- Dollar: Trust in a Dollar Rally is Difficult to Muster without Wholesale Risk Aversion
- Euro at the Top of The Fundamental Risk List as the EU Discusses Greece, Portugal
- British Pound: Will the BoE Minutes Help Spur Rate Speculation This Time Around?
- Canadian Dollar Dominates for Event Risk but Volatility Expectations Still Set Low
- Australian Dollar Traders will Pay a Little More Attention to the RBA’s Wrap Up
- Japanese Yen Grows Dangerously Close to Testing the G7’s Resolve for ‘Stability’
- Gold On the Verge of Deeper Reversal – Much Like the Position for Equities
Dollar: Trust in a Dollar Rally is Difficult to Muster without Wholesale Risk Aversion
It was a contentious for the dollar to end the week. The currency’s most liquid pairing – EURUSD – closed out the period with what seemed a critical bearish break that would seem to open the door to significant follow through on a quickly building trend. However, fundamental traders should have noted something was amiss. The most immediate concern was the general lack of meaningful follow through across the other majors. Sure GBPUSD and AUDUSD set new six- and four-week lows on an intraday basis respectively; but these are not definitive signs of conviction. Furthermore, USDJPY would show a shift in favor of the market’s favored funding currency – denoting a fundamental driver that rested outside the pure confines of a dollar advance.
With the high-yield commodity bloc sliding against the greenback, European currencies retreating and the yen advancing; we are shown the right mix of fundamentals to suggest that Friday’s momentum was likely sourced through risk aversion trends. Indeed, when we check our favored benchmark for sentiment – the S&P 500 – we see that there was a sharp decline on the day. That said, this benchmark for investor sentiment did not make the same headway that EURUSD did. A critical bearish break was not won. And, without a primary catalyst like risk trends to provide the fuel, a major trend will be incredibly difficult (if not impossible) to generate. Looking for the economic developments to encourage a pullback in optimism at the end of this past week, we were presented with two interesting fundamental considerations that will certainly play into next week’s trends: US inflation and Euro troubles.
The April CPI numbers hit a number of important fundamental points for the capital and FX markets; but these aren’t the immediate concerns that will redefine the greenback’s bearings. On one hand, the 3.1 percent pace of annualized, headline price growth (the fastest since September 2008) is a direct concern for interest rate speculating. This print is well above the central bank’s self-described 2 percent target; but the group has made it more than clear that they will not pursue a tightening regime until they are more confident in employment growth. For dollar bulls, this is more important in timing the eventual rate hike. Another interest side effect of the inflation data and its policy slant is the impact to risk trends. Stimulus has been a significant (if not the primary) driver for speculative positioning. Higher inflation threatens an inevitable withdrawal of that accommodation and invites an overdue correction. As for the euro issues, we discuss that below.
Euro at the Top of the Fundamental Risk List as the EU Discusses Greece, Portugal
The sheer liquidity behind the EURUSD’s market movements fundamentally fuses the individual currencies’ futures together. Through the end of this past week, fundamental activity had once again picked up owing to the expectations and reaction to the European GDP figures. As was expected, the core EU members were posting impressive growth. Germany reported its strongest pace of economic expansion since Reunification (5.2 percent) while Franc put in its own impressive read (2.2 percent). Yet, the real concern was in the periphery. And there, we would see Greece expanding a reserved 0.8 percent after a sharp downward revision in a 2.8 percent contraction the previous period and Portugal contracting 0.3 percent. Greece, Portugal and Ireland will be the topic of conversation early next week as well. The Eurogroup is scheduled to meet and discuss further accommodation to Greece’s rescue (which Ireland will be watching) and the details of Portugal’s bailout.
British Pound: Will the BoE Minutes Help Spur Rate Speculation This Time Around?
Typically, we watch for the BoE minutes as a meaningful view on the central bank’s policy bearings. The rate decisions themselves little if any guidance as the group is naturally mum should they vote not to change rates or alter the size of the bond purchasing program. That said, we already have our bearings this time around thanks to the recently release of the Quarterly inflation report – which actually boosted the hawkish call through the inflation watch. In its stead, we will sift through the CPI and labor statistics to gauge the proximity of that first MPC hike.
Canadian Dollar Dominates for Event Risk but Volatility Expectations Still Set Low
On a global docket that is relatively light for set indicators; the Canadian dollar dominates. Two listings in particular promise significant impact on the loonie: April CPI and March retail sales. The consumption figure is a clear measure of domestic – and thereby underlying – economic health. The Canadian currency’s real claim to fame though lies with its robust rate forecast; and it needs genuine support for this hawkish outlook.
Australian Dollar Traders will Pay a Little More Attention to the RBA’s Wrap Up
After the last Reserve Bank of Australia rate decision, the market grew a little more hawkish on the Australian dollar’s rate outlook. The balance of the commentary that accompanied the decision generally lacked a tangible hawkishness; but speculators sometimes see encouragement in unusual places. If this bullish lean is to have any traction at all, we should expect something tangible in the RBA minutes.
Japanese Yen Grows Dangerously Close to Testing the G7’s Resolve for ‘Stability’
We learned this past Friday from the New York Fed that in the coordinated G7 intervention on the Japanese yen that the Fed bought $1 billion. This is a timely reminder that the largest central banks in the world stand ready to intervene on the yen’s behalf should it move on to untenable extremes. However, is this an issue of position or volatility? We may find out sooner than we think should risk trends fall apart.
Gold On the Verge of Deeper Reversal – Much Like the Position for Equities
Historically, investment assets and safe havens move exactly in the opposite direction. So then why is gold threatening a progressive, bearish reversal at the same time that the S&P 500 is? The metal has gotten to the point that a heavy contingent of speculative capital has been allocated to the market; and thereby any panic of capital losses or need for liquidity will strike gold just as surely as it does equities.
ECONOMIC DATA
Next 24 Hours
GMT | Currency | Release | Survey | Previous | Comments |
22:30(Sun) | NZD | Performances Services Index (MAY) | | 50.8 | Maya performance expected to recover |
22:50(Sun) | JPY | Loans and Discounts Corp YoY (MAR) | | -4.4% | March data will still show weaker orders due to earthquake, but should recover according to April domestic CPI |
22:50(Sun) | JPY | Machine Orders (MoM) (MAR) | | -2.3% |
22:50(Sun) | JPY | Machine Orders (YoY) (MAR) | | 7.6% | |
22:50(Sun) | JPY | Domestic CGPI (MoM) (APR) | | 0.6% | |
22:50(Sun) | JPY | Domestic CGPI (YoY) (APR) | | 2.0% | |
1:30 | AUD | Home Loans (MAR) | | -5.6% | Lending related spending might slow as interest rates hit record highs |
1:30 | AUD | Investment Lending (MAR) | | -2.3% |
1:30 | AUD | Owner-occupied Home Loan Value (MAR) | | -4.8% | |
1:30 | AUD | New Motor Vehicle Sales YoY (APR) | | 1.9% | |
5:00 | JPY | Consumer Confidence (APR) | | 38.6 | Confidence faced large drop in March |
8:00 | EUR | Italian Trade Balance (Total EUR) (MAR) | | -3633M | Deficit expected to widen further as exports drop |
8:00 | EUR | Italian Trade Balance (Eu EUR) (MAR) | | -883M |
9:00 | EUR | EU CPI Core YoY (APR) | | 1.3% | Overall higher CPI for the entire Eurozone may prompt ECB to hike rates sooner |
9:00 | EUR | EU CPI MoM (APR) | | 1.4% |
9:00 | EUR | EU CPI YoY (APR) | | | |
9:00 | EUR | EU Trade Balance SA (MAR) | | -2.4B | Euro trade balance also expected to be in deficit |
9:00 | EUR | EU Trade Balance (MAR) | | -1.5B |
9:00 | EUR | Italian CPI (Including Tobacco) MoM (APR) | | 0.5% | Italian inflation released at same time as EU-zone data. Peripheral country data will not have that large of impact |
9:00 | EUR | Italian CPI (Including Tobacco) YoY (APR) | | 2.6% |
9:00 | EUR | Italian CPI (EU Harmonized) MoM (APR) | | 1.1% | |
9:00 | EUR | Italian CPI ( EU Harmonized ) YoY (APR) | | 3.0% | |
12:30 | CAD | Manufacturing Sales MoM (MAR) | | -1.5% | Manufacturing may slow as exports fall |
12:30 | USD | Empire Manufacturing (MAY) | 19.75 | 21.7 | May be lowered by falling demand |
13:00 | USD | Total Net Tic Flows (MAR) | | $97.7B | Treasury International Capital may fall as private transactions slow |
13:00 | USD | Long Term Total Net Tic Flows (MAR) | | $26.9B |
14:00 | USD | NAHB Housing Market Index (MAY) | 17 | 16 | House prices gain may be good indicator going into summer months |
SUPPORT AND RESISTANCE LEVELS
CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT
Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
Resist 2 | 1.5160 | 1.6750 | 89.00 | 0.9345 | 1.0275 | 1.1800 | 0.8400 | 127.60 | 146.05 |
Resist 1 | 1.5000 | 1.6600 | 86.00 | 0.8900 | 1.0000 | 1.1000 | 0.8215 | 125.90 | 140.00 |
Spot | 1.4102 | 1.6182 | 80.80 | 0.8925 | 0.9688 | 1.0576 | 0.7871 | 113.95 | 130.75 |
Support 1 | 1.4000 | 1.6200 | 80.00 | 0.8600 | 0.9500 | 1.0400 | 0.7825 | 115.00 | 125.00 |
Support 2 | 1.3700 | 1.5750 | 75.00 | 0.8500 | 0.9055 | 1.0200 | 0.6850 | 105.50 | 119.00 |
CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
Currency | USD/MXN | USD/TRY | USD/ZAR | USD/HKD | USD/SGD | | Currency | USD/SEK | USD/DKK | USD/NOK |
Resist 2 | 13.8500 | 1.6575 | 7.4025 | 7.8165 | 1.3650 | | Resist 2 | 7.5800 | 5.6625 | 6.1150 |
Resist 1 | 12.5000 | 1.6300 | 7.3500 | 7.8075 | 1.3250 | | Resist 1 | 6.5175 | 5.3100 | 5.7075 |
Spot | 11.7370 | 1.5965 | 7.0106 | 7.7722 | 1.2448 | | Spot | 6.3892 | 5.2871 | 5.5762 |
Support 1 | 11.5200 | 1.5040 | 6.5575 | 7.7490 | 1.2145 | | Support 1 | 6.0800 | 5.1050 | 5.3040 |
Support 2 | 11.4400 | 1.4725 | 6.4295 | 7.7450 | 1.2000 | | Support 2 | 5.8085 | 4.9115 | 4.9410 |
INTRA-DAY PIVOT POINTS 18:00 GMT
Currency | EUR/USD | GBP/USD | USD/JPY | USD/CHF | USD/CAD | AUD/USD | NZD/USD | EUR/JPY | GBP/JPY |
Resist 2 | 1.4443 | 1.6373 | 81.49 | 0.9039 | 0.9818 | 1.0801 | 0.8021 | 116.36 | 132.78 |
Resist 1 | 1.4272 | 1.6278 | 81.15 | 0.8982 | 0.9753 | 1.0688 | 0.7946 | 115.15 | 131.76 |
Pivot | 1.4170 | 1.6212 | 80.74 | 0.8890 | 0.9679 | 1.0605 | 0.7891 | 114.34 | 131.02 |
Support 1 | 1.3999 | 1.6117 | 80.40 | 0.8833 | 0.9614 | 1.0492 | 0.7816 | 113.13 | 130.01 |
Support 2 | 1.3897 | 1.6051 | 79.99 | 0.8741 | 0.9540 | 1.0409 | 0.7761 | 112.32 | 129.27 |
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 | 1.4293 | 1.6347 | 81.73 | 0.9040 | 0.9787 | 1.0724 | 0.7981 | 115.84 | 132.81 |
Resist. 2 | 1.4245 | 1.6306 | 81.50 | 0.9011 | 0.9762 | 1.0687 | 0.7954 | 115.37 | 132.30 |
Resist. 1 | 1.4198 | 1.6265 | 81.27 | 0.8983 | 0.9737 | 1.0650 | 0.7926 | 114.90 | 131.78 |
Spot | 1.4102 | 1.6182 | 80.80 | 0.8925 | 0.9688 | 1.0576 | 0.7871 | 113.95 | 130.75 |
Support 1 | 1.4006 | 1.6099 | 80.33 | 0.8867 | 0.9639 | 1.0502 | 0.7816 | 113.00 | 129.71 |
Support 2 | 1.3959 | 1.6058 | 80.10 | 0.8839 | 0.9614 | 1.0465 | 0.7788 | 112.53 | 129.20 |
Support 3 | 1.3911 | 1.6017 | 79.87 | 0.8810 | 0.9589 | 1.0428 | 0.7761 | 112.06 | 128.68 |
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Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
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