- Dollar Surges as the Market Flees the Euro, Demands Liquidity
- Euro: Why are Greek Politics any More Important than Other Concerns
- British Pound Finds Little Support in Employment Numbers Through Austerity Effects
- Swiss Franc Traders Ready for SNB Rate Decision
- New Zealand Dollar Tumbles as Risk Collapses, English Talks Down the Currency
- Canadian Dollar on the Verge of Reversal as Markets Question Currency’s Strength
- Gold Weathers Greenback Rally through Risk Aversion Appeal
Dollar Surges as the Market Flees the Euro, Demands Liquidity
Having opened the week with a pullback, the dollar was back in form through Wednesday’s close and heading into the new trading day Thursday. The combination of a sudden flight from the euro, market-wide risk aversion and a swell in long-dated interest rate expectations for the US led the greenback to post fresh three-week highs. Furthermore, for a performance review; the Dow Jones FXCM Dollar Index closed out its biggest single-day advance since October 19th with a 1.4 percent surge. The strength of this move is not in question. Yet, what traders should ask is whether this is the catalyst for a bigger move or simply a fleeting response to an unexpected market shock. Looking across the majors, there is strong evidence to suggest the benchmark currency’s strength is lasting. For the core European currencies, the dollar enjoyed its strongest run versus the euro in over a month and the sterling in six months. For a reflection on risk trends, the greenback jumped 1.4 percent against the New Zealand currency, 1.1 percent versus the Canadian dollar and 1.0 percent when paired with the Aussie unit. Yet, if this were merely a run on risk appetite, the benchmark currency wouldn’t have advanced 0.6 percent against the primary funding currency in the yen or 0.9 percent versus the better-positioned safe-haven Swiss franc.
From the breakdown of performance, there is strong evidence that the momentum through Wednesday and into Thursday was uniquely dollar-strength. However, sustainability is still an issue of underlying fundamentals. From the docket, we can highlight a few key economic considerations that may have contributed to the currency’s run (headline CPI advanced to a two-and-a-half year high, 3.6 percent pace, adding to rate expectations; while industrial production printed a weaker-than-expected 0.1 percent increase for May to curb risk trends); but data alone can’t carry a move of this magnitude. Far more important to dollar traders is the slide in risk appetite trends (that led the S&P 500 to fresh three-month lows) and the wholesale exit from European assets.
While the US dollar is still the most-heavily traded currency and retains its reserve currency status; its real risk-aversion appeal is the liquidity the currency represents. The US Treasury and money markets are the largest in the world; and this is a highly-prized trait when uncertainty and a shortage of funds send investors scrambling. That was the true source of volatility through the past 24 hours: news that Greece would shuffle its government leveraged the possibility of a downgrade which in turn generated fear of private banking downgrades and financial institutions reducing their credit lines. Without the abundance of cheap funding that so many speculators have come dependent upon, the market went rushing back to its preferred harbor in uncertain times: the dollar.
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: EURUSD and NZDUSD for Risk Aversion, GBPUSD a Counterpart
Euro: Why are Greek Politics any More Important than Other Concerns
Shockwaves spread through the European markets through Wednesday’s session on speculation that Greece’s Prime Minister George Papandreou was preparing to step down to form a coalition cabinet. Why would this be any worse than previous speculation that country was threatening to withdrawal from the euro or the EU may withhold further stimulus? With European lawmakers failing to come to an agreement on the troubled member’s second bailout earlier in the week, this stands as an additional roadblock to progress towards stabilizing the region’s instability. And, the confirmation from the Prime Minister that he would not step down but rather reshuffle his cabinet and call a confidence vote does little to improve the situation. A default for Greece looks inevitable now – and more importantly, the market seems resigned to this reality.
British Pound Finds Little Support in Employment Numbers Through Austerity Effects
A distinct relationship to risk appetite trends and the Euro-area economy would not do the sterling any favors through Wednesday’s remarkable volatility. However, there were fundamental concerns for the UK to consider as well. With investors and policymakers keeping a close eye on the side effects of austerity; we saw a 19,600-person increase in jobless claims (the biggest increase in nearly a decade).
Swiss Franc Traders Ready for SNB Rate Decision
A good way to gauge the underlying health of the Swiss franc is to measure its performance against fellow ‘safe havens.’ Taking this route, we note that both the dollar and Japanese yen have advanced against the currency. This distinct drop can be traced back to the recently overlooked link the Swiss economy has to the larger Euro Zone. Soon, we will see if the SNB can at least mimic the euro’s flattering side: rates.
New Zealand Dollar Tumbles as Risk Collapses, English Talks Down the Currency
Along with the Swiss franc, the New Zealand dollar is the most overbought currency amongst the majors: having rallied through the post-Japanese quake recovery and then on speculation that the RBNZ would quickly reversed its 50bps rate cut. Rate forecasts are still elevated (62bps over 12 months); but the swell in risk aversion and pressure from the government to keep rates low will cut into further kiwi strength.
Canadian Dollar on the Verge of Reversal as Markets Question Currency’s Strength
It is a dubious practice to take correlations at face value without understanding fundamental connections; but we cannot ignore the influence the tentative break on US oil below long-standing (three-month) support around 96.25/95.00 can have on USDCAD. There are few isolated drivers that can guide this particularly pair to a meaningful trend; and commodity exports along with liquidity demands are two key potentials.
Gold Weathers Greenback Rally through Risk Aversion Appeal
If we were dealing with normal market conditions, the biggest rally from the US dollar in months would naturally lead to a sharp drop in gold; but that was not the case for the precious metal this past 12 hours. When the markets are panicked and demanding stability, they will increasingly avoid questions of a debt ceiling breach in the US and go straight to the safety of history’s favored alternative store of wealth: gold.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
1:00 |
AUD |
Consumer Inflation Expectation (JUN) |
3.3% |
Important gauge of Q2 inflation – Governor Stevens say great importance |
|
|
1:30 |
AUD |
New Motor Vehicle Sales (MoM) (MAY) |
-3.5% |
May indicate direction of retail sales and consumption, affect rate increases |
|
|
1:30 |
AUD |
New Motor Vehicle Sales (YoY) (MAY) |
-8.4% |
||
|
1:30 |
AUD |
RBA Foreign Exchange Transaction (AUD) (MAY) |
570M |
Could fall as risk aversion sets in |
|
|
4:00 |
JPY |
Tokyo Condominium Sales (YoY) (MAY) |
-27.3% |
Consumption could gauge recovery status |
|
|
7:15 |
CHF |
Industrial Production (QoQ) (1Q) |
-7.8% |
7.4% |
Slower industries due to lower exports unlikely to change SNB decisions |
|
7:15 |
CHF |
Industrial Production (YoY) (1Q) |
5.6% |
6.1% |
|
|
7:30 |
CHF |
Swiss National Bank Rate Decision |
0.25% |
0.25% |
Widely expected maintain hands-off |
|
8:00 |
EUR |
Italian CPI (NIC incl. tobacco) (MoM) (MAY F) |
0.1% |
0.1% |
First inflation report before overall Eurozone – still expected to slow |
|
8:00 |
EUR |
Italian CPI (NIC incl. tobacco) (YoY) (MAY F) |
2.0% |
2.6% |
|
|
8:00 |
EUR |
Italian CPI – EU Harmonized (MoM) (MAY F) |
0.2% |
0.2% |
|
|
8:00 |
EUR |
Italian CPI – EU Harmonized (YoY) (MAY F) |
3.0% |
3.0% |
|
|
8:30 |
GBP |
Retail Sales (MoM) (MAY) |
-0.6% |
1.1% |
Major data event for a pound lower after risk-aversion sell off. Lower retain sales will confirm slowing economy, could keep rates from rising |
|
8:30 |
GBP |
Retail Sales (YoY) (MAY) |
1.5% |
2.8% |
|
|
8:30 |
GBP |
Retail Sales Ex/Auto Fuel (MoM) (MAY) |
-0.6% |
1.2% |
|
|
8:30 |
GBP |
Retail Sales Ex/Auto Fuel (YoY) (MAY) |
1.7% |
2.7% |
|
|
9:00 |
EUR |
Euro-Zone CPI – Core (YoY) (MAY) |
1.6% |
1.6% |
Major event for Euro as lower inflation will take ammunition from ECB hawks; President Trichet expected to raise rates in July |
|
9:00 |
EUR |
Euro-Zone CPI (MoM) (MAY) |
0.0% |
0.6% |
|
|
9:00 |
EUR |
Euro-Zone CPI (YoY) (MAY) |
2.7% |
2.8% |
|
|
9:00 |
EUR |
Euro-Zone Employment (QoQ) (1Q) |
0.2% |
Peripheral countries may still drag data |
|
|
9:00 |
EUR |
Euro-Zone Employment (YoY) (1Q) |
0.2% |
||
|
12:30 |
CAD |
Intl Securities Transactions (Canadian dollar) (APR) |
8.000B |
6.339B |
Expected to gain though exports slow |
|
12:30 |
USD |
Initial Jobless Claims (JUN 11) |
420K |
427K |
Labor market conditions still expected to weaken in the US heading into summer |
|
12:30 |
USD |
Continuing Claims (JUN 4) |
3670K |
3676K |
|
|
12:30 |
USD |
Building Permits (MoM%) (MAY) |
-1.1% |
-4.0% |
A recent recovery in construction could lead US out of stagnation |
|
12:30 |
USD |
Housing Starts (MoM%) (MAY) |
4.2% |
-10.6% |
|
|
12:30 |
USD |
Building Permits (MAY) |
557K |
563K |
|
|
12:30 |
USD |
Housing Starts (MAY) |
545K |
523K |
|
|
12:30 |
USD |
Current Account Balance (1Q) |
-$130.0B |
-$113.3B |
Exports expected to grow |
|
13:45 |
USD |
Bloomberg Economic Expectations (JUN) |
-16 |
Levels for June could be indicative of economic conditions going into summer |
|
|
13:45 |
USD |
Bloomberg Consumer Comfort (JUN 12) |
-45.9 |
||
|
14:00 |
USD |
Philadelphia Fed. (JUN) |
7 |
3.9 |
Industrial index expected to jump |
|
14:30 |
USD |
EIA Natural Gas Storage Change (JUN 10) |
69 |
80 |
Despite lower demand, expected lower |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
2:00 |
CNY |
Conference Board China April Leading Economic Index |
|
12:30 |
USD |
Annual Revisions: Current Account |
|
23:50 |
JPY |
BOJ to Publish Minutes of May 19-20 Board Meeting |
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 |
1.4182 |
1.6170 |
80.96 |
0.8526 |
0.9783 |
1.0567 |
0.8055 |
114.81 |
130.91 |
|
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 |
11.9153 |
1.6077 |
6.8395 |
7.7906 |
1.2382 |
Spot |
6.4757 |
5.2595 |
5.5512 |
|
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 |
1.4559 |
1.6455 |
81.48 |
0.8615 |
0.9919 |
1.0785 |
0.8274 |
117.19 |
132.57 |
|
Resist 1 |
1.4371 |
1.6313 |
81.22 |
0.8570 |
0.9851 |
1.0676 |
0.8164 |
116.00 |
131.74 |
|
Pivot |
1.4263 |
1.6240 |
80.80 |
0.8507 |
0.9761 |
1.0606 |
0.8099 |
115.28 |
131.22 |
|
Support 1 |
1.4075 |
1.6098 |
80.54 |
0.8462 |
0.9693 |
1.0497 |
0.7989 |
114.09 |
130.39 |
|
Support 2 |
1.3967 |
1.6025 |
80.12 |
0.8399 |
0.9603 |
1.0427 |
0.7924 |
113.37 |
129.87 |
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 |
1.4382 |
1.6334 |
81.83 |
0.8641 |
0.9874 |
1.0708 |
0.8167 |
116.51 |
132.55 |
|
Resist. 2 |
1.4332 |
1.6293 |
81.61 |
0.8612 |
0.9852 |
1.0673 |
0.8139 |
116.08 |
132.14 |
|
Resist. 1 |
1.4282 |
1.6252 |
81.39 |
0.8584 |
0.9829 |
1.0638 |
0.8111 |
115.66 |
131.73 |
|
Spot |
1.4182 |
1.6170 |
80.96 |
0.8526 |
0.9783 |
1.0567 |
0.8055 |
114.81 |
130.91 |
|
Support 1 |
1.4082 |
1.6088 |
80.53 |
0.8468 |
0.9737 |
1.0496 |
0.7999 |
113.96 |
130.09 |
|
Support 2 |
1.4032 |
1.6047 |
80.31 |
0.8440 |
0.9714 |
1.0461 |
0.7971 |
113.54 |
129.68 |
|
Support 3 |
1.3982 |
1.6006 |
80.09 |
0.8411 |
0.9692 |
1.0426 |
0.7943 |
113.11 |
129.27 |
v
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
