- Dollar Sliding Further as the Market Await a Clear Bearing on Risk Trends, NFPs
- Euro: Setting the Stage for the ECB Rate Decision
- British Pound Overlooks Construction Data and Likely Service Reading for Rate Interest
- New Zealand Dollar: Less than a Week Until the RBNZ’s Pivotal Rate Decision
- Swiss Franc More Tuned into the ECB Rate Decision than the Dollar
- Australia Dollar Holds Steady in the Face of the Building Evidence of a Housing Threat
Dollar Sliding Further as the Market Await a Clear Bearing on Risk Trends, NFPs
The dollar is keeping to its holding pattern; but volatility is still elevated. A clear trend for the liquid currency requires an unambiguous fundamental catalyst that the masses can reference for their wholesale effort to bid up or sell off the benchmark. Weighing the influence in various key drivers; risk appetite trends still carry the greatest potential sway over the greenback. That relationship, however, is currently working against the dollar. Gauging underlying sentiment, we see plenty of reason for global investors to retrench their capital; but barometers for confidence remain stubbornly fixed to their lofty perches. Our favored S&P 500 for example has seen its first meaningful break from its bullish drive since November. That said, this pause has yet to evolve into a meaningful and necessary correction to unwind the inflated premium built into the common asset class. Without a meaningful shift in momentum that supports an actual reversal in capital flows and sends market participants scrambling for safety, the greenback will fall behind on anemic yield expectations, ballooning deficits and lingering labor concerns.
Looking ahead to the final 48 hours of this trading week, there look to be a few catalysts that can instigate a surge in volatility and perhaps key breakouts for the majors – though it is doubtful that they are of the quality that can lead to the long-awaited trend revival. The ECB rate decision is an immediate threat to the dollar’s calm. As EURUSD is the most liquid currency by a wide margin, the relative strength of the euro and the comparison for rate potential draws a harsh contrast to the US currency. On the United States’ own docket, the ISM service sector report is the top listing in the upcoming session. Despite the weight this sector carries for growth, though, its market-moving influence has been restrained over the past year. That leaves Friday’s NFPs. The recently released ADP reading set the bar a little higher; but labor trends are very slugglish.
Related:Discuss the Dollar in the DailyFX Forum, Daily Video: EURUSD and EURNZD Ideal Candidates for Different ECB Scenarios
Euro: Setting the Stage for the ECB Rate Decision
Against the benchmark dollar, the euro has climbed through bullish and bearish trends in underlying sentiment, positive US data, and unsettling suggestions of a troubled financial future for the Euro Zone. And, while this relative strength should be partly attributed to the greenback’s own lethargy; the euro’s performance is itself well-anchored in fundamentals. When we use relative growth or financial stability as a gauge for strength, the falls into the middle of the pack – and even falls behind the US. However, currency traders have pushed both of these concerns into the background and are instead focusing on interest rate expectations. With a round of high inflation data the past few days that has further been leveraged by the biggest monthly jump in producer-level price growth in 27-years just this past session; we finally come to the critical inflection point in interest rate speculation: the ECB rate decision. Heading into the upcoming policy deliberations, the market fully expects a hold on the benchmark lending rate at 1.00 percent with no fine tuning of liquidity programs. Instead, the real interest is in the official statement and central bank President Trichet’s following the announcement.
There are generally two outcomes for this event: either the euro takes the next step in its advance or retraces the ground it has forged in the past few weeks. There is little middle ground where the currency is left unmoved. For a bullish move, the leveraged speculation of a return to a hawkish rate regime (which has boosted the 12-month interest rate forecast to 94 bps) will require some level of tangible confirmation. Considering this event will fall short of an actual hike; the market will need to see something in the rhetoric that points to a clear and impending timetable for that first tightening effort. Meeting this objective, it wouldn’t be difficult to see EURUSD finally overtake 1.39. Alternatively, if the policy group rebuffs speculation and keeps its tone consistent (much less slightly more dovish), the built up premium behind the currency will start unwinding quickly. What’s more, in the void that rate potential leaves, traders will start worry about the March 11th and 24th EU summits.
British Pound Overlooks Construction Data and Likely Service Reading for Rate Interest
Though it didn’t offer the same historic-level readings as its manufacturing counterpart, the UK construction PMI report was certainly an encouraging contribution for an economy that is perceived to be in unfavorable straights with austerity pressures bearing down. The eight-month high in this particular sector pushes back the threat of an eventual collapse in the housing sector and keeps the focus on interest rate speculation. Unlike the euro, however, the sterling is hold to hold itself up without a critical catalyst for the rate forecast. In the upcoming London session, a service sector activity reading will do little to define when that first hike is coming and will instead fill out the slower growth forecast.
New Zealand Dollar: Less than a Week Until the RBNZ’s Pivotal Rate Decision
There are few currencies that are well positioned to head in one direction regardless of the fundamental bearings the market takes. Yet, the kiwi happens to be one of the rare instances. Expectations for stalled growth and impending rate cuts continue to gain traction; and there is little that can offset the momentum. Perhaps a hold from the RBNZ at the March 9th policy meeting can work off some of the bearish sentiment; but at the momentum, the threat of a broad risk reversal or flat outlook for capital markets leave the New Zealand currency in equally an equally bad spot.
Swiss Franc More Tuned into the ECB Rate Decision than the Dollar
One of the interesting things about the currency market is that the influence of heavy, region-specific event risk frequently spills over to counterpart currencies. The fundamental counterpart to the euro through the sovereign debt turmoil of the past year (the dollar was the liquidity alternative) was the Swiss franc. That draws up clear implications should rate speculation fall flat and financial concerns come flooding back in. Alternatively, a bolstered rate forecast could reverse the flow that drew a lot of European capital into the safe boarders of the Swiss markets.
Australia Dollar Holds Steady in the Face of the Building Evidence of a Housing Threat
It can be difficult to separate the influence that current rates and rate projections can have on a currency. For forecasts, we can have a response like that seen with the euro or pound. However, the Aussie dollar has seen its potential vanish and yet it remains buoyant. So buoyant in fact that the currency showed little concern with the biggest drop in building permits in eight years – a possible sign of the overdue housing correct.
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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
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
EUR |
6:30 |
French ILO Mainland Unemployment Rate (4Q) |
9.3% |
Though at a disadvantage given its quarterly reading, French unemployment is still lagging Germany’s labor gains. |
|
|
EUR |
6:30 |
French Mainland Unemployment Change (4Q) |
1K |
||
|
EUR |
6:30 |
French ILO Unemployment Rate (4Q) |
9.7% |
9.7% |
|
|
CHF |
8:15 |
Retail Sales (Real) (YoY) (JAN) |
0.5% |
-0.4% |
December’s revision was to a 15 month low. |
|
EUR |
8:45 |
Italian Purchasing Manager Index Services (FEB) |
51.2 |
49.9 |
The initial February service sector reading for the Euro Zone pushed the PMI reading to its highest level since August 2007. |
|
EUR |
8:50 |
French Purchasing Manager Index Services (FEB F) |
60.8 |
60.8 |
|
|
EUR |
8:55 |
German Purchasing Manager Index Services (FEB F) |
59.5 |
59.5 |
|
|
EUR |
9:00 |
Euro-Zone PMI Composite (FEB F) |
58.4 |
58.4 |
|
|
EUR |
9:00 |
Euro-Zone PMI Services (FEB F) |
57.2 |
57.2 |
|
|
GBP |
9:30 |
Purchasing Manager Index Services (FEB) |
53.7 |
54.5 |
An improvement anywhere near the magnitude of the factory reading would put the UK economy on remarkably stable ground. |
|
GBP |
9:30 |
Official Reserves (Changes) (FEB) |
-$384M |
Net reserves were at $37.98 billion in Feb. |
|
|
EUR |
10:00 |
Euro-Zone GDP s.a. (QoQ) (4Q P) |
0.3% |
0.3% |
Though a second reading on fourth quarter GDP; the potential for revisions in critical sectors is high. Household consumption, exports and government spending are particularly hot-button topics currently. |
|
EUR |
10:00 |
Euro-Zone GDP s.a. (YoY) (4Q P) |
2.0% |
2.0% |
|
|
EUR |
10:00 |
Euro-Zone Household Consumption (QoQ) (4Q P) |
0.2% |
0.1% |
|
|
EUR |
10:00 |
Euro-Zone Gross Fixed Capital (QoQ) (4Q P) |
0.4% |
-0.3% |
|
|
EUR |
10:00 |
Euro-Zone Government Expenditure (QoQ) (4Q P) |
0.2% |
0.4% |
|
|
EUR |
10:00 |
Italian Producer Price Index (MoM) (JAN) |
0.9% |
0.6% |
Inflation figures for Mediterranean countries are important against lagging growth. |
|
EUR |
10:00 |
Italian Producer Price Index (YoY) (JAN) |
4.6% |
4.6% |
|
|
EUR |
10:00 |
Euro-Zone Retail Sales (MoM) (JAN) |
0.3% |
-0.6% |
Consumption trends are a critical missing piece in the Euro Zone’s recovery. |
|
EUR |
10:00 |
Euro-Zone Retail Sales (YoY) (JAN) |
0.0% |
-0.9% |
|
|
EUR |
12:45 |
European Central Bank Rate Decision |
1.00% |
1.00% |
The market is looking for a hawkish tone. |
|
USD |
13:30 |
Initial Jobless Claims (FEB 26) |
396K |
391K |
Secondary employment data ahead of the NFPs. Regardless of its importance the labor trend seems firmly set in its slow recovery. |
|
USD |
13:30 |
Continuing Claims (FEB 19) |
3790K |
||
|
USD |
13:30 |
Unit Labor Costs (4Q F) |
-0.6% |
-0.6% |
|
|
USD |
13:30 |
Non-Farm Productivity (4Q F) |
2.6% |
2.6% |
|
|
USD |
14:45 |
Bloomberg Consumer Comfort |
-39.2 |
Formerly the weekly ABC confidence indicator. Still a lower tier economic indicator. |
|
|
USD |
15:00 |
ISM Non-Manufacturing Composite (FEB) |
59.5 |
59.4 |
Representing three quarters of business sector output and jobs; this data can carry more weight than the manufacturing report given a significant surprise. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
EUR |
13:30 |
ECB President Trichet Hold Policy Press Conference |
|
USD |
16:00 |
Fed’s Narayana Kocherlakota Speaks on Labor Markets |
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 |
1.4025 |
1.6420 |
89.00 |
1.0000 |
1.0275 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3875 |
1.6300 |
86.00 |
0.9775 |
1.0000 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3860 |
1.6325 |
81.90 |
0.9243 |
0.9720 |
1.0171 |
0.7437 |
113.51 |
133.70 |
|
Support 1 |
1.3425 |
1.5750 |
80.00 |
0.9200 |
0.9700 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2900 |
1.5315 |
75.00 |
0.9000 |
0.9500 |
0.9375 |
0.6585 |
100.00 |
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 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
12.5000 |
1.6300 |
7.3500 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.0890 |
1.6185 |
6.8744 |
7.7911 |
1.2693 |
Spot |
6.3125 |
5.3799 |
5.5528 |
|
Support 1 |
11.7200 |
1.5300 |
6.7600 |
7.7490 |
1.2700 |
Support 1 |
6.2850 |
5.2625 |
5.5550 |
|
Support 2 |
11.4400 |
1.4725 |
6.5575 |
7.7450 |
1.2500 |
Support 2 |
6.1250 |
5.1000 |
5.5125 |
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 |
1.3979 |
1.6423 |
82.40 |
0.9336 |
0.9802 |
1.0243 |
0.7534 |
114.21 |
134.37 |
|
Resist 1 |
1.3919 |
1.6374 |
82.15 |
0.9289 |
0.9761 |
1.0207 |
0.7485 |
113.86 |
134.04 |
|
Pivot |
1.3832 |
1.6295 |
81.86 |
0.9246 |
0.9735 |
1.0146 |
0.7435 |
113.20 |
133.43 |
|
Support 1 |
1.3772 |
1.6246 |
81.61 |
0.9199 |
0.9694 |
1.0110 |
0.7386 |
112.85 |
133.10 |
|
Support 2 |
1.3685 |
1.6167 |
81.32 |
0.9156 |
0.9668 |
1.0049 |
0.7336 |
112.19 |
132.49 |
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 |
1.4024 |
1.6485 |
82.76 |
0.9353 |
0.9808 |
1.0296 |
0.7535 |
114.90 |
135.32 |
|
Resist. 2 |
1.3983 |
1.6445 |
82.54 |
0.9326 |
0.9786 |
1.0265 |
0.7510 |
114.56 |
134.92 |
|
Resist. 1 |
1.3942 |
1.6405 |
82.33 |
0.9298 |
0.9764 |
1.0234 |
0.7486 |
114.21 |
134.51 |
|
Spot |
1.3860 |
1.6325 |
81.90 |
0.9243 |
0.9720 |
1.0171 |
0.7437 |
113.51 |
133.70 |
|
Support 1 |
1.3778 |
1.6245 |
81.47 |
0.9188 |
0.9676 |
1.0108 |
0.7388 |
112.81 |
132.89 |
|
Support 2 |
1.3737 |
1.6205 |
81.26 |
0.9160 |
0.9654 |
1.0077 |
0.7364 |
112.46 |
132.48 |
|
Support 3 |
1.3696 |
1.6165 |
81.04 |
0.9133 |
0.9632 |
1.0046 |
0.7339 |
112.12 |
132.08 |
v
Written by: John Kicklighter, 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
