- Dollar Once again in Danger of a Critical Bearish Breakdown Despite Favorable Risk Flows
- Euro Threat Level Raised Once again as Portugal Downgrade and EU Infighting Threatens Fresh Crisis
- Japanese Yen Jostled between Carry Flows and Capital Market Concerns as BoJ Pumps Liquidity
- Australian Dollar Slip Could Turn into a Tumble as Rate Expectations Start to Call for Cut
- British Pound Could Suffer the Most from Tempered Rate Forecasts as Speculation Spurned
- Gold Suffers its Biggest Loss in Six Weeks as Traders Post Margin
Dollar Once again in Danger of a Critical Bearish Breakdown Despite Favorable Risk Flows
We have one of the most consistent and dramatic tumbles in investor sentiment in months; and the Dollar Index finds itself once again on the verge of breaking a critical three-year support. This seems like a contradiction in terms; but it is not. As we have discussed before, this trade-weighted index is heavily unbalanced to reflect the liquidity of EURUSD. And, this particular pair is projecting its own unique idiosyncrasies as the euro is processing elevated rate expectations and the possibilities of improved market functioning following a surprisingly accommodative EU summit just this past weekend. If we look outside the influence of this one pair, the dollar’s safe haven aspects are better reflected. The dollar has shown notable gains against the British pound, Canadian dollar, Australian dollar and New Zealand dollar. Yet, when EURUSD – and more importantly, the complicated risk bearings of USDJPY and USDCHF – respond with strong dollar rallies, we will know sentiment trends are truly unbalanced. Consequently, we need to keep a close eye on equities, overnight rates, commodities and how they all move together.
In the meantime, there is more to the dollar’s fundamental backdrop than just a push and pull through risk appetite. There is also speculation surrounding interest rate expectations. On that front, the Fed offered some guidance with its rate decision Tuesday. The inclusion of the now-infamous reference to “exceptionally low” rates for an extended period along with a unanimous vote curbs speculation of a hike within six months and early end to QE2. On the other hand, positive reference to growth and limited concern of a global crisis tempers the probability of QE3.
Related:Discuss the Dollar in the DailyFX Forum,
Euro Threat Level Raised Once again as Portugal Downgrade and EU Infighting Threatens Fresh Crisis
With the financial rout in Japan, currency traders have been distracted. Excessive volatility and fear that liquidity will dry up speaks to the market’s more primal side. Yet, in the shock that followed Asia’s dramatic decline, we were faced with obvious and not-so-obvious developments in Europe that warrant our attention. In the ‘obvious’ column was the impact that underlying risk trends would have on the region’s benchmark equity indexes. The German DAX led the region’s knee-jerk reaction with an intraday decline that plunged as low as 5.8 percent. In contrast, the Greek equivalent dropped as much as 4.3 percent, Italy 3.8 percent and Ireland 3.7 percent. These can be chalked up to international investors’ common reaction to a global event. Yet, we have to further consider what the troubles in Japan arouse for the Euro Zone. Interest rate expectations for one were significantly impacted with the 12-month rate outlook now around 100 basis points where it was at 122 bps less than a week before. More direct is the issue that uncertainty borne in any other region of the global financial market will undermine confidence when it comes to the dubious health of European financials.
EU officials have worked hard to bolster market confidence in the region to avoid the impact of another crisis. However, if sentiment is diminished globally, there is little Europe can do to boost capital turnover. Furthermore, a more skeptical crowd will be more weary of those region’s with existing difficulties. So, despite the near colossal effort (for EU officials) to agree to lowering Greek rates, allowing the EFSF to buy government bonds on the primary market and extending support beyond 2013; the market may simply turn too bearish to respond to the effort. Not helping matters at all was Moody’s decision to downgrade Portugal from A1 to A3 while keeping their outlook ‘negative.’ This is unfortunate timing considering the country has a planned bond auction of up to 1 billion euros worth of one-year bills. This establishes a very specific hazard ahead. On the other hand, there is the off-chance that a strong CPI reading could fortify expectations of an April rate hike.
Japanese Yen Jostled between Carry Flows and Capital Market Concerns as BoJ Pumps Liquidity
A third volatile day ended for the Japanese yen Tuesday; but it seems heading into today’s trading session, that rational minds are once again returning to the market place. This does not by any means guarantee stability from here on out; but it is a welcome break from the spectacular shifts between panicked selling and wholesale speculative buying. Though activity has settled, the contradictory flows between carry unwinding keeping the yen bid and foreign capital leaving the Japanese markets is still in place. There was speculation in the New York session that the BoJ had intervened and triggered a short bout of volatility. It is unlikely that we will learn whether this was indeed the case or not for some time (if ever); but the results will be the same regardless – aside from a 60 point swing in the matter of a few minutes, USDJPY was little moved after the market absorbed the move. Besides, the central bank is more preoccupied with the bigger concern of promoting stability in its markets by pumping stimulus into the system. At this point, developments with the Fukushima nuclear crisis and aftershocks are the biggest threats.
Australian Dollar Slip Could Turn into a Tumble as Rate Expectations Start to Call for Cut
The Australian dollar followed the plunge and partial rebound of global equities Tuesday; and the currency will likely track risk trends pretty closely going forward. However, there is a growing fundamental concern surrounding the Aussie dollar that runs deeper than just this reactive nature. Over the past months, we have the market play down China’s efforts to slow its growth and devastating natural disasters. However, thing that may finally let the air out of the Aussie could be rate expectations. Previously nonexistent, there is now speculation of a near-term cut.
British Pound Could Suffer the Most from Tempered Rate Forecasts as Speculation Spurned
Interest rate expectations across the major financial centers tumbled Tuesday; and many yield-dependent currencies suffered for it. However, the pain may be greatest for the sterling going forward consider much of its strength is found not on actual hikes; but expectations of one. The spread of financial fear could further justify a BoE hold. In the meantime, we will watch the jobless claims data for volatility implications.
Gold Suffers its Biggest Loss in Six Weeks as Traders Post Margin
This is not what is traditionally expected from a safe haven (particularly an asset that is also considered an alternative to traditional currencies). Gold marked its biggest selloff in six weeks on the highest level of turnover since the very beginning of the year all while risk trends plunged. The motive: the need for capital. Margin calls on more speculative positions leads investors to take profit on gold positions to access capital.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
NZD |
21:00 |
Westpac NZ Consumer Confidence (1Q) |
108.3 |
Confidence likely to have dropped following earthquake in Christchurch. |
|
|
AUD |
23:30 |
Westpac Leading Index (MoM) |
0.8% |
Index has been positive since May 2009. |
|
|
JPY |
23:50 |
BSI Large All Industry (QoQ) |
-5.00 |
Economy had started to slip in first quarter. |
|
|
JPY |
23:50 |
BSI Large Manufacturing (QoQ) |
-8.00 |
||
|
AUD |
00:00 |
Consumer Inflation Expectation |
4.3% |
Rising commodity prices likely boosted expectations. |
|
|
EUR |
07:00 |
EU 25 New Car Registrations (FEB) |
-1.4% |
Registrations could grow for first time since last March. |
|
|
EUR |
09:00 |
Italian CPI – (NIC incl. tobacco) (YoY) (FEB F) |
2.4% |
2.4% |
Rising inflationary pressures adds to sentiment that ECB will raise interest rates at next meeting. |
|
EUR |
09:00 |
Italian CPI – (NIC incl. tobacco) (MoM) (FEB F) |
0.3% |
0.3% |
|
|
EUR |
09:00 |
Italian CPI – EU Harmonized (MoM) (FEB F) |
0.2% |
0.2% |
|
|
EUR |
09:00 |
Italian CPI – EU Harmonized (YoY) (FEB F) |
2.1% |
2.1% |
|
|
GBP |
09:30 |
Jobless Claims Change (FEB) |
1.3K |
2.4K |
The British labor market continues to rebound at a much slower pace than its Euro-zone and American counterparts. |
|
GBP |
09:30 |
Claimant Count Rate (FEB) |
4.5% |
4.5% |
|
|
GBP |
09:30 |
ILO Unemployment Rate (3M) (JAN) |
7.9% |
7.9% |
|
|
GBP |
09:30 |
Weekly Earnings ex Bonus 3M/YoY (JAN) |
2.2% |
2.3% |
|
|
GBP |
09:30 |
Average Weekly Earnings 3M/YoY |
2.1% |
1.8% |
|
|
EUR |
10:00 |
Euro-Zone CPI – Core (YoY) (FEB) |
1.1% |
1.1% |
Prices pressures continue to mount ahead of next ECB meeting. |
|
EUR |
10:00 |
Euro-Zone CPI (MoM) (FEB) |
0.4% |
-0.7% |
|
|
EUR |
10:00 |
Euro-Zone CPI (YoY) (FEB) |
2.4% |
||
|
CHF |
10:00 |
ZEW Survey (Expectations) (MAR) |
-17.20 |
Slowed growth likely to weigh on expectations. |
|
|
EUR |
10:00 |
Euro-Zone Labor Costs (YoY) (4Q) |
1.0% |
Rising costs a function of inflation, not wages. |
|
|
USD |
11:00 |
MBA Mortgage Applications (MAR 11) |
15.5% |
Sustained low rates could extend period of high applications. |
|
|
12:30 |
Manufacturing Shipments (MoM) (JAN) |
1.0% |
0.40% |
Weaker Loonie in January helped exports. |
|
|
USD |
12:30 |
Housing Starts (FEB) |
567K |
596K |
Housing market continuing to show signs of life, but it remains to be one of the last industries to rebound. |
|
USD |
12:30 |
Housing Starts (MoM%) (FEB) |
-5.0% |
14.6% |
|
|
USD |
12:30 |
Building Permits (JAN) |
570K |
563K |
|
|
USD |
12:30 |
Building Permits (MoM%) (FEB) |
1.2% |
-10.4% |
|
|
USD |
12:30 |
Current Account Balance 4Q |
-$110.0B |
-$127.2B |
Weaker dollar in 4Q helps deficit. |
|
USD |
12:30 |
PPI Ex Food & Energy (MoM) (FEB) |
0.2% |
0.5% |
Any further jumps in prices could necessitate an interest rate hike by the FOMC. |
|
USD |
12:30 |
PPI (YoY) (FEB) |
4.7% |
3.6% |
|
|
USD |
12:30 |
Producer Price Index (MoM) (FEB) |
0.6% |
0.8% |
|
|
USD |
12:30 |
PPI Ex Food & Energy (YoY) (FEB) |
1.8% |
1.6% |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
EUR |
10:30 |
Portugal to Sell up to 1 Billion Euros in Debt |
|
USD |
11:30 |
Fed’s Parkinson Addresses American Bankers Association |
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 |
1.4280 |
1.6420 |
89.00 |
1.0000 |
1.0275 |
1.0600 |
0.8230 |
127.60 |
146.05 |
|
Resist 1 |
1.4025 |
1.6300 |
86.00 |
0.9775 |
1.0000 |
1.0200 |
0.8000 |
120.00 |
140.00 |
|
Spot |
1.4009 |
1.6090 |
80.86 |
0.9171 |
0.9818 |
0.9907 |
0.7310 |
113.27 |
130.10 |
|
Support 1 |
1.3700 |
1.5750 |
80.00 |
0.9200 |
0.9700 |
0.9600 |
0.6850 |
103.80 |
125.00 |
|
Support 2 |
1.3450 |
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 |
7.4025 |
7.8165 |
1.4945 |
Resist 2 |
7.7500 |
5.7800 |
6.2750 |
|
Resist 1 |
12.5000 |
1.6300 |
7.3500 |
7.8075 |
1.4655 |
Resist 1 |
7.5800 |
5.6625 |
6.1150 |
|
Spot |
11.9804 |
1.5795 |
6.9702 |
7.7971 |
1.2804 |
Spot |
6.3790 |
5.3245 |
5.6422 |
|
Support 1 |
11.7200 |
1.5300 |
6.7600 |
7.7490 |
1.2700 |
Support 1 |
6.2850 |
5.2625 |
5.5550 |
|
Support 2 |
11.4400 |
1.4725 |
6.5575 |
7.7450 |
1.2500 |
Support 2 |
6.1250 |
5.1000 |
5.5125 |
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 |
1.4112 |
1.6291 |
82.56 |
0.9299 |
1.0081 |
1.0234 |
0.7468 |
115.98 |
133.99 |
|
Resist 1 |
1.4060 |
1.6191 |
81.71 |
0.9235 |
0.9950 |
1.0071 |
0.7389 |
114.62 |
132.04 |
|
Pivot |
1.3958 |
1.6084 |
81.16 |
0.9188 |
0.9842 |
0.9943 |
0.7328 |
113.30 |
130.62 |
|
Support 1 |
1.3906 |
1.5984 |
80.31 |
0.9124 |
0.9711 |
0.9780 |
0.7249 |
111.94 |
128.67 |
|
Support 2 |
1.3804 |
1.5877 |
79.76 |
0.9077 |
0.9603 |
0.9652 |
0.7188 |
110.62 |
127.25 |
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 |
1.4177 |
1.6250 |
82.05 |
0.9280 |
0.9924 |
1.0048 |
0.7417 |
115.00 |
132.08 |
|
Resist. 2 |
1.4135 |
1.6210 |
81.75 |
0.9253 |
0.9897 |
1.0013 |
0.7390 |
114.57 |
131.58 |
|
Resist. 1 |
1.4093 |
1.6170 |
81.46 |
0.9226 |
0.9871 |
0.9977 |
0.7364 |
114.13 |
131.09 |
|
Spot |
1.4009 |
1.6090 |
80.86 |
0.9171 |
0.9818 |
0.9907 |
0.7310 |
113.27 |
130.10 |
|
Support 1 |
1.3925 |
1.6010 |
80.26 |
0.9116 |
0.9765 |
0.9837 |
0.7256 |
112.41 |
129.11 |
|
Support 2 |
1.3883 |
1.5970 |
79.97 |
0.9089 |
0.9739 |
0.9801 |
0.7230 |
111.97 |
128.62 |
|
Support 3 |
1.3841 |
1.5930 |
79.67 |
0.9062 |
0.9712 |
0.9766 |
0.7203 |
111.54 |
128.12 |
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
