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Dollar Leverages Gains on Mixed Risk, Equities Showing

John Kicklighter


  • Dollar Leverages Gains on Mixed Risk, Equities Showing
  • Euro: Is Speculation of an ECB Rate Cut Rational?
  • Japanese Yen Unwinds Gains as Market Hopes for More from BoJ
  • New Zealand Dollar Jumps after RBNZ Holds Rates, Is this a False Move?
  • Australian Dollar: Inflation Speeds Up but at a Slower Pace, RBA Reaction?
  • Canadian Dollar Climbs as Retail Sales Rise, Carney Maintains Hawkish Tone
  • Gold Calls a Halt to its Recovery Bull Leg, Next Move Needs Conviction


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


Dollar Leverages Gains on Mixed Risk, Equities Showing

We are seeing another serious fundamental divergence. The S&P 500 – as a benchmark for risk appetite – has charged higher for three consecutive days while the FX safe haven Dow Jones FXCM Dollar Index (ticker = USDollar) has closed at a fresh multi-year high. This hand-in-hand move breaks the normal conventions of capital moving into either high-return or safe assets. That said, it isn’t a particularly uncommon sight nowadays. There are some that think that this is a sign that the greenback is playing the role of a ‘carry’ currency, but themore plausible scenario is that risk trends themselves are not offering a strong and consistent drive.


Rather than relying on a single benchmark or two to establish a sense of the strength and bearing of investor sentiment, we should take the temperature of a cross-market drive across the market’s dominant asset types. If there were a strong bearing of ‘risk on’ or ‘risk off’, we typically expect equities, carry trade, speculative commodities and Treasury yields to all move in the same direction. The heavier the momentum behind the collective move, the greater the influence of sentiment. However the push to expose capital to greater return or flight to quality has been lacking for momentum as of late. Between uneven growth and the implicit vow by central banks to backstop risk taking, we have found an unsteady equilibrium. And, in the place of speculative appetite, we are left to catalysts like relative stimulus and short-term data sparks.


Taking the temperature of the dollar’s performance this past trading day, while the USDollar topped a new high; the greenback further managed a gain against all of its major counterparts. A surface-level interpretation of this move can be ascribed to confidence in the housing sector as new home sales rose (1.5 percent) and average annual sales price growth hit its highest level since 2006. More likely, the slow progression of benchmarking the end of QE3 purchases carries more weight. Meanwhile, an incidence this past session inadvertently reminds us of how tense the market is to an eventual swell in risk trends. An errant tweet through a hacked AP twitter account that explosions were reported at the White House presented a dramatic market reaction for equities and the USDJPY. Though quickly disarmed, we are left with a warning.


Euro: Is Speculation of an ECB Rate Cut Rational?

The euro took a spill against all but the Swiss franc through Tuesday’s session. Once ahead the newswires were active, but two particular themes stuck with traders. From the docket, the advanced reading for the April Eurozone PMI Composite – a timely proxy for GDP – showed an in-line 46.5 reading. Anything below 50.0 reflects contraction, and therefore this is a concern. However, traders were really focusing in on the German manufacturing read which dropped unexpectedly to 47.9. There is a two-speed economy in the Euro-region and Germany represents the ‘core’ – whose performance many believe has kept austerity in place and the ECB at bay. That said, if Germany is coming under pressure, there are some (like Pimco manager Bill Gross) who see the central bank finally flexing with a rate cut. A rate cut is more likely than a new stimulus program, but it is unlikely to help iron out underlying troubles long-term. The other headline worth keeping in mind was the Bank of Spain’s report of 1Q GDP. A 2.0 percent drop through the quarter is much worse than thought. Official stat office numbers come next week.


Japanese Yen Unwinds Gains as Market Hopes for More from BoJ

The Japanese yen’s effort to recover lost ground through the first half of Tuesday fell apart later in the session. USDJPY is drawn towards 100 and the other crosses are experiencing the same buoyancy. Key factors to this push are a stable risk backdrop (equities are moving higher even if the fundamentals differ from price), the Bank of Japan’s (BoJ) vow to drive implicitly drive the yen lower the proximity to such a dense level of open orders. Just as gold was facing a significant round of open interest below $1,525, USDJPY could easily trip a heavy round of orders with a forceful enough push. We are still a few days out from the BoJ rate decision, but speculation of using inflation guidance for more stimulus control is making the rounds. Meanwhile, both the OECD and Standard & Poor’s warned the country on its ballooning debt levels.


New Zealand Dollar Jumps after RBNZ Holds Rates, Is this a False Move?There was a measurable jump from the New Zealand dollar (kiwi) despite a questionable fundamental development. The Reserve Bank of New Zealand (RBNZ) announced that it would hold rates unchanged at 2.50 percent – as the market and economists had expected. Governor Wheeler suggested that growth figures domestically could benefit from trade partners’ performance, but he also stated rates would be on hold through 2013 and that the high currency overvalued as well as significant burden. Expecting bullish trend on this is unreasonable.


Australian Dollar: Inflation Speeds Up but at a Slower Pace, RBA Reaction?

In contrast to the New Zealand dollar’s reaction to the RBNZ rate decision, the Australian dollar’s response to the 1Q CPI report was surprisingly tame. The year-over-year, headline reading (we look at this measure as central bank’s base policy on it) hit a 2.5 percent pace. That is the fastest pace of growth since 4Q 2011. While that doesn’t turn us to hikes, it does make a strong argument for curbing further rate cuts.


Canadian Dollar Climbs as Retail Sales Rise, Carney Maintains Hawkish Tone

With the docket carrying more market impact, there was more for the Canadian dollar to move on Tuesday. For data, February retail sales impressed with a 0.8 percent swell which promoted the best two-month climb in consumer spending since 2011. That is encouraging when paired with BoC Governor Carney’s reiteration that the next rate move is likely to be a hike in Canada as consumer debt remains high.


Gold Calls a Halt to its Recovery Bull Leg, Next Move Needs Conviction

We have finally taken a break after a five-day advance from gold. Where we head from here is critical for assessing the medium-term trend for the precious metal. The longest advance this year was essentially a retracement of a record breaking tumble that took out 18 months of congestion. Yet, in that advance, bulls couldn’t even retrace half of the preceding losses. Meanwhile, ETF holdings of gold have dropped to the lowest level since October 2011. In April alone, interest has collapsed 5.8 percent (4.55 million ounces).

**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

1:00

AUD

DEWR Internet Skilled Vacancies MoM


-1.5%

Rose for 5 consecutive months

1:30

AUD

Consumer Prices Index (QoQ)

0.7%

0.2%

Should unemployment rate, investment lending and confidence index weaken further, low inflation rate would provide RBA room to lower interest rate.

1:30

AUD

Consumer Prices Index (YoY)

2.8%

2.2%

1:30

AUD

Consumer Prices Index RBA Trimmed Mean (QoQ)

0.5%

0.6%


1:30

AUD

Consumer Prices Index RBA Trimmed Mean (YoY)

2.4%

2.3%


1:30

AUD

Consumer Prices Index RBA Weighted Median (QoQ)

0.5%

0.5%


1:30

AUD

Consumer Prices Index RBA Weighted Median (YoY)

2.4%

2.3%


6:00

CHF

UBS Consumption Indicator


1.26

Measure of total consumer spending; may not illustrate the demand from domestic front.

8:00

EUR

German IFO - Business Climate

106.2

106.7

Despite weak EU demand, broad sell-off in commodities could provide support for manufacturers as production costs decreased, boosting manufacturing and construction expectation.

8:00

EUR

German IFO - Current Assessment

109.5

109.9

8:00

EUR

German IFO - Expectations

103

103.6


8:30

GBP

BBA Loans for House Purchase

31400

30506

Indicative of housing demand. Has pointed to the downside for 3M.

10:00

GBP

CBI Reported Sales

8

0

4M decline in volume of sales and orders.

11:00

USD

MBA Mortgage Applications



Indicative of housing demand.

12:30

USD

Durables Ex Transportation

0.5%

-0.7%

Better-than-expected durable goods due to auto and housing; May decrease due to weaker foreign demand and budget cuts.

12:30

USD

Durable Goods Orders

-3.0%

5.6%

12:30

USD

Durable Goods Orders (MoM)


5.7%


12:30

USD

Durables Ex Transportation (MoM)


-0.5%


12:30

USD

Cap Goods Orders Nondef Ex Air (MoM)


-2.7%

Measure of business investment plans; May mirror the weak earnings of US largest manufacturing company in Q1.

12:30

USD

Cap Goods Orders Nondef Ex Air

0.3%

-3.2%

12:30

USD

Cap Goods Ship Nondef Ex Air

0.6%

1.9%


12:30

USD

Cap Goods Ship Nondef Ex Air (MoM)


1.9%


23:50

JPY

Japan Buying Foreign Bonds (Yen)


-¥331.9B

Predictable pattern in JGBs holdings; Past 2W rally in Nikkei (+11.6%) was driven by foreign capital (3Y high); Yen positive if local investors’ capitals return to Japan.

23:50

JPY

Japan Buying Foreign Stocks (Yen)


-¥157.7B

23:50

JPY

Foreign Buying Japan Stocks (Yen)


¥1569.0B


23:50

JPY

Foreign Buying Japan Bonds (Yen)


-¥175.8B



GMT

Currency

Upcoming Events & Speeches

3:00

CNY

China to Sell ¥30 Bln in 10-year Bonds

9:00

EUR

ECB Announces Allotment in 3-Month Dollar Tender

9:15

EUR

ECB Announces Allotment in 3-Month Refi Tender

9:30

EUR

Germany to Sell €2Bln in 31-Year Bonds

9:30

EUR

UK to Sell £1.3 Bln in 16-Year Inflation Linked Bonds

12:30

CAD

BoC Governor Carney Speaks at Senate Standing Committee




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 https://www.twitter.com/JohnKicklighter


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