- Dollar Oscillates Between Gains and Losses as Fitch Warns on Credit Rating
- Euro Consolidates before ECB Decision, What Should We Look For?
- British Pound Traders Expect No Change from the BoE, But Watch for Surprises
- New Zealand Dollar Rallies after RBNZ Sees Gradual Rate Increase Over Two Years
- Australian Dollar Stumbles after Employment Data Confirms Slowing Economy
- Canadian Dollar Faces Housing, Trade Data before Friday’s Employment Report
- Gold Retreats as Dollar Advances, US Credit Rating Warning Spurs Little Fear
Dollar Oscillates Between Gains and Losses as Fitch Warns on Credit Rating
The US dollar managed its strongest advance in over two weeks through Wednesday’s close; but the currency is still lacking for the kind of momentum and conviction that can spark a true recovery effort. While we can point to the extended decline from the S&P 500, notable weakness in the euro and murmurings of no QE3 program on the horizon as catalysts for the greenback’s gains; none of these trends have any real traction just yet. And, that lack of a fundamental drive means the dollar will struggle to establish a meaningful trend just as surely as risk trends, gold or global equities will. That said, meaningful fundamental waves lie ahead – both with and without predictable times frames. It is only a matter of time before the global markets reestablish a clear bearing and revive cross-asset correlations. Considering many of these underlying drivers involve stimulus and sentiment sourced from the US, it stands to reason that the dollar will offer a leading indication of the sea change.
While we wait for the major market event to happen, we’ll keep an eye on those early warning signs that reflect investors’ interests and ultimately offer guidance for the benchmark currency. Through this past trading session, we saw the dollar put in for a notable advance against the euro, pound and commodity bloc. Indeed, the Dow Jones FXCM Dollar Index advanced 0.49 percent to top 9,500. To many, this would be a clear enough sign that the dollar itself was outperforming; but there are a few interesting subtleties to this move that suggest it is once again a borrowed and temporary advance. An interesting break from the dollar’s rally found both USDJPY and USDCHF fighting what would otherwise seem a strong bid. The greenback underperforms against these two specific counterparts when risk trends are the basis for the currency’s strength. In fact, the S&P 500 extended its decline for a fifth consecutive session to fresh ten-week lows – leading to a shift to safe havens (the franc as well as the dollar) and an unwinding of carry trades (guiding repatriation back to the yen).
Traditional event risk for the day was broadly mixed for the day. For scheduled event, the Fed was particularly active. The central bank’s guide for economic forecasts two weeks ahead of its monetary policy decision – the Beige Book – reported the economy was “generally” growing at a “steady pace.” Furthermore, the reported noted “widespread improvement” in credit conditions and a gradual improvement in labor markets for most regions. To put a more hawkish spin on the day, Kansas City Fed President Thomas Hoenig said that the central bank has to “begin the process of tightening” and lead the benchmark back up to 1 percent “within a year” and 2 percent over the medium term. This hawkishness outlook for policy however was marred by Fitches reminder that it could put the US sovereign rating on review for downgrade as soon as August.
Euro Consolidates before ECB Decision, What Should We Look For?
Looking at market-based rates and the consensus forecast for economists, there seems little chance of an ECB hike at its upcoming meeting. Nevertheless, this event has the potential to generate remarkable volatility for the euro. Where money markets are actually pricing in a very slight chance of a 25bp cut and all 52 of the contributors to Bloomberg’s survey expect a hold at 1.25 percent; the real point of speculation exists with the outlook for rates beyond June. Despite the significant troubles with Greece (a Reuters report yesterday suggested the EU/IMF/ECB may not release its next support payment unless the country finances its adjustment program) and other regional players, the market is still expecting Trichet and company to follow up on April’s hike in July or August. Therefore, we will be focusing on their quarterly growth and inflation forecasts while also watching the ECB President for the use of the term ‘strong vigilance’ –considered a precursor to hikes.
British Pound Traders Expect No Change from the BoE, But Watch for Surprises
Where the ECB event can be market moving for speculation and the nuance surrounding its policy decision, the BoE announcement will likely leave the sterling unmoved. Unlike its Euro-Zone counterpart, the Monetary Policy Committee (MPC) does not release a statement when the benchmark and bond purchasing program are unchanged. This allows for little speculation. However, keep an eye on real rates after the print.
New Zealand Dollar Rallies after RBNZ Sees Gradual Rate Increase Over Two Years
The strong recovery from the New Zealand dollar over the past two months initially found support in a notable rebound in risk appetite after the Japanese crisis eased and speculation that the RBNZ would reverse its 50bps cut soon took hold. However, this strength has lasted well beyond its shelf-life. Though it should have surprised no one, the decision this morning offered a little fuel to at least maintain the kiwi’s highs.
Australian Dollar Stumbles after Employment Data Confirms Slowing Economy
Following the relatively mute response to the RBA rate decision earlier this week, expectations for a meaningful reaction to the May employment figures were set low. The 7,500 net increase in payrolls was much smaller than the official forecast and the first back-to-back drop in full-time jobs (the first instance since August of 2009) further curbed confidence in growth and rates. The Aussie dollar is down across the board.
Canadian Dollar Faces Housing, Trade Data before Friday’s Employment Report
Though the Canadian dollar’s top event risk isn’t scheduled until Friday (and that fact may very well act to discourage major shifts in positioning beforehand), we still have notable releases to account for in the upcoming trading session. The housing price index will help gauge consumer credit and lending health; while the trade figure will reflect on one of the Canadian dollar’s primary fundamental drivers for USDCAD.
Gold Retreats as Dollar Advances, US Credit Rating Warning Spurs Little Fear
Risk aversion was one of the major fundamental catalyst for the trading session Wednesday. However, the appeal for safety wasn’t strong enough to send capital fleeing the liquidity of currencies for the alternative value of gold. As such, the stable shift from risky currency to safe currency kept the dollar elevated against the precious metal. Yet, at the same time, this wasn’t enough strength to turn the four-month bull trend.
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:30 |
AUD |
Employment Change (MAY) |
25.0K |
-22.1K |
Rise in hiring would mean a turn for the recently slowing Australian economy, may provide hope for a continued recovery |
|
1:30 |
AUD |
Unemployment Rate (MAY) |
4.9% |
4.9% |
|
|
1:30 |
AUD |
Full Time Employment Change (MAY) |
-49.1K |
||
|
1:30 |
AUD |
Part Time Employment Change (MAY) |
26.9K |
||
|
1:30 |
AUD |
Participation Rate (MAY) |
65.7% |
65.6% |
|
|
5:00 |
JPY |
Consumer Confidence (MAY) |
34.5 |
33.1 |
Has dropped since February 2011 |
|
5:30 |
EUR |
French Non-Farm Payrolls (QoQ) (1Q F) |
0.4% |
0.4% |
French employment expected stagnant |
|
6:00 |
JPY |
Machine Tool Orders (YoY) (MAY P) |
32.3% |
Could suggest direction of recovery |
|
|
6:00 |
EUR |
EUR German Labor Costs Workday Adj (YoY) (1Q) |
1.1% |
May indicate health of German labor markets |
|
|
6:00 |
EUR |
EUR German Labor Costs Season Adj (YoY) (1Q) |
0.7% |
||
|
6:30 |
EUR |
Bank of France Business Sentiment (MAY) |
106 |
107 |
Fall seen on peripheral risk |
|
8:30 |
GBP |
Visible Trade Balance (Pounds) (APR) |
-£7549 |
-£7660 |
Trade deficit expected to close slightly as weaker pound helps exports |
|
8:30 |
GBP |
Trade Balance Non EU (Pounds) (APR) |
-£4350 |
-£4479 |
|
|
8:30 |
GBP |
Total Trade Balance (Pounds) (APR) |
-£2950 |
-£3005 |
|
|
11:00 |
GBP |
BOE Asset Purchase Target (JUN) |
200B |
200B |
Bank largely expected to keep current policies steady as economy slows again |
|
11:00 |
GBP |
Bank of England Rate Decision |
0.5% |
0.5% |
|
|
11:45 |
EUR |
European Central Bank Rate Decision |
1.25% |
1.25% |
Major data of the day – although widely expected to hold, Trichet may be preparing for a hike in July. Most important for movement will be commentary afterwards |
|
12:30 |
CAD |
New Housing Price Index (MoM) (APR) |
0.1% |
0.0% |
Year-over-year decline still suggest problems with sector |
|
12:30 |
CAD |
New Housing Price Index (YoY) (APR) |
1.8% |
1.9% |
|
|
12:30 |
CAD |
International Merchandise Trade (CAD) (APR) |
0.5B |
0.6B |
Trade hurt by slowing US demand |
|
12:30 |
USD |
Initial Jobless Claims (JUN 4) |
419K |
422K |
Weekly claims improve, though may not be enough to counter NFP effects |
|
12:30 |
USD |
Continuing Claims (MAY 28) |
3700K |
3711K |
|
|
12:30 |
USD |
Trade Balance (APR) |
-$48.8B |
-$48.2B |
Weak dollar slowing pace of imports |
|
13:45 |
USD |
Bloomberg Consumer Comfort (JUN 5) |
-47.1 |
Near record lows as economy weak |
|
|
14:00 |
USD |
Wholesale Inventories (APR) |
1.0% |
1.1% |
May point to slowing investment |
|
14:30 |
USD |
EIA Natural Gas Storage Change (JUN 3) |
80 |
83 |
More expensive energy hurting storage |
|
22:45 |
NZD |
Card Spending – Retail MoM (MAY) |
1.5% |
Early indication of consumption may indicate direction of CPI |
|
|
22:45 |
NZD |
NZ Card Spending (MoM) (MAY) |
1.7% |
||
|
23:50 |
JPY |
Tertiary Industry Index (MoM) (APR) |
2.7% |
-6.0% |
Services expected to dramatically improve |
|
23:50 |
JPY |
Dom. Corporate Goods Price Index (MoM) (MAY) |
0.2% |
0.9% |
Static goods price gives no improvement signal, overall economy may still be deflating |
|
23:50 |
JPY |
Domestic Corporate Goods Price Index (YoY) (MAY) |
2.5% |
2.5% |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
8:00 |
USD |
Fed’s Plosser Speaks on U.S. Economy in London |
|
15:30 |
USD |
Fed’s Yellen Speaks on Housing in Cleveland |
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 |
1.6750 |
89.00 |
0.9345 |
1.0275 |
1.1800 |
0.8400 |
122.00 |
146.05 |
|
Resist 1 |
1.5000 |
1.6600 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8215 |
118.00 |
140.00 |
|
Spot |
1.4578 |
1.6385 |
79.87 |
0.8361 |
0.9795 |
1.0615 |
0.8151 |
116.43 |
130.86 |
|
Support 1 |
1.4000 |
1.6160 |
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 |
11.8279 |
1.5834 |
6.7308 |
7.7813 |
1.2331 |
Spot |
6.1837 |
5.1155 |
5.3939 |
|
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 |
1.4741 |
1.6498 |
80.53 |
0.8397 |
0.9867 |
1.0780 |
0.8241 |
118.41 |
132.59 |
|
Resist 1 |
1.4659 |
1.6441 |
80.20 |
0.8379 |
0.9831 |
1.0698 |
0.8196 |
117.42 |
131.73 |
|
Pivot |
1.4614 |
1.6395 |
79.95 |
0.8363 |
0.9785 |
1.0643 |
0.8169 |
116.86 |
131.11 |
|
Support 1 |
1.4532 |
1.6338 |
79.62 |
0.8345 |
0.9749 |
1.0561 |
0.8124 |
115.87 |
130.24 |
|
Support 2 |
1.4487 |
1.6292 |
79.37 |
0.8329 |
0.9703 |
1.0506 |
0.8097 |
115.31 |
129.63 |
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 |
1.4759 |
1.6541 |
80.75 |
0.8464 |
0.9886 |
1.0757 |
0.8263 |
118.09 |
132.48 |
|
Resist. 2 |
1.4714 |
1.6502 |
80.53 |
0.8438 |
0.9863 |
1.0721 |
0.8235 |
117.68 |
132.07 |
|
Resist. 1 |
1.4669 |
1.6463 |
80.31 |
0.8413 |
0.9841 |
1.0686 |
0.8207 |
117.26 |
131.67 |
|
Spot |
1.4578 |
1.6385 |
79.87 |
0.8361 |
0.9795 |
1.0615 |
0.8151 |
116.43 |
130.86 |
|
Support 1 |
1.4487 |
1.6307 |
79.43 |
0.8309 |
0.9749 |
1.0544 |
0.8095 |
115.60 |
130.05 |
|
Support 2 |
1.4442 |
1.6268 |
79.21 |
0.8284 |
0.9727 |
1.0509 |
0.8067 |
115.18 |
129.65 |
|
Support 3 |
1.4397 |
1.6229 |
78.99 |
0.8258 |
0.9704 |
1.0473 |
0.8039 |
114.77 |
129.24 |
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
