Dollar Posts Another Rally But Still Short of Bull Trend

Thursday, April 18, 20130 comments




  • Dollar Posts Another Rally But Still Short of Bull Trend
  • Euro Tumbles as Market Makes Currency Pay for Undeserved Rally
  • British Pound Ignores BoE’s Refusal of Stimulus, Hit by Jobs
  • Japanese Yen Thwarts Tumble as US Equities Anchor to Support
  • Canadian Dollar Eases Against USD Despite Carney’s Hawkish Rhetoric
  • Australian Dollar Risks Growing as Bond Yields Drop, Risk Trend Unstable
  • Gold Consolidation Established Below $1,400, Bear Trend Solidifying
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Dollar Posts Another Rally But Still Short of Bull Trend
The dollar posted a remarkable performance this past session. Leveraging a rally against all its most liquid counterparts – between both high yield currencies like the Australian dollar and fellow safe havens like the Japanese yen – the greenback managed its strongest move in nearly 10 months. Putting a number to the performance, the Dow Jones FXCM Dollar Index (ticker = USDollar) enjoyed a 0.8 percent rally – the best move for the benchmark since June 21, 2012. Fundamentally speaking, this performance wasn’t too surprising. There was a clear sense of risk aversion that fed the greenback’s safe haven status.
From the regular measures of ‘fear’, the S&P 500 put in for a substantial 1.4 percent drop (completely wiping the previous day’s gains), while the VIX volatility index temporarily jumped above Monday’s high and settled at 16.5 percent. Widening our gaze, a more convincing picture of concern was seen from the concert ‘risk off’ move seen in equities, commodities, Treasury yields and FX carry trade exposure. Yet, as significant as the sentiment move through the cross-market picture; it is clear that we have not yet made the critical transition where fear overtakes greed (complacency?) and leads a self-sustaining bear trend. From a technical perspective, the S&P 500 is still supported by 1,545 and the USDollar has not revived its effort to overtake 10,600.
To transition to a market-wide effort of risk deleveraging, we need a push that offsets the anesthesia delivered by the central banks’ incredible stimulus program. The Fed Beige Book released this past session was a weak contributor to this theme. Showing ‘moderate’ growth across the country, it tempers the need for ongoing QE; but it doesn’t meaningfully move forward the end of the program. Meanwhile, the progress of the 1Q US earnings season seems unable to convince investors to throttle back on cost cutting-led revenue growth despite a weaker showing from Bank of America. Moving forward, the G20 meeting may stir competitive stimulus conversations as well as Eurozone crisis issues; but that is far from action. If the scales are to tip this week, it would likely be an unforeseen event or purely the heft of speculative interests.
Euro Tumbles as Market Makes Currency Pay for Undeserved Rally
The euro’s performance Wednesday was the antithesis of its strength the previous day. That is fitting given that the headlines offered little support for that140-pip advance. Once again, the headlines were particularly unflattering for the shared currency. Traders were talking about Cyprus’ announcement that it would have to vote whether to agree to the rescue package – where many believed that agreement was implied. Ratings agency Egan-Jones announced it had downgraded the region’s anchor (Germany) from A+ to A and left it with a ‘Negative’ outlook. Former ECB member Bini-Smaghi said the ECB would look to keep the euro from appreciating going forward which focused market participants’ focus on Bundesbank head Weidmman’s comments that rate cuts may become necessary in the future. Then there was the IMF’s Financial Stability report that essentially named the Eurozone periphery as the world’s greatest threat.
British Pound Ignores BoE’s Refusal of Stimulus, Hit by Jobs
The sterling was a mixed bag yesterday. On the fundamental side, the docket served up serious concern about the state of the UK’s economy when the National Stats Office reported a concerning view of the labor market. While jobless claims for March dropped by 7,000 filings, the ILO measure of total unemployed jumped by 70,000 – the biggest increase since November 2011. With the unemployment rate rising to 7.9 percent and stagnate wage growth, that recovery looks further off. This unfavorable data print could have been overlooked had the market acted on overleveraged BoE stimulus expectations. The minutes showed the BoE ignored the Exchequer’s remit and voted again 6-3 to hold policy as is. Yet, that reality did little to feed a fundamental recovery from the pound. Winning the stimulus war isn’t doing much for the sterling.
Japanese Yen Thwarts Tumble as US Equities Anchor to SupportHaving suffered a three-day slump through Monday, the yen crosses were coming dangerously close to turning the tides on the Bank of Japan’s carefully crafted bull trend. We are still above the critical levels that define the bullish momentum for the various pairings, but risk aversion this past session has prevented a move to truly revive the USDJPY’s and other pairs’ run. With the BoJ working to devalue the currency, we need a concerted and active catalyst to rally the yen. Meanwhile, the distortion is obvious and appealing. The Japanese Ministry of Finance’s weekly capital flows report showed ¥1.57 trillion in foreign purchases of Japanese stocks last week – a record.
Canadian Dollar Eases Against USD Despite Carney’s Hawkish Rhetoric
USDCAD put in for a noticeable advance for the day, but the Canadian dollar eased back against all of its other major counterparts. The loonie felt the appeal of risk aversion through the day, but more mundane fundamentals took over for the rest of the market. The Bank of Canada (BoC) kept rates unchanged and Governor Carney reiterated the next move would be a hike, but he also downgraded growth forecasts.
Australian Dollar Risks Growing as Bond Yields Drop, Risk Trend Unstable
Risk aversion is good enough reason for most FX traders to move out of the high-yield Australian dollar. However, the fundamental degradation went deeper than this elemental connection. The benchmark 10-year Australian government bond yield, dropped to a four-month low 3.174 percent this morning. This could be a sign of demand, but recent bond auctions don’t support strength – nor does futures volume.
Gold Consolidation Established Below $1,400, Bear Trend Solidifying
The CBOE’s Gold Volatility Index has retreated for a second day, but the massive swell from the fear gauge Monday still has a ways before it is fully retraced. Yet, it is worth noting that prices are not improving with this measure of sentiment. The metal failed once again to make a play for $1,400 and selling has reemerged in early Thursday trade. The argument that global central banks are still active in devaluing their currencies is still a viable argument for bulls, but the practicality of gold representing an alternative seems undercut by the severe 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
CNY
Actual FDI (YoY)
1.90%
6.30%
Fastest pace of increase since 10/2011; Hong Kong remains the destination of most investment.
1:00
NZD
ANZ Consumer Confidence Index
114.8
Modestly retreated from its 4M uptrend amid a robust economic growth prospect; Markets expect RBNZ will lift rate within the year.
1:00
NZD
ANZ Consumer Confidence (MoM)
-5.10%
1:30
CNY
China Property Prices
Prices continued to edge higher despite stricter credit policies.
1:30
AUD
RBA FX Transactions Other
Non-standard capital flows may look into stimulus-related moves
1:30
AUD
RBA Foreign Exchange Transaction (Australian dollar)
328M
Rising risk appetite could increase demand for Aussie.
1:30
AUD
NAB Business Confidence
-5
3Y downtrend; Weak domestic data signals downward pressure.
3:30
AUD
RBA FX Transactions Govt.
Follows predicatable patterns
5:30
JPY
Nationwide Department Store Sales (YoY)
0.30%
Indicative of consumer confidence and domestic demand
5:30
JPY
Tokyo Department Store Sales (YoY)
2.50%
8:30
GBP
Retail Sales (MoM)
-0.60%
1.90%
Cold weather hurts retailers particularly on clothing retailers; Consumer behaviors are affected by austerity sentiment.
8:30
GBP
Retail Sales w/Auto Fuel (YoY)
-0.20%
2.60%
8:30
GBP
Retail Sales (YoY)
0.90%
3.30%
8:30
GBP
Retail Sales w/Auto Fuel (MoM)
-0.60%
2.10%
12:30
USD
Initial Jobless Claims
350K
346K
Weakness in NFP may reflect on jobless claims; An alternative indicator for the labor market.
12:30
USD
Continuing Claims
3075K
3079K
14:00
USD
Philadelphia Fed.
3
2
Business sentiment in Phil. district fluctuating between positive and negative over last 8 months
14:00
USD
Leading Indicators
0.10%
0.50%
Composite of leading indicators; 6M straight of positive levels
14:30
USD
EIA Natural Gas Storage Change
-14
Uptrend in storage since beginning of year may indicate positive outlook for future gas sales
GMT
Currency
Upcoming Events & Speeches
-:-
JPY
BOJ Policy Member Miyao Speaks with Business Leaders
-:-
ALL
G-20 Meeting Begins
-:-
EUR
Italian Parliament Votes on New President
3:45
JPY
Japan Sells 20-Year Bonds
9:00
CHF
SNB’s Zurbruegg Speaks on Eurozone Crisis
11:15
USD
|| US Earnings – Morgan Stanely (Est $0.560)
13:00
USD
Fed's Kocherlakota Speaks in New York
13:30
USD
Fed's Lacker Speaks on Credit in Charlotte, North Carolina
16:00
USD
Fed's Raskin Speaks in New York
-:-
USD
|| US Earnings – Google (Est $10.684)
20:15
EUR
EU’s Rehn, Regling, Dijsselbloem, Asmussen Speak on Future
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

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