the market has seen since January 9. Speculative appetite is still showing in other areas of the market. ETF holdings have advanced 1.6 percent from the four-and-a-half year lows set February 19 to 56.67 million ounces. In futures, open interest has trended higher over the past four weeks, but it was the speculative positioning (COT) numbers that really stand out. Net bullish interest has grown 10 out of the past 11 weeks – and is now at 11 month highs of a net 115,166 contacts long. A speculative bounce, however, doesn’t compensate for unfavorable conditions for its safe haven (its own volatility), inflation hedge (no inflation) and alternative currency status. **Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

NAB Business Confidence (FEB)

8

Business Conditions are at highs not seen since 2011.

0:30

AUD

NAB Business Conditions (FEB)

4

6:00

JPY

Machine Tool Orders (YoY) (FEB P)

40.3%

The last print was the highest since 2011.

9:00

EUR

Italian GDP s.a. and w.d.a. (QoQ) (4Q F)

0.1%

0.1%

Although the last GDP print was the highest since early 2013, non-performing loans rose 24.5% YoY.

9:00

EUR

Italian GDP s.a. and w.d.a. (YoY) (4Q F)

-0.8%

-0.8%

9:30

GBP

Industrial Production (MoM) (JAN)

0.2%

0.4%

With the Pound testing key technical support, a negative print here could adversely impact GBP crosses, most notable against the Yen if we see a neutral BoJ.

9:30

GBP

Industrial Production (YoY) (JAN)

2.9%

1.8%

9:30

GBP

Manufacturing Production (MoM) (JAN)

0.3%

0.3%

9:30

GBP

Manufacturing Production (YoY) (JAN)

3.3%

1.5%

11:30

USD

US Small Business Optimism - NIFB (FEB)

93.8

94.1

Expected to pull back from near six-year highs around 94.5

14:00

USD

Wholesale Inventories (JAN)

0.5%

0.3%

Inventories have beat 4 out of the last 5 times.

14:00

USD

Wholesale Trade Sales (MoM) (JAN)

0.5%

15:00

GBP

NIESR Gross Domestic Product Estimate (FEB)

0.8%

The figure has been above 0.70 since early 2013.

23:30

AUD

Westpac Consumer Confidence Index (MAR)

100.2

The Sentiment figure has been on the decline since November.

23:30

AUD

Westpac Consumer Confidence (MAR)

-3.0%

23:50

JPY

Tertiary Industry Index (MoM) (JAN)

0.6%

-0.4%

Volatility may remain light here in Yen crosses the earlier BoJ rate decision and GDP data.

23:50

JPY

BSI Large All Industry (QoQ) (1Q)

8.3

23:50

JPY

BSI Large Manufacturing (QoQ) (1Q)

9.7

23:50

JPY

Domestic Corporate Goods Price Index (MoM) (FEB)

0.2%

0.1%

23:50

JPY

Domestic Corporate Goods Price Index (YoY) (FEB)

2.1%

2.4%

GMT

Currency

Upcoming Events & Speeches

-:-

JPY

BOJ Rate Decision

6:00

JPY

BoJ Gov Kuroda Press Conference

8:00

EUR

European Union Finance Ministers Meet

-:-

EUR

Bank of Portugal Releases Bank Lending Data

9:30

GBP

BoE's Carney, Fisher, Miles, Weale Speak on U.K. Economy

17:00

USD

US to Sell $30 Bln in 3-Year Notes

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

13.2810

2.2066

10.7710

7.7608

1.2707

Spot

6.4490

5.4333

6.0130

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

1.3834

1.6783

103.08

0.8947

1.1164

0.9038

0.8466

141.76

1360.21

Res 2

1.3810

1.6754

102.84

0.8929

1.1144

0.9016

0.8446

141.39

1354.35

Res 1

1.3785

1.6726

102.61

0.8910

1.1124

0.8994

0.8425

141.02

1348.49

Spot

1.3735

1.6669

102.13

0.8873

1.1085

0.8950

0.8383

140.28

1336.77

Supp 1

1.3685

1.6612

101.65

0.8836

1.1046

0.8906

0.8341

139.54

1325.05

Supp 2

1.3660

1.6584

101.42

0.8817

1.1026

0.8884

0.8320

139.17

1319.19

Supp 3

1.3636

1.6555

101.18

0.8799

1.1006

0.8862

0.8300

138.80

1313.33

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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The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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