- Dollar Posts a Tentative Bounce from Larger Decline as the S&P 500 Threatens Collapse
- Euro Rally Flagging as Greece’s Round Two Bailout Showing Larger Caveats
- Australian Dollar: What is the Market Volatility and Trade Potential for the RBA Decision?
- Canadian Dollar Slips Despite Strong Business Activity Report
- British Pound Stumbles as Osborne, IMF Support Continued Austerity
- Swiss Franc Looking Increasingly Overbought, Searching for a Catalyst for Reversal
- Gold Futures Volume Drops Sharply as Metal Fails to Mount a Rally
Dollar Posts a Tentative Bounce from Larger Decline as the S&P 500 Threatens Collapse
The economic docket for the opening trading day of the new week was light for the US dollar; but there aren’t many specific indicators that can meaningfully shift the currency’s bearing anyway. Far more important are the larger fundamental themes; and that is exactly what was nudging the greenback Monday. Looking to the Dow Jones FXCM Dollar Index, the currency put in for a modest advance after more progressive declines on the previous Thursday and Friday. The nature of this move is corrective – as was the ‘positive’ performance through the first half of last week following the 2 percent drop that preceded it. What this tells us is the market is not yet ready to get behind the dollar’s recovery whether its counterpart be core currencies (which are still advancing against the dollar), fellow safe havens (also still gaining ground on the greenback) or commodity bloc members (who have weakened recently). Yet, there is reason to believe a bigger shift for the dollar is just beginning.
If we had to identify the most influential, potential fundamental driver for the dollar (for immediate impact as well as durability); it would undoubtedly be a shift in US rates. However, even the interest in the withdrawal of austerity and a slow return to rate hikes for the US traces back to risk appetite trends. A rise in rates moves the dollar up the yield spectrum – not necessarily putting it amongst the high yield group; but certainly removing it from the ideal funding currency category. Perhaps the earliest speculation of what market impact a stimulus withdrawal will have is hitting the capital markets first. Considering the US equities market is most dependent on stimulus at its precarious heights, it is reasonable to assume that investors will look to secure gains and avoid a deep correction in this particular area of the markets first. That said, the S&P 500 put in for a meaningful follow up to this past Friday’s close below an advancing trendline that had defined the market’s advance since QE2 speculation started to carry the market back in September. Now below 1,300, there is a distinct possibility that risk aversion itself is catalyzed and provides an immediate boost to the dollar’s fading safe haven appeal. If that is indeed the case, it would be reasonable to expect the Nikkei 225 to drop below 9,320 and the German DAX Index to drop through 7,000.
If there is a risk aversion move; the impact on the greenback will be quick but ultimately limited. Though the currency is still the world’s largest reserve currency; it does represent the same safe haven currency it was five years ago, one year ago or even six months ago. To sustain an advance, the foundation for a sentiment shift has to trace back to the impact the Fed’s eventual unwinding of stimulus will have global investor sentiment. Dallas Fed President Fisher reminded the market that there was still a hawkish voice amongst the policy ranks; but yields (Treasury and Libor) have yet to reflect a similar belief from the market. As we move closer to the QE2 expiry, this concern will gain more traction.
Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: AUDNZD and NZDUSD Active; USDCHF, CHFJPY and GBPUSD Ready
Euro Rally Flagging as Greece’s Round Two Bailout Showing Larger Caveats
When we left the euro this past Friday it seemed that a temporary fix was in place to the immediate crisis involving Greece’s funding issues. The market is not naïve enough to expect a genuine fix to the extreme financial burden the economy faces against the backdrop of a pained economy; but a short-term resolution means industrious traders can take advantage of the shared currency’s relatively high yield (not to mention the heavy-handed government investment). Yet, with the new week comes new doubts. German CDU/CSU floor leader Kauder contradicted the suggestion of a unanimous agreement on a second round Greece bailout. What is far more worrying though was rating agency Fitch’s warning that even a voluntary agreement to accept the bond rollover proposal would constitute a technical default if the terms are worse.
Australian Dollar: What is the Market Volatility and Trade Potential for the RBA Decision?
We are coming on the RBA rate decision; and neither the average market participant nor analyst is expecting a rate hike. That said, there is a 17 percent probability of a quarter point move priced into overnight index swaps; which means someone will come out surprised. The highlight is not in the rate itself but rather the statement that follows it. A more neutral tone following the 1Q contraction could hurt the Aussie.
Canadian Dollar Slips Despite Strong Business Activity Report
Though it didn’t break any records, the Canadian Ivey PMI business activity survey for May was much better than expected. A print of 69.1 was much better than the 60.0 reading projected. Though, look at the historical reading from this series, big swings are the norm. At the same time, Flaherty released his budget of further austerity and US growth expectations were weighing – deciding the loonie’s direction for it.
British Pound Stumbles as Osborne, IMF Support Continued Austerity
For event risk, the BRC retail sales monitor for May did little to help the sterling through the very early trading hours of Tuesday’s session. The 2.1 percent contraction continues remarkable volatility through the previous two months. Yet, the pound was already under pressure before this release. Austerity could very well be a long-term boon for the UK; but its support through the impending slowdown does little to encourage.
Swiss Franc Looking Increasingly Overbought, Searching for a Catalyst for Reversal
Along with the New Zealand dollar, the Swiss franc looks to be the most heavily overbought currency on a fundamental basis. The currency’s safe haven status and connection to the euro has helped rouse bulls’ interest. However, that link can also open the door to shared financial troubles. What’s more, rate expectations are still running hotter than fundamentals suggest. Perhaps the CPI data will drive this home…
Gold Futures Volume Drops Sharply as Metal Fails to Mount a Rally
Gold placed multi-month and record intraday when priced in a few different currencies; but that move was retraced quickly through the and there was little to no follow through. That is further backed by the lack of interest in the move as measured by CME volume figures. The active August 2011 contract reported tepid turnover of just over 100,000 contracts. If the dollar gains anymore ground, a real correction could set it.
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ECONOMIC DATA
Next 24 Hours
|
GMT |
Currency |
Release |
Survey |
Previous |
Comments |
|
4:30 |
AUD |
Reserve Bank of Australia Rate Decision |
4.75% |
4.75% |
Main data of Asia session – consensus is held rate as prices slowed by strong AUD, weaker construction |
|
5:00 |
JPY |
Coincident Index (APR P) |
103.7 |
103.5 |
Leading index expected to fall as recovery taking longer than thought |
|
5:00 |
JPY |
Leading Index (APR P) |
96.5 |
100.1 |
|
|
6:30 |
AUD |
Foreign Reserves (Australian dollar) (MAY) |
A$38.4B |
Has fallen since 2007 peak |
|
|
7:15 |
CHF |
CPI – EU Harmonised (MoM) (MAY) |
0.0% |
Lower CPI as the franc rallies against the Euro may keep the SNB from raising rates in the near term |
|
|
7:15 |
CHF |
CPI – EU Harmonised (YoY) (MAY) |
0.1% |
||
|
7:15 |
CHF |
Consumer Price Index (MoM) (MAY) |
-0.1% |
0.1% |
|
|
7:15 |
CHF |
Consumer Price Index (YoY) (MAY) |
0.3% |
0.3% |
|
|
9:00 |
EUR |
Euro-Zone Retail Sales (MoM) (APR) |
0.3% |
-0.9% |
Improvements in near and long term surveys may improve as EUR strengthens against partner currencies |
|
9:00 |
EUR |
Euro-Zone Retail Sales (YoY) (APR) |
0.0% |
-1.7% |
|
|
10:00 |
EUR |
German Factory Orders s.a. (MoM) (APR) |
2.0% |
-4.0% |
YoY change showing concern as Chinese imports slow |
|
10:00 |
EUR |
German Factory Orders n.s.a. (YoY) (APR) |
9.0% |
9.7% |
|
|
14:00 |
USD |
IBD/TIPP Economic Optimism (JUN) |
42 |
42.8 |
Effect of NFPs seen on survey |
|
14:00 |
USD |
JOLTs Job Openings (APR) |
3124 |
April openings may have insight |
|
|
16:00 |
USD |
DOE Short-Term Crude Outlook (JUN) |
107 |
Short term outlook of energy levels may be slightly dampened as growth concerns in the US and world economies cut demand for oil |
|
|
16:00 |
USD |
DOE Short-Term Mogas Outlook (JUN) |
3.66 |
||
|
16:00 |
USD |
DOE Short-Term Diesel Outlook (JUN) |
3.93 |
||
|
16:00 |
USD |
DOE Short-Term Ht Oil Outlook (JUN) |
4 |
||
|
16:00 |
USD |
DOE Short-Term NatGas Outlook (JUN) |
12.22 |
||
|
19:00 |
USD |
Consumer Credit (APR) |
$5.000B |
$6.016B |
Back to pre-recession highs, may fall |
|
22:45 |
NZD |
Value of All Buildings s.a. (1Q) |
1.1 |
Index fallen from 2010 Q2 of 7.1 |
|
|
23:01 |
GBP |
BRC Shop Price Index (YoY) (MAY) |
2.5% |
Shop inflation indicator show recovery |
|
|
23:50 |
JPY |
Japan Money Stock M2+CD (YoY) (MAY) |
2.7% |
2.7% |
May money supply showing deflationary effects still exist |
|
23:50 |
JPY |
Japan Money Stock M3 (YoY) (MAY) |
2.0% |
2.1% |
|
|
23:50 |
JPY |
Bank Lending incl Trusts (YoY) (MAY) |
-0.9% |
Lending may fall again as reconstruction money slow |
|
|
23:50 |
JPY |
Bank Lending Banks ex-Trust (MAY) |
-1.0% |
||
|
23:50 |
JPY |
Trade Balance – BOP Basis (Yen) ( APR ) |
-¥379.0B |
¥240.3B |
Trade and current account in April expected to plummet as imports of raw materials for rebuilding surge, exports hit by earthquake |
|
23:50 |
JPY |
Current Account Balance YOY% (APR) |
-83.5% |
-34.3% |
|
|
23:50 |
JPY |
Current Account Total (Yen) ( APR Y) |
¥200.0B |
¥1679.1B |
|
|
23:50 |
JPY |
Adjusted Current Account Total (Yen) ( APR ) |
¥266.0B |
¥752.7B |
|
GMT |
Currency |
Upcoming Events & Speeches |
|
16:30 |
USD |
Fed’s Lockhart Speaks on Economy in North Carolina |
|
19:45 |
USD |
Fed’s Bernanke Speaks to Bankers in Atlanta |
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 |
117.60 |
146.05 |
|
Resist 1 |
1.5000 |
1.6600 |
86.00 |
0.8900 |
1.0000 |
1.1000 |
0.8215 |
117.24 |
140.00 |
|
Spot |
1.4577 |
1.6347 |
80.05 |
0.8365 |
0.9809 |
1.0702 |
0.8130 |
116.70 |
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 |
11.7472 |
1.5874 |
6.7929 |
7.7793 |
1.2309 |
Spot |
6.1895 |
5.1148 |
5.3800 |
|
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 |
1.4688 |
1.6502 |
80.56 |
0.8419 |
0.9847 |
1.0791 |
0.8207 |
118.05 |
132.78 |
|
Resist 1 |
1.4632 |
1.6424 |
80.31 |
0.8392 |
0.9828 |
1.0747 |
0.8169 |
117.37 |
131.82 |
|
Pivot |
1.4603 |
1.6384 |
80.14 |
0.8360 |
0.9798 |
1.0723 |
0.8144 |
117.03 |
131.34 |
|
Support 1 |
1.4547 |
1.6306 |
79.89 |
0.8333 |
0.9779 |
1.0679 |
0.8106 |
116.35 |
130.38 |
|
Support 2 |
1.4518 |
1.6266 |
79.72 |
0.8301 |
0.9749 |
1.0655 |
0.8081 |
116.01 |
129.90 |
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 |
1.4756 |
1.6505 |
80.93 |
0.8467 |
0.9901 |
1.0843 |
0.8240 |
118.40 |
132.51 |
|
Resist. 2 |
1.4711 |
1.6465 |
80.71 |
0.8442 |
0.9878 |
1.0808 |
0.8213 |
117.97 |
132.10 |
|
Resist. 1 |
1.4666 |
1.6426 |
80.49 |
0.8416 |
0.9855 |
1.0773 |
0.8185 |
117.55 |
131.69 |
|
Spot |
1.4577 |
1.6347 |
80.05 |
0.8365 |
0.9809 |
1.0702 |
0.8130 |
116.70 |
130.86 |
|
Support 1 |
1.4488 |
1.6268 |
79.61 |
0.8314 |
0.9763 |
1.0631 |
0.8075 |
115.85 |
130.04 |
|
Support 2 |
1.4443 |
1.6229 |
79.39 |
0.8288 |
0.9740 |
1.0596 |
0.8047 |
115.43 |
129.63 |
|
Support 3 |
1.4398 |
1.6189 |
79.17 |
0.8263 |
0.9717 |
1.0561 |
0.8020 |
115.00 |
129.22 |
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
The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.
