- Dollar Rally Quick to Stall as Euro Selling, Liquidity Fears Abate
- Euro Plunge Eases Back on Headline Saturation but Greece Future Ensures Direction
- British Pound Traders Ignore Retail Sales Data, Note 7 Month Low Rate Outlook
- Swiss Franc: Few Traders Surprised by SNB Rate Hold, FX Warning
- Australian Dollar Outlook a Greater Struggle as Rates Forecast Turns Negative
- Japanese Yen Holds its Ground Versus Dollar as Yield Spreads Contract
- Gold Volume and Volatility Lack the Same Urgency of Equities, FX
Dollar Rally Quick to Stall as Euro Selling, Liquidity Fears Abate
After posting its biggest rally in eight months, the dollar quickly lost its momentum through Thursday’s session. What changed? The uncertainty that leveraged the panicked rush to the safety of the US dollar had actually worsened since Wednesday’s remarkable shift in sentiment; but demand for a safe haven is not the greenback’s primary appeal. Looking at risk itself, we can simply refer to the biggest jump in volatility measures for the FX and equities market in three-months as our gauge for sentiment. That same appreciation for the possible troubles ahead, however, did not necessarily translate into further selling of ‘riskier’ assets. Indeed, the S&P 500 advanced 0.2 percent through the session, oil rose 0.2 percent and the euro (the epicenter for fear the previous day) managed gains against the dollar, pound and the commodity currencies.
Should another swell in risk aversion pick up; the greenback would certainly respond with a rally. The only hitch is that the run would likely stall as soon as the intensity of panic eased. The currency’s appeal comes not through a traditional need for safety (indeed there is nothing yet to spur investors to abandon emerging markets); but rather a need for liquidity. During the financial crisis through 2008, the dramatic inflow of capital into the US was sparked by a dramatic withdrawal of liquidity that nearly froze the standard ‘risk-free’ markets. Going forward, we need to keep a close watch on overnight rates and a wary eye on the general level of US yields as the market speculates on the stimulus withdrawal.
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: GBPUSD Breaks a Long-Term Channel But Momentum Still not Certain
Euro Plunge Eases Back on Headline Saturation but Greece Future Ensures Direction
It’s a law of the markets: when volatility rises, so too do the number of financial headlines. Given the market was delivered its biggest jump in underlying volatility and its worst capital losses since mid-March (following the Japanese crisis) this past week; it is only natural that the media has turned its focus on the source of this activity: Greece and the Euro-Zone. In many cases, the increased scrutiny actually leverages the impact that the matter has on the market. Yet, there is also a point of over-saturation where the market no longer pays attention to routine news updates because they too frequently fail to move the market. We are back to that point with the euro.
Looking at the newswires for the Euro Zone today; there were plenty of updates. Nearly every official in the Euro-area had an opinion on the future and solution to Greece’s troubles. The EU’s Ollie Rehn called on the nation’s politicians to push through its recent upheaval to pass budget cuts while the IMF said it was ready to offer further support as soon as the country adopted measures to put it back on pace to working down its deficits. In contrast, the EU’s Juncker sided with the ECB in saying that whatever solution is reached on Greece’s troubles, it shouldn’t cross certain ‘red lines’ (no default, no downgrade and voluntary private sector participation). There is greater discord between officials’ expectations and demands; but until discussions turn into actual policies that effect price action or liquidity, the market can maintain its stability.
Traders should keep a close eye not on the repetitive statements from EU, ECB and government officials; but rather, we should look to the true risk/reward for investment in the region. On the reward side of the market, we note that the 12-month rate outlook dropped 12 bps to 37.6 bps. What’s more, there is no chance of a hike at the ECB’s July meeting according to overnight index swaps. On the risk side of the scale, we need to keep a close eye the ripple effects of Greek fears such as: potential downgrades on France’s largest banks; sovereign wealth funds unwinding Euro Zone exposure; an 11-year high in Spanish credit default swaps; and record highs in Portuguese and Irish debt among other concerns.
British Pound Traders Ignore Retail Sales Data, Note 7 Month Low Rate Outlook
For economic event risk, the UK’s retail sales data for May certainly carries its weight for fundamental influence. Excluding auto and fuel receipts, the sales figure reported its biggest drop (1.4 percent) since January of 2010 – a discouraging sign in the face of austerity. Yet, this offer little surprise. A little more disconcerting is rate watchers’ capitulation as the 12-month interest rate outlook dropped to December levels.
Swiss Franc: Few Traders Surprised by SNB Rate Hold, FX Warning
Generally, the SNB only has a chance to change rates once a quarter; and the group decided to let this opportunity pass them by. This increases the separation between the euro and franc – a relationship the later has exploited to great effect recently (enjoying its strength and playing the distinct European safe haven). Yet, the Swissie is currently playing to its safety roll; so today’s FX warning drew little reaction.
Australian Dollar Outlook a Greater Struggle as Rates Forecast Turns Negative
What is more important to a currency: current rates or rate expectations? Most of the market’s appreciation occurs as rates are rising and the outlook is still hawkish – which makes sense as the market has to adjust to the new fair value. That said, the 4.75 percent benchmark on the Aussie dollar is a serious boon; but if it that value is already fully priced in, the recent negative turn in 12 month rate forecasts could spur losses.
Japanese Yen Holds its Ground Versus Dollar as Yield Spreads Contract
A standard economic, financial and fiscal comparison between US and Japan would generally find the latter in greater trouble over the longer-term. Yet, the yen is not far from a record high against its US counterpart. How do we reconcile this? Established trends are difficult to break; and the yen’s run is an engrained move. That’s where we refer to the US-Japanese two-year yield spread which continues to sink to new lows.
Gold Volume and Volatility Lack the Same Urgency of Equities, FX
Despite the extraordinary volatility and capital circulation of the past 48 hours, gold has shown relatively little activity. Not only has price action been tame; but volume on gold futures barely moved from its recent average turnover and the CBOE volatility gauge for the metal has barely stepped up from its multi-month range low. In a true flight to liquidity, gold will win few points from investors noting its open interest and price.
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**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
5:30 |
JPY |
Nationwide Department Store Sales (YoY) (MAY) |
-1.5% |
Will indicate direction of consumption spending in Japan going into summer |
|
|
5:30 |
JPY |
Tokyo Department Store Sales (YoY) (MAY) |
-5.5% |
||
|
6:00 |
EUR |
EU 25 New Car Registrations (MAY) |
-4.1% |
Correlated to industrial production |
|
|
6:45 |
EUR |
French Wages (QoQ) (1Q F) |
1.0% |
1.0% |
Expected to stay stagnant |
|
8:00 |
EUR |
Italian Trade Balance (Total) (euros) (APR) |
-3943M |
Trade deficit expected to widen as economic problems of neighbors cut into demand |
|
|
8:00 |
EUR |
Italian Trade Balance Eu (euros) (APR) |
-1079M |
||
|
9:00 |
EUR |
Euro-Zone Construction Output s.a. (MoM) (APR) |
-0.3% |
Could indicate status of recovery as construction lags behind economy |
|
|
9:00 |
EUR |
Euro-Zone Construction Output w.d.a. (YoY) (APR) |
-4.9% |
||
|
9:00 |
EUR |
Italian Current Account (euros) (APR) |
-5507M |
Government deficit near records |
|
|
9:00 |
EUR |
Euro-Zone Trade Balance s.a. (euros) (APR) |
-2.7B |
-0.9B |
Trade deficit expected to widen as US, Chinese demand wanes |
|
9:00 |
EUR |
Euro-Zone Trade Balance (euros) (APR) |
-1.9B |
2.8B |
|
|
12:30 |
Wholesale Sales (MoM) (APR) |
-0.3% |
0.1% |
US slowdown cut into sales |
|
|
13:55 |
USD |
U. of Michigan Confidence (JUN P) |
74 |
74.3 |
Expected lower into summer on jobs |
|
14:00 |
USD |
Leading Indicators (MAY) |
0.3% |
-0.3% |
Economy expected to head higher |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
14:00 |
EUR |
ECB Publishes June Monthly Report |
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 |
122.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6600 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8215 |
118.00 |
140.00 |
|
Spot |
1.4165 |
1.6121 |
80.65 |
0.8499 |
0.9850 |
1.0520 |
0.8012 |
114.23 |
130.01 |
|
Support 1 |
1.4000 |
1.6050 |
80.00 |
0.8300 |
0.9500 |
1.0400 |
0.7745 |
113.80 |
125.00 |
|
Support 2 |
1.3700 |
1.5750 |
75.00 |
0.8250 |
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 |
11.9840 |
1.6118 |
6.8640 |
7.8025 |
1.2421 |
Spot |
6.4803 |
5.2658 |
5.5378 |
|
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 |
1.4276 |
1.6289 |
81.30 |
0.8582 |
0.9967 |
1.0643 |
0.8120 |
115.70 |
131.96 |
|
Resist 1 |
1.4221 |
1.6205 |
80.98 |
0.8540 |
0.9908 |
1.0581 |
0.8066 |
114.97 |
130.99 |
|
Pivot |
1.4147 |
1.6142 |
80.73 |
0.8509 |
0.9841 |
1.0530 |
0.8019 |
114.23 |
130.37 |
|
Support 1 |
1.4092 |
1.6058 |
80.41 |
0.8467 |
0.9782 |
1.0468 |
0.7965 |
113.50 |
129.40 |
|
Support 2 |
1.4018 |
1.5995 |
80.16 |
0.8436 |
0.9715 |
1.0417 |
0.7918 |
112.76 |
128.78 |
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 |
1.4366 |
1.6287 |
81.54 |
0.8612 |
0.9948 |
1.0667 |
0.8127 |
116.00 |
131.78 |
|
Resist. 2 |
1.4316 |
1.6246 |
81.32 |
0.8583 |
0.9923 |
1.0630 |
0.8098 |
115.56 |
131.34 |
|
Resist. 1 |
1.4265 |
1.6204 |
81.10 |
0.8555 |
0.9899 |
1.0593 |
0.8069 |
115.11 |
130.90 |
|
Spot |
1.4165 |
1.6121 |
80.65 |
0.8499 |
0.9850 |
1.0520 |
0.8012 |
114.23 |
130.01 |
|
Support 1 |
1.4065 |
1.6038 |
80.20 |
0.8443 |
0.9801 |
1.0447 |
0.7955 |
113.35 |
129.13 |
|
Support 2 |
1.4014 |
1.5996 |
79.98 |
0.8415 |
0.9777 |
1.0410 |
0.7926 |
112.90 |
128.69 |
|
Support 3 |
1.3964 |
1.5955 |
79.76 |
0.8386 |
0.9752 |
1.0373 |
0.7897 |
112.46 |
128.25 |
v
Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com
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.
