- Dollar Levels Off but has Yet to Recover as S&P 500 Volatility Threatens a Larger Reversal
- Canadian Dollar Rally Stalls after BoC Keeps Hawkish Outlook Under Wraps
- Euro Suffers Sharp Intraday Correction Despite High Inflation Figure, Upgraded Growth Outlook
- British Pound More Reactive to Dovish BoE Commentary than Record Manufacturing Activity
- New Zealand Dollar Tumbles First on Risk, Later on Minister’s Support of Rate Cuts
- Swiss Franc Shows Little Reaction to Strong GDP Reading, Focus Remains on European Capital
Dollar Levels Off but has Yet to Recover as S&P 500 Volatility Threatens a Larger Reversal
The dollar climbed through Tuesday’s session; but momentum was restrained to the point where doubt still clouds the currency’s outlook going forward. At the very edge of its range against the euro and British pound, a staunch fundamental wind was needed to push bearish convictions to the next level. That said, the FX markets weren’t active enough to encourage such a consequential development; and risk appetite would offer critical support to safe haven currencies. We have to use the term ‘safe haven’ carefully when discussing the greenback however. Alongside the Japanese yen and Swiss franc the dollar retains this title through a very specific trait and market need. If there is simply a broad effort to unwind risky positions, this leverages greater influence on the yen as the primary funding currency for the carry trade. A need for shelter from tax and regulation changes typically funnels capital in to the franc. The greenback’s claim to fame is its liquidity. Market depth is at a premium when volatility is exceptionally high and there are obvious signs of financial stress. We had just a taste of that through Tuesday. A sharp surge in global oil prices once again shook growth forecasts and stirred the fear that we often associate to crashes. Yet, we have yet to make that critical leap. Investors are waiting for indisputable evidence that the passive, asset buildup period has finally come to an end; and perhaps the best benchmark of that turning point is the S&P 500’s extraordinarily consistent bull trend. Once again, it is on the cusp of a true reversal.
As we await risk trends to settle conviction, we should also keep tabs on the more sterilized fundamental developments. From the docket, the ISM manufacturing activity report hit its highest level since May 2004 – indicating factory activity would maintain its support of the United States’ tenuous recovery. Doubts aside, though, the employment reading rose to a 38-year high, new orders a seven-year high and exports a 22-year high. Now, if only manufacturing didn’t account for less than a fifth of economic output in the world’s largest economy. For Fed Chairman Bernanke’s opening commentary in his Semiannual Testimony; his dedication to a loose policy stance did few favors for the dollar. We would expect the same in the upcoming session. And, as for the ADP employment release; risk trends would easily overwhelm employment data.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPUSD and EURJPY Wait for the S&P 500 to Truly Reverse
Canadian Dollar Rally Stalls after BoC Keeps Hawkish Outlook Under Wraps
On an otherwise quiet trading day for the FX market, the Canadian dollar was one of the biggest movers. Having already forged fresh three-year lows against its US counterpart to start the week, Tuesday’s session was primed for follow through. And, indeed market would attempt to carry the trend through the early trading hours as risk trends were relatively stable and commodities were firming up. Real activity though was reserved for the crossover from the London to New York sessions. In the bullish column, crude oil prices surged through the active trading session on revived fears surrounding the various conflicts in the Middle East. From a big picture perspective, the tension in the region didn’t devolve much further. However, concern that some of Libya and Bahrain’s neighbors were looking to become involved in the volatile situation, along with a sharp surge in risk sovereign risk premiums for Saudi Arabia, leveraged the premium in both Brent and WTI-based crude prices. Elevated energy prices draw a pretty easy correlation to the Canadian currency; but there are additional, complicating factors. The risk appetite implications naturally weigh on risk appetite trends and thereby burden the defacto-yield currency. The other weight on the loonie required fewer steps to make the connection. The Bank of Canada rate decision confirmed the expected outcome. A hold on the benchmark at 1.00 percent was no surprise; but the lack of hawkish progress in the accompanying statement left rate speculators without the support they were already pricing in. And, once again, voiced concern about the negative impact of a high currency gives fundamental traders food for thought.
Euro Suffers Sharp Intraday Correction Despite High Inflation Figure, Upgraded Growth Outlook
The euro was looking at a pretty active session Tuesday – as far as underlying volatility levels would allow. For event risk, everything seemed to line up nicely for the shared currency. On the docket, the German unemployment change figures for February printed a 52,000-net decline that was nearly three times the forecast and a big enough drop that the level of joblessness dropped to a low last seen back in 1992. Furthermore, the advanced Euro Zone CPI reading for the same month held at its October 2008 high of 2.4 percent and regional manufacturing activity accelerated further to a decade high. If that weren’t enough, the EU upgraded its expectations for 2011 GDP (to a 1.6 to 1.5 percent range) and CPI (to a 2.2 to 1.8 percent range). And yet, the euro would still slide in the second half of the trading day. While this may be a reference to the uncertainty of Irish bailout renegotiations after the election or ahead of the Portuguese bond sale, it may simply be a turn in speculation.
British Pound More Reactive to Dovish BoE Commentary than Record Manufacturing Activity
Like the euro, the sterling seemed to be dealt favorable cards but would still slide through Tuesday’s session. The top headline for the day was the manufacturing activity reading which held its highest level on record (following a negative revision). And, the EU’s growth and inflation forecasts advanced interest rate speculation. BoE Governor King’s suggestion that the recovery was choppy and he expected to ‘write letters’ throughout 2011 is hardly surprising; but perhaps hawkish speculators are growing weary of their increasingly risky positioning.
New Zealand Dollar Tumbles First on Risk, Later on Minister’s Support of Rate Cuts
If were expecting a strong move from any currency in the opening Asian hours of Wednesday’s session, it would have been the Aussie dollar’s reaction to its GDP reading. Instead, the Australian dollar was little moved while the kiwi dollar tumbled. The lower-yielding carry currency was unsettled when Prime Minister John Key said he was expecting a rate cut from the RBNZ given the economic aftermath of the devastating quake. While the RBNZ is technically independent; the government’s sway is far greater in this country than any of the other majors.
Swiss Franc Shows Little Reaction to Strong GDP Reading, Focus Remains on European Capital
For surprise quotient, the Swiss GDP figures were remarkable. Against expectations of a more moderate 0.5 percent expansion through the fourth quarter the economy would instead expand 0.9 percent – the fastest growth in three years. Nevertheless, the franc held fast. In the end, stronger growth does little to further the franc’s already exaggerated highs. This safe haven needs a meaningful inflow of European capital.
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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 |
|
GBP |
05:00 |
Halifax House Price (3MoY) |
-2.5% |
-2.4% |
Further contraction of housing sector adds to stagflation argument. |
|
GBP |
05:00 |
Halifax Plc House Prices s.a. (MoM) |
-0.5% |
0.8% |
|
|
GBP |
09:30 |
Purchasing Manager Index Construction |
52.8 |
53.7 |
Declining conditions point towards weak growth in coming months. |
|
EUR |
10:00 |
Euro-Zone Producer Price Index (MoM) |
1.1% |
0.8% |
Rising prices may force producers to pass more costs to consumers. |
|
EUR |
10:00 |
Euro-Zone Producer Price Index (YoY) |
5.7% |
5.3% |
|
|
USD |
12:00 |
MBA Mortgage Applications |
13.2% |
Refinancing could be soft with sales at 2- to 3-year lows. |
|
|
USD |
12:30 |
Challenger Job Cuts (YoY) |
-46.1% |
Data will foreshadow Friday’s NFP release. |
|
|
USD |
13:15 |
ADP Employment Change |
178K |
187K |
|
|
CAD |
13:30 |
Industrial Product Price (MoM) |
0.6% |
0.7% |
Inflationary pressures may cause BoC to adjust its outlook soon. |
|
CAD |
13:30 |
Raw Materials Price Index (MoM) |
3.0% |
4.2% |
|
|
USD |
15:30 |
DOE U.S. Crude Oil Inventories |
750K |
822K |
Political turmoil in the MeNA has led to speculation that a supply shock may come soon to crude. |
|
USD |
15:30 |
DOE U.S. Distillate Inventory |
-1500K |
-1333K |
|
|
USD |
15:30 |
DOE U.S. Gasoline Inventories |
-350K |
-2798K |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
15:00 |
Bernanke to Give Semiannual Testimony at Senate |
|
USD |
19:00 |
Fed Releases Beige Book Economic Survey |
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 |
1.3774 |
1.6262 |
81.96 |
0.9302 |
0.9745 |
1.0139 |
0.7479 |
112.89 |
133.28 |
|
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 |
12.1145 |
1.6150 |
6.9843 |
7.7901 |
1.2733 |
Spot |
6.3409 |
5.4135 |
5.6070 |
|
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 |
1.3889 |
1.6359 |
82.48 |
0.9348 |
0.9800 |
1.0232 |
0.7552 |
114.06 |
134.65 |
|
Resist 1 |
1.3832 |
1.6311 |
82.22 |
0.9325 |
0.9773 |
1.0186 |
0.7515 |
113.48 |
133.96 |
|
Pivot |
1.3797 |
1.6281 |
81.98 |
0.9300 |
0.9728 |
1.0155 |
0.7497 |
113.14 |
133.46 |
|
Support 1 |
1.3740 |
1.6233 |
81.72 |
0.9277 |
0.9701 |
1.0109 |
0.7460 |
112.56 |
132.77 |
|
Support 2 |
1.3705 |
1.6203 |
81.48 |
0.9252 |
0.9656 |
1.0078 |
0.7442 |
112.22 |
132.27 |
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 |
1.3933 |
1.6420 |
82.81 |
0.9409 |
0.9834 |
1.0262 |
0.7574 |
114.26 |
134.88 |
|
Resist. 2 |
1.3893 |
1.6381 |
82.59 |
0.9382 |
0.9811 |
1.0232 |
0.7550 |
113.92 |
134.48 |
|
Resist. 1 |
1.3854 |
1.6341 |
82.38 |
0.9356 |
0.9789 |
1.0201 |
0.7526 |
113.58 |
134.08 |
|
Spot |
1.3774 |
1.6262 |
81.96 |
0.9302 |
0.9745 |
1.0139 |
0.7479 |
112.89 |
133.28 |
|
Support 1 |
1.3694 |
1.6183 |
81.54 |
0.9248 |
0.9701 |
1.0077 |
0.7432 |
112.20 |
132.48 |
|
Support 2 |
1.3655 |
1.6143 |
81.33 |
0.9222 |
0.9679 |
1.0046 |
0.7408 |
111.86 |
132.08 |
|
Support 3 |
1.3615 |
1.6104 |
81.11 |
0.9195 |
0.9656 |
1.0016 |
0.7384 |
111.52 |
131.68 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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