- Dollar Drops for the First Time in Four Days as Risk Trends Hold
- Euro Shows Neither Shock in Prices or Volume after S&P Downgrades Greece
- British Pound’s Tame Advance Could be Reversed with Upcoming CPI
- Japanese Yen: Risk of Further BoJ Stimulus versus Intervention
- New Zealand Dollar Catches Itself after Christchurch Aftershocks Selloff
- Canadian Dollar on the Verge of Reversal Alongside Oil’s Hold at $95
- Gold Threatens Trend Reversal on Otherwise Quiet Trading Session
Dollar Drops for the First Time in Four Days as Risk Trends Hold
After three days of an accelerating advance through the second half of last week, the US dollar was finally forced back into a correction. This unfavorable dip was not the product of a remarkable fundamental development but rather the absence of something tangible to keep the greenback climbing. The aggressive, bullish correction for the dollar through the past week against core European currencies (with lesser momentum tallied against safe havens and commodity currencies) came without a clear fundamental boost. Instead, the pullback in the greenback’s primary counterpart (the euro) and a slow decline in US equities (that notably lacks selling conviction through a lack of participation from Asian and European markets) had an indirect, positive influence on the benchmark. As such, when the winds died down with the weekend; a reevaluation of the market’s strength would leave the dollar wanting come Monday.
As the week continues, there will be no shortage of potential drivers for a dollar run – momentum building behind risk aversion, repatriation of US funds as QE2 expectations drop off, investors fleeing deepening euro problems – but whether any of these considerations becomes an active catalyst for the greenback is a different story. All three of these big ticket issues have been around for some time; and they haven’t been able to provide a meaningful drive to this point. In fact, the Dow Jones FXCM Dollar Index is not far from its recent record low – reflecting the persistence of pairs like EURUSD and GBPUSD as well as record extremes for the likes of AUDUSD and USDJPY. What we need is a catalyst that amplifies one of these major considerations and triggers a large shift in capital flows – rather than trying to clumsily boost the greenback through force. Retail sales and PPI figures due in the upcoming session may rouse risk trends; but major breaks aren’t high probabilities.
Related:Discuss the Dollar in the DailyFX Forum, John’s Video: Euro a Longer Term Setup, but Trading Conditions are Short Term for Now
Euro Shows Neither Shock in Prices or Volume after S&P Downgrades Greece
It is an unusual situation where an undeniably disappointing fundamental event does little to set a currency off its course. In fact, with the euro’s reaction to the news of a Greek downgrade, the currency wouldn’t even put off a rebound. For price action through Monday’s session, we note that the euro managed an advance against safe havens like the US dollar and Japanese yen (even its primary counterpart, the Swiss franc, managed only a tepid advance against its more liquid counterpart). Why would the market be so blasé about Standard & Poor’s downgrading the most troubled EU member economy to the lowest credit rating of any country in the world? Because it was expected. After Fitch and Moody’s made moves in previous weeks to lower the creditworthiness of Greece, it was quickly priced in that the S&P 500 would be soon to follow with its own cut. Furthermore, the negative outlook and the agency’s remarks that it is “increasingly likely” that the nation will restructure speaks to an inevitability that the market has already come to terms with.
Though the market generated little reaction to the downgrade news today (even volume on CME-traded Euro futures was sharply lower than Friday’s turnover) and it seems markets are acclimating to an eventual default, we shouldn’t take this to mean that the consequences are trivial and the euro will be unfazed through such a development. The impact that such an outcome would have is completely unknown; and uncertainty itself is a risk. However, the markets have grown so acclimated to government support and rising prices (just look at the performance of equities), that the masses are hesitant to unwind their risky positions just yet. This hesitance will vanish though should the real-world impact of financial losses on a default feed through the market…
British Pound’s Tame Advance Could be Reversed with Upcoming CPI
The Bank of England’s Quarterly Bulletin noted exactly what we expected the central bank to project: that they believe inflation is transient. That said, it seems the market was more interested in interpreting MPC member Weale for his hawkish reflection that softer data doesn’t diminish his call for a hike. We will look for data to continue to push for action from the central bank with the upcoming CPI release. Can’t ignore it forever…
Japanese Yen: Risk of Further BoJ Stimulus versus Intervention
The Bank of Japan announced its most recent consensus on monetary policy; and the market was not surprised to see that the benchmark was held at 0.1 percent, the asset purchase fund was maintained at 10 trillion yen and the credit-loan program was held at 30 trillion yen. That said, we see further details on an additional 500 billion yen in new lending to companies. This is the same saturation effect as the US QE efforts.
New Zealand Dollar Catches Itself after Christchurch Aftershocks Selloff
The kiwi dollar suffered an unexpected shock to start the trading week with 6.0 and 5.2 magnitude aftershocks in Christchurch. The nation’s second largest city was devastated by a disastrous earthquake four months ago; and the economic and monetary policy recovery is still fragile. So while the trembler may have had limited impact on the growth effort; it shook jittery investors betting heavily on a strong RBNZ bearing.
Canadian Dollar on the Verge of Reversal Alongside Oil’s Hold at $95
There are many fundamental considerations that go into the pricing of exchange rates; but many of the largest considerations are offset to a large extent when it comes to USDCAD. One prominent highlight that separates the two however is oil’s reflection of trade and investor sentiment as a boon for the Canadian currency. With that connection in mind, we note US crude is trying to hold its ground above $95.
Gold Threatens Trend Reversal on Otherwise Quiet Trading Session
Though volume on gold futures was relatively light and the CBOE’s volatility index for the metal is still exceptionally low; we did note that the underlying market took a notable turn Monday. Technical traders should note that the market disrupted a rising trend that originated at the beginning of the year on a day that the dollar was notably lower. If conviction kicks in now, it wouldn’t play out well for gold.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
0:30 |
AUD |
NAB Business Conditions (MAY) |
5 |
Could be useful indication of Australian economy going into summer months |
|
|
1:30 |
AUD |
NAB Business Confidence (MAY) |
7 |
||
|
1:30 |
JPY |
Japan Manpower Survey (3Q) |
10 |
Preliminary labor market measure |
|
|
2:00 |
CNY |
Producer Price Index (YoY) (MAY) |
6.5% |
6.8% |
Inflation measures show consumer prices still rising, though producers hit with central bank tightening |
|
2:00 |
CNY |
Consumer Price Index (YoY) (MAY) |
5.5% |
5.3% |
|
|
2:00 |
CNY |
Retail Sales (YoY) (MAY) |
17.0% |
17.1% |
Slowing consumer spending further show Chinese economy moderation |
|
2:00 |
CNY |
Retail Sales YTD (YoY) (MAY) |
16.9% |
16.5% |
|
|
2:00 |
CNY |
Industrial Production (YoY) (MAY) |
13.1% |
13.4% |
Weaker industrial production may indicate another slowdown in global economy |
|
2:00 |
CNY |
Industrial Production YTD YoY (MAY) |
14.0% |
14.2% |
|
|
2:00 |
CNY |
Fixed Assets Inv Excl. Rural YTD YoY (MAY) |
25.2% |
25.4% |
Slower assets due to PBoC controls |
|
3:00 |
NZD |
Non Resident Bond Holdings (MAY) |
62.7% |
Could show further interest in NZD |
|
|
4:30 |
JPY |
Capacity Utilization (MoM) (APR) |
-21.5% |
Major industrial and manufacturing numbers in April will indicate pace of recovery efforts after March earthquake |
|
|
4:30 |
JPY |
Industrial Production (MoM) (APR F) |
1.0% |
||
|
4:30 |
JPY |
Industrial Production (YoY) (APR F) |
-14.0% |
||
|
6:45 |
EUR |
French Current Account (euros) (APR) |
-4.1B |
Expected deficit as exports slow |
|
|
8:30 |
GBP |
DCLG UK House Prices (YoY) (APR) |
-0.2% |
0.9% |
Major indication of British real estate |
|
8:30 |
GBP |
Consumer Price Index (MoM) (MAY) |
0.2% |
1.0% |
Much slower expected short-term inflation could cause BoE to hold off from raising rates soon |
|
8:30 |
GBP |
Consumer Price Index (YoY) (MAY) |
4.5% |
4.5% |
|
|
8:30 |
GBP |
Core Consumer Price Index (YoY) (MAY) |
3.5% |
3.7% |
|
|
8:30 |
GBP |
Retail Price Index (MAY) |
235.3 |
234.4 |
Slower growing retail prices indicate retail sector may also be in trouble heading into summer months |
|
8:30 |
GBP |
Retail Price Index (MoM) (MAY) |
0.3% |
0.8% |
|
|
8:30 |
GBP |
Retail Price Index (YoY) (MAY) |
5.2% |
5.2% |
|
|
8:30 |
GBP |
RPI Ex Mort Int.Payments (YoY) (MAY) |
5.2% |
5.3% |
|
|
11:30 |
USD |
NFIB Small Business Optimism (MAY) |
90.5 |
91.2 |
Expected lower as economy slows |
|
12:30 |
CAD |
Capacity Utilization Rate (1Q) |
77.2% |
76.4% |
Industries growing despite strong CAD |
|
12:30 |
USD |
Producer Price Index (MoM) (MAY) |
0.1% |
0.8% |
Slower PPI may confirm weaker economy, could result in further delays of interest rate hikes |
|
12:30 |
USD |
PPI Ex Food & Energy (MoM) (MAY) |
0.2% |
0.3% |
|
|
12:30 |
USD |
Producer Price Index (YoY) (MAY) |
6.8% |
6.8% |
|
|
12:30 |
USD |
PPI Ex Food & Energy (YoY) (MAY) |
2.1% |
2.1% |
|
|
12:30 |
USD |
Advance Retail Sales (MAY) |
-0.5% |
0.5% |
Fall in sales will also cement weaker US economic status into summer |
|
12:30 |
USD |
Retail Sales Less Autos (MAY) |
0.2% |
0.6% |
|
|
12:30 |
USD |
Retail Sales Ex Auto & Gas (MAY) |
0.2% |
0.2% |
|
|
14:00 |
USD |
Business Inventories (APR) |
0.9% |
1.1% |
Could show reduced investment spending |
|
22:45 |
NZD |
Retail Sales Ex Inflation (QoQ) (1Q) |
0.9% |
-0.1% |
A jump in sales could help the NZD |
|
23:01 |
GBP |
Nationwide Consumer Confidence (MAY) |
45 |
43 |
Higher level may lead to more spending |
|
CNY |
Actual FDI (YoY) (MAY) |
15.2% |
Could be impacted by tightening |
||
|
JPY |
Bank of Japan Rate Decision |
0.10% |
0.10% |
Widely expected to hold at 0.10% |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
5:45 |
CHF |
SECO June 2011 Economic Forecasts |
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 |
1.4415 |
1.6386 |
80.21 |
0.8373 |
0.9767 |
1.0604 |
0.8161 |
115.63 |
131.43 |
|
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 |
11.8625 |
1.5754 |
6.7879 |
7.7859 |
1.2358 |
Spot |
6.3246 |
5.1743 |
5.4305 |
|
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 |
1.4512 |
1.6508 |
80.91 |
0.8514 |
0.9820 |
1.0705 |
0.8284 |
116.32 |
132.30 |
|
Resist 1 |
1.4463 |
1.6447 |
80.56 |
0.8443 |
0.9793 |
1.0654 |
0.8222 |
115.97 |
131.87 |
|
Pivot |
1.4382 |
1.6329 |
80.34 |
0.8399 |
0.9773 |
1.0588 |
0.8169 |
115.42 |
131.02 |
|
Support 1 |
1.4333 |
1.6268 |
79.99 |
0.8328 |
0.9746 |
1.0537 |
0.8107 |
115.07 |
130.59 |
|
Support 2 |
1.4252 |
1.6150 |
79.77 |
0.8284 |
0.9726 |
1.0471 |
0.8054 |
114.52 |
129.74 |
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 |
1.4601 |
1.6544 |
81.05 |
0.8478 |
0.9856 |
1.0744 |
0.8273 |
117.30 |
133.06 |
|
Resist. 2 |
1.4555 |
1.6505 |
80.84 |
0.8452 |
0.9834 |
1.0709 |
0.8245 |
116.88 |
132.66 |
|
Resist. 1 |
1.4508 |
1.6465 |
80.63 |
0.8426 |
0.9812 |
1.0674 |
0.8217 |
116.46 |
132.25 |
|
Spot |
1.4415 |
1.6386 |
80.21 |
0.8373 |
0.9767 |
1.0604 |
0.8161 |
115.63 |
131.43 |
|
Support 1 |
1.4322 |
1.6307 |
79.79 |
0.8320 |
0.9722 |
1.0534 |
0.8105 |
114.80 |
130.62 |
|
Support 2 |
1.4275 |
1.6267 |
79.58 |
0.8294 |
0.9700 |
1.0499 |
0.8077 |
114.38 |
130.21 |
|
Support 3 |
1.4229 |
1.6228 |
79.37 |
0.8268 |
0.9678 |
1.0464 |
0.8049 |
113.96 |
129.80 |
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.
