- Dollar Readies for Rebound as Risk Appetite Stalls, CPI on Tap
- Euro Rally May be Cut Short as Greece Bailout Discussion Fails
- British Pound, BoE Rate Outlook Little Changed Despite High Inflation Data
- Australian Dollar Takes a Quick Dive after Consumer Confidence Drops
- New Zealand Dollar Stabilizes after Strong Retail Sales, Sentiment Survey
- Japanese Yen: Prime Minister Kan Sets a More Defined Time Frame for Exit
- Gold Saved from More Aggressive Decline Thanks to Dollar Dip, For Now
Dollar Readies for Rebound as Risk Appetite Stalls, CPI on Tap
With the capital markets advancing, the euro firming and no mention of higher rates come the end of QE2; it should surprise no one that the dollar found its way to a second consecutive decline through Tuesday’s close. Yet, once again, we have to question the conviction behind the move. A tightening of the correlation between the different asset classes denotes a common and influential fundamental driver (the first step to a lasting, market-wide trend); but there is still a tangible lack of conviction. We can see the evidence of a deficient move in a number of places. For the benchmark currency itself, a notably smaller decline than Monday’s reversal effort for the Dow Jones FXCM Dollar Index was confirmation enough. However, we draw much more information from examining the greenback’s performance against its various counterparts. Meaningful gains against fellow safe haven currencies (the Japanese yen and Swiss franc), modest losses against the core European units (euro and British pound) and a sharp decline when measured amongst the commodity bloc offers the tell-tale signs of a climb in risk appetite. Indeed, our favored benchmark for investor sentiment, the S&P 500, put in for its biggest rally in nearly two months; but it did so on a notable pullback in volume and ultimately stalled at the same point of resistance that has capped the index for the past week.
Ultimately, a move derived from an underlying, fundamental theme carries greater potential a market. However, when there isn’t a meaningful source for this strength; it is highly likely that such a move will run out of steam quickly. Looking for the spring of optimism that sent the markets seeking out higher yields (hence the shift from safe haven currencies and into the commodity bloc); we note that the docket was lacking for sway. On the economic docket, May retail sales and producer-level inflation indicators were notable releases to assess economic health on. That said, the first decline in consumer spending in 11 months (even it if was smaller than expected) and the biggest year-over-year increase in factory gate prices in two-and-a-half years is hardly conducive to stronger growth and higher revenues.
Taking a look at futures markets and risk trends through the various sessions, it is clear that the day’s strength began well before the US open – suggesting a shared, global boost in risk appetite that developed after the stronger Chinese data and hopes for an expedited round-two bailout for Greece. Neither of these considerations has the necessary follow through to carry capital markets higher – and the dollar lower – into the new trading session. As we keep an eye on the financial headlines, we should also keep watch on upcoming data. While there is little chance the Fed will consider a rate hike anytime soon; the CPI reading defines market expectations. And speculators know: market rates precede official rates.
Related:Discuss the Dollar in the DailyFX Forum, Daily Video: S&P 500 Rally, EURUSD Rally Corrective, Not the Dominant Trend
Euro Rally May be Cut Short as Greece Bailout Discussion Fails
European Union finance ministers met Tuesday in what was believed to be an effort to gain traction on furthering Greece’s second bailout effort. The act itself of meeting under somewhat unexpected circumstance was enough to remind investors of the consistent effort European officials have made to avert a major financial crisis for the region (in other words prevent significant losses for bond holders) – or at least push the day of reconciliation back. As was to be expected, the group of lawmakers would fail to make meaningful progress on the question of the Euro-Zone’s most troubled member. In fact, amongst the comments of exiting Finance Ministers, we note that Germany’s Schauble said specifically no progress was made while Luxembourg’s Frieden said the additional aid may be delayed until July. So the market is back to where it started. On the other hand, the reward side of the balance received a sizable boost when the ECB’s Makuch said a July hike was “very likely.”
British Pound, BoE Rate Outlook Little Changed Despite High Inflation Data
The British pound struggle through most of the previous day as the currency took direction from stronger counterparts. It may seem surprising that the sterling left its progress up to cross-market influence when the wires were printing a 4.5 percent annual pace of CPI; but with rate expectations all but dead, there was little drive to be found. The same, however, may not be true for the upcoming employment data.
Australian Dollar Takes a Quick Dive after Consumer Confidence Drops
Just as equities and speculative commodities rose through the past 24 hours, so too would the highest yielding major currency. The Australian dollar has even found a good transition for strength with risk trends backing off with hawkish word from RBA head Glenn Stevens. Though the central banker said the high Aussie dollar was a problem, he noted rates would need to be raised again.
New Zealand Dollar Stabilizes after Strong Retail Sales, Sentiment Survey
The kiwi dollar has been shaken through the first half of the trading week. Where the issue was first aftershocks in Christchurch that weighed interest rate expectations (which are a key source of strength for the currency at the moment); the market is now interested in strong data. First quarter retail sales jumped 0.9 percent as expected and consumer confidence for the current month marked its biggest jump in 18 months.
Japanese Yen: Prime Minister Kan Sets a More Defined Time Frame for Exit
There as a significant amount of ambiguity surrounding Prime Minister Kan’s announcement that he would step down after key political initiatives were underway (leading many to believe there would be a lame duck situation that could severely stymie Japan progress). After the BoJ held rates and offered a 500 billion yen rebuilding loans initiative; Kan tried to offer a little better time line – but with little success.
Gold Saved from More Aggressive Decline Thanks to Dollar Dip, For Now
Following the biggest back-to-back decline since the collapse at the beginning of May (a move that broke the rising trend that defines the market’s bearing since the beginning of the year), gold was at high risk of building substantial selling momentum. Instead, the rise in risk appetite would lead to a dip for the dollar – the primary fiat alternative for the metal. Volume behind this bounce however was severely restrained.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
0:30 |
AUD |
Westpac Leading Index (MoM) (APR) |
0.5% |
Could lead indications of where Australian economy is headed |
|
|
0:30 |
AUD |
Westpac Consumer Confidence (JUN) |
-1.3% |
||
|
0:30 |
AUD |
Westpac Consumer Confidence Index (JUN) |
103.9 |
||
|
1:00 |
AUD |
Consumer Inflation Expectation (JUN) |
3.3% |
Headline could pressure RBA action |
|
|
1:30 |
AUD |
Dwelling Starts (1Q) |
-0.8% |
-5.3% |
May show continued shrink in sector |
|
5:30 |
EUR |
French CPI – EU Harmonised (MoM) (MAY) |
0.1% |
0.4% |
Lesser important inflation reports – expected lower, though ECB largely expected to raise rates in July |
|
5:30 |
EUR |
French CPI – EU Harmonised (YoY) (MAY) |
2.2% |
2.2% |
|
|
5:30 |
EUR |
French CPI (MoM) (MAY) |
0.1% |
0.3% |
|
|
5:30 |
EUR |
French CPI (YoY) (MAY) |
2.1% |
2.1% |
|
|
5:30 |
EUR |
French CPI Ex Tobacco Index (MAY) |
122.47 |
122.32 |
|
|
6:00 |
JPY |
Machine Tool Orders (YoY) (MAY F) |
34.2% |
Final revision may show weakness |
|
|
7:15 |
CHF |
Producer & Import Prices (MoM) (MAY) |
0.1% |
0.3% |
Long-term producer prices still dropping, may be due to record franc strength |
|
7:15 |
CHF |
Producer & Import Prices (YoY) (MAY) |
-0.1% |
0.1% |
|
|
8:30 |
GBP |
Claimant Count Rate (MAY) |
4.6% |
4.6% |
Most important data of the day – a third consecutive decline in jobs added could confirm weaker British economy, prompt BoE to hold off rates longer |
|
8:30 |
GBP |
Jobless Claims Change (MAY) |
6.5K |
12.4K |
|
|
8:30 |
GBP |
Average Weekly Earnings 3M/YoY (APR) |
2.1% |
2.3% |
|
|
8:30 |
GBP |
Weekly Earnings exBonus 3M/YoY (APR) |
2.1% |
2.1% |
|
|
8:30 |
GBP |
ILO Unemployment Rate (3M) (APR) |
7.7% |
7.7% |
|
|
9:00 |
EUR |
Euro-Zone Industrial Production w.d.a. (YoY) (APR) |
4.8% |
5.6% |
Both long and short term expected lower as German exports slow |
|
9:00 |
EUR |
Euro-Zone Industrial Production s.a. (MoM) (APR) |
-0.2% |
-0.1% |
|
|
11:00 |
USD |
MBA Mortgage Applications (JUN 10) |
-0.4% |
Could be indicator of US housing market |
|
|
12:30 |
Manufacturing Shipments (MoM) (APR) |
-1.4% |
1.9% |
Drop may be due to weaker US demand |
|
|
12:30 |
USD |
CPI (MoM) (MAY) |
0.1% |
0.4% |
Lower expected short-term inflation showing continued weakness; small rise in year-to-year give little ammunition for rate hawks |
|
12:30 |
USD |
CPI Ex Food & Energy (MoM) (MAY) |
0.2% |
0.2% |
|
|
12:30 |
USD |
CPI (YoY) (MAY) |
3.4% |
3.2% |
|
|
12:30 |
USD |
CPI Ex Food & Energy (YoY) (MAY) |
1.4% |
1.3% |
|
|
12:30 |
USD |
CPI Core Index s.a. (MAY) |
223.745 |
||
|
12:30 |
USD |
CPI n.s.a. (MAY) |
225.55 |
224.906 |
|
|
12:30 |
USD |
Empire Manufacturing (JUN) |
12 |
11.88 |
NY manufacturing expected to pick up |
|
13:00 |
USD |
Total Net TIC Flows (APR) |
$116.0B |
International capital inflows expected increase as traders await higher yields after the end of QEII purchases |
|
|
13:00 |
USD |
Net Long-term TIC Flows (APR) |
$35.0B |
$24.0B |
|
|
13:15 |
USD |
Industrial Production (MAY) |
0.2% |
0.0% |
May production expected to point up despite economic weakness |
|
13:15 |
USD |
Capacity Utilization (MAY) |
77.0% |
76.9% |
|
|
14:00 |
USD |
NAHB Housing Market Index (JUN) |
16 |
16 |
Stable index points to stagnant market |
|
14:30 |
USD |
DOE U.S. Distillate Inventory (JUN 10) |
1000K |
810K |
Gasoline inventories expected to drop into summer months; crude expected to gain slightly from past as industrial demand weakens |
|
14:30 |
USD |
DOE U.S. Gasoline Inventories (JUN 10) |
1050K |
2209K |
|
|
14:30 |
USD |
DOE U.S. Refinery Utilization (JUN 10) |
0.2% |
1.2% |
|
|
14:30 |
USD |
DOE U.S. Crude Oil Inventories (JUN 10) |
-1800K |
-4845K |
|
|
22:00 |
NZD |
Westpac NZ Consumer Confidence (2Q) |
97.9 |
Growth in confidence may indicate direction of economy, rate hikes |
|
|
22:30 |
NZD |
Business NZ PMI (MAY) |
51.5 |
||
|
22:45 |
NZD |
Manufacturing Activity (1Q) |
3.1% |
Manufacturing expected to drop due to February Christchurch earthquakes |
|
|
22:45 |
NZD |
Manufacturing Activity Volume SA (QoQ) (1Q) |
3.3% |
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 |
1.4456 |
1.6378 |
80.48 |
0.8450 |
0.9687 |
1.0688 |
0.8182 |
116.34 |
131.80 |
|
Support 1 |
1.4000 |
1.6160 |
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 |
11.7937 |
1.5855 |
6.7507 |
7.7843 |
1.2299 |
Spot |
6.3256 |
5.1600 |
5.3929 |
|
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 |
1.4563 |
1.6478 |
80.94 |
0.8527 |
0.9808 |
1.0805 |
0.8255 |
117.55 |
133.01 |
|
Resist 1 |
1.4510 |
1.6428 |
80.71 |
0.8489 |
0.9748 |
1.0746 |
0.8219 |
116.94 |
132.40 |
|
Pivot |
1.4444 |
1.6392 |
80.40 |
0.8418 |
0.9711 |
1.0658 |
0.8178 |
116.11 |
131.73 |
|
Support 1 |
1.4391 |
1.6342 |
80.17 |
0.8380 |
0.9651 |
1.0599 |
0.8142 |
115.50 |
131.13 |
|
Support 2 |
1.4325 |
1.6306 |
79.86 |
0.8309 |
0.9614 |
1.0511 |
0.8101 |
114.67 |
130.46 |
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 |
1.4640 |
1.6535 |
81.32 |
0.8554 |
0.9775 |
1.0827 |
0.8294 |
117.98 |
133.42 |
|
Resist. 2 |
1.4594 |
1.6496 |
81.11 |
0.8528 |
0.9753 |
1.0792 |
0.8266 |
117.57 |
133.02 |
|
Resist. 1 |
1.4548 |
1.6456 |
80.90 |
0.8502 |
0.9731 |
1.0758 |
0.8238 |
117.16 |
132.61 |
|
Spot |
1.4456 |
1.6378 |
80.48 |
0.8450 |
0.9687 |
1.0688 |
0.8182 |
116.34 |
131.80 |
|
Support 1 |
1.4364 |
1.6300 |
80.06 |
0.8398 |
0.9643 |
1.0618 |
0.8126 |
115.52 |
130.99 |
|
Support 2 |
1.4318 |
1.6260 |
79.85 |
0.8372 |
0.9621 |
1.0584 |
0.8098 |
115.11 |
130.59 |
|
Support 3 |
1.4272 |
1.6221 |
79.64 |
0.8346 |
0.9599 |
1.0549 |
0.8070 |
114.70 |
130.18 |
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
