- Dollar on the Verge of Collapse Despite the Most Substantial Risk Aversion Move in Three Months
- Euro Extends its Climb Despite Germany’s Obstinate Stance Against EU Support
- British Pound Drops Across the Board as BoE Miles Commentary Offset Inflation Data
- Japanese Yen Climb Could Ease Should the Equities Tumble Cool and Budget Fears Expand
- Australian Dollar Rallies after 4Q Investment Reading Hits a Record High
- New Zealand Dollar Struggles to Regain its Balance as Interest Rate Expectations Plummet
Dollar on the Verge of Collapse Despite the Most Substantial Risk Aversion Move in Three Months
If the relationship between risk trends and safe haven currencies was black and white, the US dollar should have rallied substantially this past week as equities have marked their worst performance since November’s waver. Instead, the benchmark currency is on the verge of a larger plunge that would go a long way to cementing an opening quarter bear wave that can carry greater influence through to the middle of the year (when the market expects the QE debate to liven the fundamental wires). Making a quick assessment of the dollar’s current standings, we first refer to the Dollar Index which is standing at the threshold of the rising trend of lows that have progressively raised the floor on price action since the March 2008 reversal. A collapse here could materially undermine what enduring bullish support that the greenback has maintained through growth expectations and latent safe haven appeal. However, when we look at the single currencies performance against its different class of counterparts; we see that conditions could be more fundamentally anchored than a mere technical formation can communicate. Relative lows against the high yield or income producing currencies (Australian, New Zealand and Canadian dollars) is to be expected. More remarkable is the fact that fundamentally troubled counterparts (the euro and pound) are able to compensate in rate forecasts. Furthermore, even fellow safe haven currencies (the yen and franc) are proving more virtuous with a push towards or break of record highs against the dollar.
Looking at this uniformly disappointing performance, it is clear that a tangible measure of fundamental support must be found before this currency will gain more ground that a mere corrective bounce can afford. Despite what we have seen this past week, sentiment trends still carry the greatest potential for support. That said, to emphasize the greenback’s particular value; a serious deterioration in global confidence needs to develop and basic market conditions (liquidity, capital turnover, etc) need to be strained. With sentiment already on shaky ground, there is substantial opportunity for conditions to deteriorate to this level and leverage the dollar given the right fundamental fuel. Another catalyst that may be right around the corner is interest rate hikes. While many focused on St. Louis Fed President Bullard’s comment “never say never” to a QE3 option; the tone of his rhetoric was unmistakably hawkish – including his suggestion that QE2 may need to be tapered.
Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPUSD and EURJPY Temporarily Boosted by Rate Speculation
Euro Extends its Climb Despite Germany’s Obstinate Stance Against EU Support
Interest rate expectations have held up well as a buffer to the slide in underlying investor sentiment through the worst of the selloff this past week; so it makes sense that those currencies enjoying lofty interest rate expectations would perform well when speculative interests stabilized. With the capital markets evening out through Thursday’s session, the euro – equipped the most aggressive 12-month rate forecast of its major counterparts – would put in for a notable European and US session performance. Yet, just as the market has curbed its fears of a wild-fire financial crisis developing beyond the Middle Eastern turmoil; investors can quickly lose faith in hawkish rate forecasts. Exiting ECB staple and Bundesbank president Axel Weber kept the speculators on their toes when he stated that the only direction Euro Zone rates could only rise from here. That said, his feelings are well known and it reminds us of his absence on the board when the critical policy decisions are made over the next few months. In the meantime, the negative risks to the euro’s health have been repressed for some time now. The real financial uncertainties that remain behind the Euro-region have been offered a temporary stay when policy officials offered their open-ended promises to further bolster the bailout effort going forward. Yet, in the weeks since, conditions have continued to deteriorate. And, reminding of the trouble ahead, German policymakers discussed proposals aimed at insuring a hard-line approach to further bailout accommodations at EU meetings. It just so happens, that the Parliament plans to vote on these proposals on March 17 – one week before the EU summit.
British Pound Drops Across the Board as BoE Miles Commentary Offset Inflation Data
There wasn’t much in the way of event risk for the British pound over the past 24 hours; but the interest rate focus would keep the currency moving. What data was on the docket Thursday supported the rate hawks as a CBI retail quarterly inflation reading surged to its highest level since 1991. Further attempting to keep the momentum going (and perhaps boost the sterling in a one-man effort to curb inflation), BoE member Sentance remarked that the “time has come” to raise rates and that a move now would reduce the need for more dramatic moves later down the line. Yet, the high-inflation argument is saturated, making the market increasingly sensitive dovish aspects of the currency’s outlook. With that said, MPC member Mile’s suggestion that the economic recovery is fragile and that hikes to prove a point to detractors was misguided. This likely helped encourage the sharp profit-taking through the day; but it did relatively little to alter hearty interest rate expectations.
Japanese Yen Climb Could Ease Should the Equities Tumble Cool and Budget Fears Expand
Where the dollar has struggled to gain ground in this recent risk aversion move; the Japanese yen has enjoyed a hearty performance. The different between the two currencies is a fundamental one – the yen is more sensitive to the capital market’s reversed capital flows given its greater prominence in building up the carry trade position since the 2009 reversal. This correlation will only strengthen should sentiment deteriorate further; but don’t expect much investment to keep the yen rising beyond repatriation. The fiscal outlook is quickly declining.
Australian Dollar Rallies after 4Q Investment Reading Hits a Record High
There is a remarkably high correlation between interest rate expectations and a currency’s performance. For the Australian dollar, that is actually a detriment. Though the currency’s benchmark rate is the highest among the majors, that level is already theoretically priced in and its outlook happens to be exceptionally low. Yet, a record high A$29.7 billion level of 4Q investment and stabilization of equities markets helps.
New Zealand Dollar Struggles to Regain its Balance as Interest Rate Expectations Plummet
Should the recent effort to level capital markets off turn into a genuine bounce in risk appetite, the kiwi dollar will likely take part as an investment currency. However, the benefit the currency would garner from an upswing in risk trends would be naturally limited by New Zealand’s own, dim rate forecast. A 25 bps rate cut at the next RBNZ meeting is fully priced in and now the market is weighing the possibility of a 50 bps notch.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
23:30 |
Tokyo CPI (YoY) (FEB) |
-0.2% |
-0.1% |
National CPI was unchanged year-over-year in January, while core CPI was down 0.6% year-over-year. Tokyo CPI was down 0.1% year-over-year in February, while core CPI was down 0.3% year-over-year. |
|
JPY |
23:30 |
Tokyo CPI Ex-Fresh Food (YoY) (FEB) |
-0.3% |
-0.2% |
|
|
JPY |
23:30 |
Tokyo CPI Ex Food, Energy (YoY) (FEB) |
-0.3% |
-0.3% |
|
|
JPY |
23:30 |
National CPI (YoY) (JAN) |
-0.1% |
0.0% |
|
|
JPY |
23:30 |
National CPI Ex-Fresh Food (YoY) (JAN) |
-0.3% |
-0.4% |
|
|
JPY |
23:30 |
National CPI Ex Food, Energy (YoY) (JAN) |
-0.6% |
-0.7% |
|
|
GBP |
0:01 |
GfK Consumer Confidence Survey (FEB) |
-27 |
-29 |
Expected to improve from 8-month lows |
|
CNY |
1:35 |
MNI Business Condition Survey (FEB) |
61.11 |
||
|
NZD |
2:00 |
Money Supply M3 (YoY) (JAN) |
1.8% |
Was -4.5% YoY a year ago |
|
|
EUR |
German Consumer Price Index (MoM) (FEB P) |
0.5% |
-0.4% |
2.1% reading would be the highest since October, 2008 |
|
|
EUR |
German Consumer Price Index (YoY) (FEB P) |
2.1% |
2.0% |
||
|
EUR |
7:45 |
French Consumer Spending (MoM) (JAN) |
-0.7% |
0.6% |
Expected to fall after rising 0.6% and 2.7% MoM in Dec. and Nov. respectively |
|
EUR |
7:45 |
French Consumer Spending (YoY) (JAN) |
2.6% |
0.4% |
|
|
EUR |
9:00 |
Euro-Zone M3 s.a. (3M) (JAN) |
2.0% |
1.6% |
Muted money supply growth has helped keep core inflation low |
|
EUR |
9:00 |
Euro-Zone M3 s.a. (YoY) (JAN) |
2.1% |
1.7% |
|
|
GBP |
9:30 |
Gross Domestic Product (QoQ) (4Q P) |
-0.5% |
-0.5% |
This is a second estimate of fourth quarter GDP figures in the UK. Revisions are expected to be modest, with no change expected in the advanced QoQ reading of -0.5% |
|
GBP |
9:30 |
Exports (4Q P) |
1.5% |
1.5% |
|
|
GBP |
9:30 |
Gross Domestic Product (YoY) (4Q P) |
1.7% |
1.7% |
|
|
GBP |
9:30 |
Private Consumption (4Q P) |
-0.2% |
0.3% |
|
|
GBP |
9:30 |
Government Spending (4Q P) |
-0.4% |
-0.4% |
|
|
GBP |
9:30 |
Gross Fixed Capital Formation (4Q P) |
-0.2% |
3.4% |
|
|
GBP |
9:30 |
Imports (4Q P) |
1.8% |
1.7% |
|
|
GBP |
9:30 |
Total Business Investment (QoQ) (4Q P) |
-0.4% |
3.1% |
|
|
GBP |
9:30 |
Total Business Investment (YoY) (4Q P) |
12.6% |
8.9% |
|
|
GBP |
9:30 |
Index of Services (MoM) |
-1.1% |
0.0% |
Last rose in September, 2010 |
|
GBP |
9:30 |
Index of Services (3Mo3M) |
-0.4% |
0.5% |
|
|
CHF |
10:30 |
KOF Swiss Leading Indicator (FEB) |
2.06 |
2.1 |
Steady near the highs of 2007 |
|
USD |
13:30 |
Gross Domestic Product Price Index (4Q S) |
0.3% |
0.3% |
This is a second estimate of fourth quarter GDP figures in the US. Revisions are expected to be modest, with no change expected in the advanced QoQ reading of 0.4% |
|
USD |
13:30 |
Core PCE (QoQ) (4Q S) |
0.4% |
0.4% |
|
|
USD |
13:30 |
Personal Consumption (4Q S) |
4.2% |
4.4% |
|
|
USD |
13:30 |
Gross Domestic Product (Annualized) (4Q S) |
3.3% |
3.2% |
|
|
USD |
14:55 |
U. of Michigan Confidence (FEB F) |
75.4 |
75.1 |
Expected to be highest confidence since Jan 08 |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
USD |
15:15 |
Fed’s Lacker, Diamond Discuss Report on Stress Tests |
|
USD |
18:30 |
Fed’s Yellen, BOE’s Bean, ECB’s Constancio Speak in NY |
|
EUR |
18:30 |
ECB’s Constancio Speaks in New York |
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 |
1.0922 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.3875 |
1.6300 |
86.00 |
0.9775 |
1.0750 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.3806 |
1.6139 |
81.80 |
0.9260 |
0.9827 |
1.0101 |
0.7487 |
112.93 |
132.02 |
|
Support 1 |
1.3425 |
1.5750 |
80.00 |
0.9200 |
0.9800 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.2900 |
1.5315 |
75.00 |
0.9000 |
0.9700 |
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 |
12.1407 |
1.6046 |
7.0522 |
7.7960 |
1.2771 |
Spot |
6.3779 |
5.3999 |
5.6121 |
|
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 |
1.3893 |
1.6330 |
82.87 |
0.9379 |
0.9934 |
1.0198 |
0.7556 |
114.24 |
134.84 |
|
Resist 1 |
1.3850 |
1.6234 |
82.34 |
0.9319 |
0.9880 |
1.0149 |
0.7521 |
113.58 |
133.43 |
|
Pivot |
1.3777 |
1.6160 |
81.98 |
0.9277 |
0.9849 |
1.0076 |
0.7476 |
112.89 |
132.47 |
|
Support 1 |
1.3734 |
1.6064 |
81.45 |
0.9217 |
0.9795 |
1.0027 |
0.7441 |
112.23 |
131.06 |
|
Support 2 |
1.3661 |
1.5990 |
81.09 |
0.9175 |
0.9764 |
0.9954 |
0.7396 |
111.54 |
130.10 |
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 |
1.3974 |
1.6301 |
82.72 |
0.9372 |
0.9917 |
1.0230 |
0.7587 |
114.36 |
133.64 |
|
Resist. 2 |
1.3932 |
1.6260 |
82.49 |
0.9344 |
0.9895 |
1.0198 |
0.7562 |
114.01 |
133.23 |
|
Resist. 1 |
1.3890 |
1.6220 |
82.26 |
0.9316 |
0.9872 |
1.0166 |
0.7537 |
113.65 |
132.83 |
|
Spot |
1.3806 |
1.6139 |
81.80 |
0.9260 |
0.9827 |
1.0101 |
0.7487 |
112.93 |
132.02 |
|
Support 1 |
1.3722 |
1.6058 |
81.34 |
0.9204 |
0.9782 |
1.0036 |
0.7437 |
112.21 |
131.21 |
|
Support 2 |
1.3680 |
1.6018 |
81.11 |
0.9176 |
0.9759 |
1.0004 |
0.7412 |
111.85 |
130.81 |
|
Support 3 |
1.3638 |
1.5977 |
80.88 |
0.9148 |
0.9737 |
0.9972 |
0.7387 |
111.50 |
130.40 |
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
