- Dollar Drops to start the Week as Spending Data, Fed Commentary Disappoint
- Australian Dollar Unable to Overtake Critical Highs after RBA Decision
- Canadian Dollar Traders Put More Faith in Growth rather than BoC Potential
- Euro Financial Blips Easier to Ignore with Inflation Data and ECB Decision Ahead
- British Pound Faces Housing, Manufacturing and Lending Data; But Will it Drive the Sterling?
- Swiss Franc: Growth Figures Important to Feeding Tacit Inflation Forecasts
Dollar Drops to start the Week as Spending Data, Fed Commentary Disappoint
Though the data that crossed the wires Monday played to the lesser of the three underlying fundamental trends, the disappointment was nonetheless evident. There are periods when disappointing data is overlooked and improvements are leveraged for impact; but we seem to be looking at the exact opposite scenario to start this week. With a disappointing headline economic reading, the dollar would give back its Friday gains and more against the euro and British pound. And, given the EURUSD and GBPUSD pairs’ liquidity, the collective performance would lead the trade-weighted Dollar Index to mark a notable break of a trendline that technical traders have been keeping tabs on since for three years now. That said, neither of these majors would find their way to the critical break that would introduce the next, necessary step to a meaningful (bearish for the greenback) trend. Looking across the rest of the majors, the benchmark currency’s performance was far more reserved. Across the commodity bloc, the dollar slid moderately (a move amplified for USDCAD due to Canadian data). Yet, at the same time, the dollar’s positive performance against fellow safe havens in the Swiss franc and Japanese yen suggests that the currency market was generally holding to underlying risk appetite trends. Indeed, the S&P 500 would follow up on Friday’s climb – but with less success in follow through.
The dollar’s correlation to the broader trend in risk appetite as well as the controlled level of sentiment behind this fundamental theme would suggest that we are ‘drifting.’ That implies that the speculative masses are waiting for greater conviction one way or the other before building their positions. In the meantime, the US docket would fill in on growth forecasts and offer a modest alteration to the rate outlook. For growth, the January personal income was far better than expected at 1.0 percent growth; but with a meager 0.2 percent increase in spending, the consumer’s contribution to economic activity is considered lacking. A 2.8 percent drop in pending home sales and the highest reading in the Chicago PMI figure in over two decades does relatively little to substantially alter the course of the larger economy. That left the greenback exposed to New York Fed President Dudley’s suggestion that an improved economic outlook wasn’t enough to warrant a withdrawal of stimulus. Perhaps Chairman Bernanke’s upcoming testimony will clarify the timetable in stimulus withdrawal or the ISM factory report will stir speculation.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPUSD and USDCHF Offer Natural Correction rather than Reversal
Australian Dollar Unable to Overtake Critical Highs after RBA Decision
Compared to the Bank of England and European Central bank policy deliberations, the Reserve Bank of Australia’s (RBA) rate decision held less influence on the speculation market. That may seem unusual considering the Aussie dollar carries the highest yield amongst the majors; but when it comes to generate momentum behind the currency market, speculation counts more than actual yields. So, while the benchmark 4.75 percent benchmark return for the country puts the commodity currency at the top of the list for return; this level of yield is already long-priced in given the strength denoted in exchange rates. For the AUDUSD to advance to multi-decade highs or EURAUD to return to its own acute lows, the market will need to either see rumblings of hawkish speculation coming from the RBA camp or having underlying risk appetite swell and highlight the advantages of building a long Australian dollar position. Through the first scenario, the central bank’s statement did little to bolster hawkish expectations. Highlights from the commentary include suggestions that the mildly restrictive policy setting was appropriate and that the inflation forecast was in-line with the group’s target. As for the underlying appetite for yield, the volatility from last week has diminished and direction is difficult to support. Given anchored expectations, tomorrow’s 4Q GDP figures will likely encourage more activity from the market.
Canadian Dollar Traders Put More Faith in Growth rather than BoC Potential
The Canadian economic docket is essentially the reverse of its Australian counterpart. In Monday’s trading session, the market absorbed the fourth quarter GDP figures; and the outcome (both data and reaction) were better than expected. With a greater-than-expected 0.5 percent increase in the economy for December, the fourth quarter reading would manage a 3.3 percent annualized clip. This is at first blush better than the pace established for the US; but more importantly details suggest it is also more stable and broad-based. Out of this growth reading, the Canadian economy is seen as a better source for returns on investments and perhaps even a safe-haven alternative to its American counterpart in all but the most dire circumstances (where liquidity is paid the greatest premium). Testing highs against the dollar last seen back in November 2007 against the greenback, the loonie needs fundamental support to maintain and extend its run. It will not likely find what it needs in the BoC rate decision. Neither economic nor market participant is expecting a hike; but the latter group is pricing in 84 bps of hikes over the coming 12 months. That means we will need to pay closer attention to the commentary that may accompany the announcement of a steady rate.
Euro Financial Blips Easier to Ignore with Inflation Data and ECB Decision Ahead
Next week, a special summit is scheduled for the EU to hash out proposals that would be brought to vote at the official March 24th meeting – the meeting that has been touted as the answer to market fears of instability in the region. With the ECB marginal lending facility jumping 17.1 billion euros, the central bank buying 369 million euros in government bonds and the German Finance Minister reiterating all additional euro aid would come with conditions; it is hard to believe this will be a smooth event. But, with CPI figures due tomorrow, the market remains focused on rates.
British Pound Faces Housing, Manufacturing and Lending Data; But Will it Drive the Sterling?
The sterling is so close to breaking out to a fresh 13-month high against the US dollar; but there is hesitation with taking the next bullish step. Through the past session, there was little to support the sterling run; and while the upcoming London session carries more data, it isn’t the type the masses are interested in. Housing, manufacturing and lending figures are important; but traders are focusing on rate potential.
Swiss Franc: Growth Figures Important to Feeding Tacit Inflation Forecasts
There is little that moves the Swiss franc beyond meaningful changes in the Euro-Zone’s financial health (playing to its safe haven role) and underlying changes in risk appetite. However, the upcoming 4Q GDP figures may encourage more activity than normal as it will be used to either confirm or deny speculation that the SNB will be forced to move on rates to curb as-yet moderate inflation pressures.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
AUD |
5:30 |
RBA Commodity Index SDR (YoY) (FEB) |
48.7% |
Commodity inflation doesn’t’ seem a considerable problem for Australia. |
|
|
CHF |
6:45 |
Gross Domestic Product (QoQ) (4Q) |
0.5% |
0.7% |
A modest easing in economic output is inline with SNB expectations. |
|
CHF |
6:45 |
Gross Domestic Product (YoY) (4Q) |
2.7% |
3.0% |
|
|
GBP |
7:00 |
Nationwide House Prices s.a. (MoM) (FEB) |
-0.2% |
-0.1% |
Housing price data could indicate the first signs of stabilization in the UK housing market. |
|
GBP |
7:00 |
Nationwide House Prices n.s.a. (YoY) (FEB) |
-0.2% |
-1.1% |
|
|
CHF |
8:30 |
SVME-Purchasing Managers Index (FEB) |
60.5 |
60.5 |
Swiss factory levels expected to hold steady as European demand remains. |
|
EUR |
8:45 |
Italian PMI Manufacturing (FEB) |
57.6 |
56.6 |
Factory activity for non-German EU members is a more reliable read. |
|
EUR |
8:50 |
French PMI Manufacturing (FEB F) |
55.3 |
55.3 |
|
|
EUR |
8:55 |
German Unemployment Change (FEB) |
-18K |
-13K |
Labor figures are seen as a benchmark for how robust the Germany economy remains. |
|
EUR |
8:55 |
German Unemployment Rate s.a. (FEB) |
7.40% |
7.4% |
|
|
EUR |
8:55 |
German PMI Manufacturing (FEB F) |
62.6 |
62.6 |
Final readings are PMI figures are rarely market-moving events. |
|
EUR |
9:00 |
Euro-Zone PMI Manufacturing (FEB F) |
59 |
59 |
|
|
EUR |
9:00 |
Italian Unemployment Rate (SA) |
8.6% |
8.6% |
A good measure for a questionable EU member. |
|
GBP |
9:30 |
Purchasing Manager Index Manufacturing (FEB) |
62.6 |
62 |
UK factory activity has helped stabilize an otherwise shaky recovery. |
|
GBP |
9:30 |
Mortgage Approvals (JAN) |
42.9K |
42.6K |
Lending figures expected to firm slightly through January. A good reflection on economic an credit conditions; but expectations should be held at reasonable levels. |
|
GBP |
9:30 |
Net Lending Sec. on Dwellings (JAN) |
0.1B |
-0.3B |
|
|
GBP |
9:30 |
Net Consumer Credit (JAN) |
0.2B |
0.2B |
|
|
GBP |
9:30 |
M4 Money Supply (MoM) (JAN) |
-1.3% |
||
|
GBP |
9:30 |
M4 Money Supply (YoY) (JAN) |
-1.5% |
||
|
EUR |
10:00 |
Euro-Zone CPI Estimate (YoY) (FEB) |
2.4% |
2.4% |
Advanced price reading seen unchanged. |
|
EUR |
10:00 |
Euro-Zone Unemployment Rate (JAN) |
10.0% |
10.0% |
Euro Zone jobless rate is higher than the US. |
|
EUR |
10:00 |
Italian CPI (NIC incl. tobacco) (YoY) (FEB P) |
2.3% |
2.1% |
As a large, but more debt-heavy EU member, inflation figures are exceptionally important. |
|
EUR |
10:00 |
Italian CPI – EU Harmonized (YoY) (FEB P) |
2.1% |
1.9% |
|
|
EUR |
11:00 |
Italian Annual Gross Domestic Product (DEC 31) |
1.1% |
-5.0% |
Year-end GDP figures are expected to show Italy recovered in 2010 and cut its deficit. |
|
EUR |
11:00 |
Italian Deficit to GDP (DEC 31) |
5.0% |
5.3% |
|
|
CAD |
14:00 |
Bank of Canada Rate Decision |
1.00% |
1.00% |
The BoC is expected to hold; but we are more concerned with commentary. |
|
USD |
15:00 |
Construction Spending (MoM) (JAN) |
-0.4% |
-2.5% |
Likely under pressure from foreclosures. |
|
USD |
15:00 |
ISM Manufacturing (FEB) |
60 |
60.8 |
Factory activity is one of the hallmarks of this economic recovery. |
|
USD |
15:00 |
ISM Prices Paid (FEB) |
82.5 |
81.5 |
|
|
USD |
22:00 |
Domestic Vehicle Sales (FEB) |
9.65M |
9.59M |
Car sales are a good measure of consumer confidence and credit availability. |
|
USD |
22:00 |
Total Vehicle Sales (FEB) |
12.60M |
12.53M |
|
|
JPY |
23:50 |
Monetary Base (YoY) (FEB) |
5.5% |
An overlooked inflation indicator for Japan. |
|
|
AUD |
0:00 |
HIA New Home Sales (MoM) (JAN) |
-0.6% |
Fear of an Australian housing bubble has been gaining traction in recent month. |
|
|
AUD |
0:30 |
Gross Domestic Product (QoQ) (4Q) |
0.6% |
0.2% |
A strong follow up to the RBA’s rate decision. May be a greater market mover. |
|
AUD |
0:30 |
Gross Domestic Product (YoY) (4Q) |
2.6% |
2.7% |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
15:00 |
Bernanke to Give Semiannual Testimony at Senate |
|
USD |
15:00 |
Treasury’s Geithner at House Financial Services Committee |
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 |
1.3797 |
1.6263 |
81.78 |
0.9287 |
0.9715 |
1.0183 |
0.7526 |
112.84 |
133.00 |
|
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 |
7.4525 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
12.5000 |
1.6300 |
7.4025 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
12.1015 |
1.5978 |
6.9785 |
7.7881 |
1.2715 |
Spot |
6.3313 |
5.4038 |
5.6031 |
|
Support 1 |
11.7200 |
1.5300 |
7.1775 |
7.7490 |
1.2700 |
Support 1 |
6.2850 |
5.2625 |
5.7030 |
|
Support 2 |
11.4400 |
1.4725 |
6.9900 |
7.7450 |
1.2500 |
Support 2 |
6.1250 |
5.1000 |
5.5200 |
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 |
1.3932 |
1.6409 |
82.15 |
0.9332 |
0.9832 |
1.0238 |
0.7587 |
114.11 |
134.59 |
|
Resist 1 |
1.3865 |
1.6336 |
81.97 |
0.9309 |
0.9773 |
1.0211 |
0.7557 |
113.47 |
133.79 |
|
Pivot |
1.3788 |
1.6204 |
81.79 |
0.9285 |
0.9742 |
1.0165 |
0.7523 |
112.72 |
132.54 |
|
Support 1 |
1.3721 |
1.6131 |
81.61 |
0.9262 |
0.9683 |
1.0138 |
0.7493 |
112.08 |
131.74 |
|
Support 2 |
1.3644 |
1.5999 |
81.43 |
0.9238 |
0.9652 |
1.0092 |
0.7459 |
111.33 |
130.49 |
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 |
1.3957 |
1.6423 |
82.64 |
0.9395 |
0.9804 |
1.0308 |
0.7623 |
114.23 |
134.63 |
|
Resist. 2 |
1.3917 |
1.6383 |
82.43 |
0.9368 |
0.9781 |
1.0277 |
0.7599 |
113.88 |
134.22 |
|
Resist. 1 |
1.3877 |
1.6343 |
82.21 |
0.9341 |
0.9759 |
1.0246 |
0.7575 |
113.54 |
133.81 |
|
Spot |
1.3797 |
1.6263 |
81.78 |
0.9287 |
0.9715 |
1.0183 |
0.7526 |
112.84 |
133.00 |
|
Support 1 |
1.3717 |
1.6183 |
81.35 |
0.9233 |
0.9671 |
1.0120 |
0.7477 |
112.14 |
132.19 |
|
Support 2 |
1.3677 |
1.6143 |
81.13 |
0.9206 |
0.9649 |
1.0089 |
0.7453 |
111.80 |
131.78 |
|
Support 3 |
1.3637 |
1.6103 |
80.92 |
0.9179 |
0.9626 |
1.0058 |
0.7429 |
111.45 |
131.37 |
v
Written by: John Kicklighter, Currency Strategist for DailyFX.com
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