- Dollar On the Verge of a Market-Wide Rally as QE2 Set to Expiring
- Euro: Taking the Greece Debt Crisis One Step at a Time
- British Pound Readies for a Round of Growth-Reflecting Data
- Canadian Dollar Unlikely to Receive Much of a Boost from Inflation
- Japanese Yen: Jobs, Inflation Spending and Business Health Updates Due
- Oil Prices Just as Sensitive to Speculative Interests as Supply and Demand
- Gold Tumble at Risk of Developing into a Lasting Bear Trend
Dollar On the Verge of a Market-Wide Rally as QE2 Set to Expiring
Investor sentiment is teetering on the edge of a very large correction in trend. That does not mean that the market’s will surely reverse course in the very immediate future; but it does leverage the probability of a coordinated, market-wide effort to shift capital from risk to safety. Where does the dollar (ticker = USDollar) sit in this equation? Currently, it is at the very bottom of the totem – hence its hobbled efforts to rebound from its lowest overall levels since the global financial crisis back in 2008. Yet, if and when this reversal takes place; the greenback will find itself leading the way for the sudden need for safety.
Through the past weeks, we have seen many different fundamental concerns mature and erode the foundation of growth and (to some extent) market value. Asset prices have been able to ignore these developments for some time through the prevalence of government-bred moral hazard (the proliferation of stimulus) and a voracious appetite for return at all costs. Yet, there is always a point where price action must inevitably return to reality. And, there is a good chance that this is a move that is due over the coming weeks – perhaps even the week ahead. Amongst the major tides that are winning a bigger foothold in the headlines and consideration for trading decisions, the Greece troubles are perhaps the most recognizable danger. However, it isn’t the financial impact on Greece a possible default would have that threatens the broader market and thereby the dollar – rather, it is the possibility that this particular issue will cause problems for the rest of the Euro Zone and further global credit markets. Back in 2007/2008, it wasn’t subprime losses that led to the collapse of the financial markets. Rather, it was market panic that encouraged market participants to retrench and hold their capital in reserves. Add to this specific threat to the China’s ongoing effort to drain capital from its own market, Japan’s trouble in recovering from its earthquake, the UK’s efforts with austerity, emerging markets’ slow response to inflation and the end of the Quantitative Easing program (QE2); and there is more than enough fuel to raze the market.
For the dollar, the expiration of the QE2 program with June closing out carries the greatest influence. On one hand, the end to an extended period of open-ended support from the government and the end of cheap funds to fuel investment in risky areas of the globe will wear down risk appetite. This influence is already starting to show through on benchmarks for capital markets that are more sensitive to speculative changes. On the other hand, the more lasting effect of this event is the effect an eventual withdrawal of capital will have on US rates. As these funds are mopped up as the Fed works down its balance sheet; liquidity will tighten up and capital will be more expensive (rates rise). Of course, all of this is predicated on the central bank avoiding a QE3 – though such an effort would cause far more problems than it would solve.
Euro: Taking the Greece Debt Crisis One Step at a Time
European officials seem to be continuously putting out fires. This past week, the positive Greek confidence vote for Papandreou quashed one concern while the tentative cabinet and Troika (EU/IMF/ECB) agreement for a proposed budget put out another. Yet, Greece is not a problem that can be corrected with any single effort. Next week, we will see whether the nation’s Parliament will accept another 78 billion euros in cuts, the EU will agree to a second bailout and the IMF accepts the efforts made to release the next round of aid. Furthermore, the infection seems to be spreading. We have learned that ECB lending to regional banks has soared, Spanish debt spreads have hit record highs and 16 Italian banks have been put on credit watch by Moody’s (a week after the sovereign debt was put on review). The euro is at clear risk.
British Pound Readies for a Round of Growth-Reflecting Data
Interest rate expectations have completely abandoned the sterling thanks to the BoE’s recent shift in tone and long-standing disbelief towards inflation; while the nation seems further removed from the prospect of financial crises thanks to austerity and regulatory efforts. So what do we watch for the pound? Growth. Housing, lending, consumer confidence and manufacturing activity data are all do in the coming week.
Canadian Dollar Unlikely to Receive Much of a Boost from Inflation
We have discussed the dichotomy between interest rate expectations and the approach that monetary policy officials have taken over the past months; but recently, it seems market forecasts are coming back down to earth. The 12-month interest rate outlook (like the rest of the market) has dropped back to six-month lows – closer to the line that the BoC offers. This should undermine the influence a 3.3 percent CPI reading has.
Japanese Yen: Jobs, Inflation Spending and Business Health Updates Due
For all intents and purposes, the Japanese yen does not follow the standard lines of fundamental positioning. Uniquely a funding currency, the yen often finds its direction and intensity through underlying investor sentiment. However, this fixed relationship to risk changes over time. And, for that reason, we need to monitor the broad range of growth readings due next week. This will help determine USDJPY’s future.
Oil Prices Just as Sensitive to Speculative Interests as Supply and Demand
It’s a precarious position to end the week. US Oil (Light Sweet Crude), ended just above the $90-per-barrel market. To the casual observer, this is a notable, round figure. However, to the macro trader; this is the level at which the rising trend from February 2009 lows now stands. Growth is certainly slowing, and this is contributing to the slump. That said, a real collapse here would come from a withdrawal of speculative positioning.
Gold Tumble at Risk of Developing into a Lasting Bear Trend
A critical break from trend for gold began on Thursday; but it is arguably the confirmation of such a meaningful move that is really important. That is exactly what we found on Friday with another 1.3 percent drop to follow the biggest decline in a month. Is this move a reflection of risk aversion? No. Gold is traditionally a safe haven. This particular move comes via the dollar as the promise of higher yields diverts capital.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
22:45 (Sun) |
NZD |
Trade Balance (New Zealand dollars) (MAY) |
1113M |
Exports may be hurt by exceptionally strong New Zealand dollar versus the Australian dollar, gradual Chinese tightening |
|
|
22:45 (Sun) |
NZD |
Exports (New Zealand dollars) (MAY) |
5M |
||
|
22:45 (Sun) |
NZD |
Imports (New Zealand dollars) (MAY) |
4M |
||
|
22:45 (Sun) |
NZD |
Balance (YTD) (New Zealand dollars) (MAY) |
1187 |
||
|
23:01 (Sun) |
GBP |
Lloyds Business Barometer (JUN) |
14 |
Gauge has remained stagnant |
|
|
2:00 |
CNY |
Industrial Profits YTD YoY (MAY) |
29.7% |
May profits will guide further policy |
|
|
8:00 |
EUR |
Italian Hourly Wages (MoM) (MAY) |
0.1% |
Showing some signs of recovery |
|
|
8:00 |
EUR |
Italian Hourly Wages (YoY) (MAY) |
1.8% |
||
|
12:30 |
USD |
Personal Consumption Exp Core (MoM) (MAY) |
0.2% |
0.2% |
Major gauge of consumption will shed light on current American sentiment, spending patterns into the second half of the year |
|
12:30 |
USD |
Personal Spending (MAY) |
0.1% |
0.4% |
|
|
12:30 |
USD |
Personal Consumption Exp Core (YoY) (MAY) |
1.1% |
1.0% |
|
|
12:30 |
USD |
Personal Consumption Exp Deflator (YoY) (MAY) |
2.4% |
2.2% |
|
|
12:30 |
USD |
Personal Income (MAY) |
0.4% |
0.4% |
|
|
14:30 |
USD |
Dallas Fed Manufacturing Activity (JUN) |
-7.4 |
Midwest industries expected to recover |
|
|
23:50 |
JPY |
Retail Trade (YoY) (MAY) |
-4.8% |
Domestic output data still expected slower than previous as nation continues to recover |
|
|
23:50 |
JPY |
Retail Trade s.a. (MoM) (MAY) |
1.3% |
4.1% |
|
|
23:50 |
JPY |
Large Retailers’ Sales (MAY) |
-1.3% |
-1.9% |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
13:00 |
USD |
U.S.-India Economic Dialogue in Washington |
|
15:00 |
USD |
Fed’s Kocherlakota Speaks on Leverage in Big Sky |
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 |
1.6600 |
89.00 |
0.9345 |
1.0275 |
1.1800 |
0.8400 |
122.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6300 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8215 |
118.00 |
140.00 |
|
Spot |
1.4242 |
1.5996 |
80.57 |
0.8381 |
0.9788 |
1.0518 |
0.8135 |
114.76 |
128.89 |
|
Support 1 |
1.4000 |
1.5935 |
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 |
11.8682 |
1.6301 |
6.8360 |
7.7901 |
1.2369 |
Spot |
6.4563 |
5.2370 |
5.4648 |
|
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 |
1.4473 |
1.6139 |
81.06 |
0.8469 |
0.9887 |
1.0640 |
0.8227 |
116.25 |
129.77 |
|
Resist 1 |
1.4358 |
1.6068 |
80.82 |
0.8425 |
0.9837 |
1.0579 |
0.8181 |
115.50 |
129.33 |
|
Pivot |
1.4242 |
1.6003 |
80.55 |
0.8395 |
0.9776 |
1.0517 |
0.8132 |
114.68 |
128.91 |
|
Support 1 |
1.4127 |
1.5932 |
80.31 |
0.8351 |
0.9726 |
1.0456 |
0.8086 |
113.93 |
128.46 |
|
Support 2 |
1.4011 |
1.5867 |
80.04 |
0.8321 |
0.9665 |
1.0394 |
0.8037 |
113.11 |
128.04 |
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 |
1.4440 |
1.6166 |
81.40 |
0.8488 |
0.9885 |
1.0663 |
0.8251 |
116.44 |
130.49 |
|
Resist. 2 |
1.4391 |
1.6124 |
81.20 |
0.8461 |
0.9861 |
1.0627 |
0.8222 |
116.02 |
130.09 |
|
Resist. 1 |
1.4341 |
1.6081 |
80.99 |
0.8434 |
0.9836 |
1.0591 |
0.8193 |
115.60 |
129.69 |
|
Spot |
1.4242 |
1.5996 |
80.57 |
0.8381 |
0.9788 |
1.0518 |
0.8135 |
114.76 |
128.89 |
|
Support 1 |
1.4143 |
1.5911 |
80.15 |
0.8328 |
0.9740 |
1.0445 |
0.8077 |
113.92 |
128.08 |
|
Support 2 |
1.4093 |
1.5868 |
79.94 |
0.8301 |
0.9715 |
1.0409 |
0.8048 |
113.50 |
127.68 |
|
Support 3 |
1.4044 |
1.5826 |
79.74 |
0.8274 |
0.9691 |
1.0373 |
0.8019 |
113.08 |
127.28 |
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
