- Dollar Reversal Effort Immediately Sidetracked without a Clear Risk Aversion Effort
- British Pound Traders Prepare for the Different Outcomes for a Contentious BoE Decision
- New Zealand Dollar: Bigger Reaction to RBNZ Rate Decision Still to Come
- Euro Weathers a Poor Portuguese Bond Auction, Much More to Test its Resolve Ahead
- Australian Dollar Stumbles after a Mixed Employment Report, Is this the Breaking Point?
- Canadian Dollar Hits a Fresh Three Year High against the Greenback Despite Tame Oil, Data
Dollar Reversal Effort Immediately Sidetracked without a Clear Risk Aversion Effort
Wednesday was a critical transition period for the US dollar. The previous day, the Dollar Index marked a decisive reversal from a three-week descending trend that pushed the currency to four-month lows. The following session stands as the best opportunity for the currency to catalyze a short-cover rally and perhaps encourage a speculative bid. Instead, the greenback would consolidate – and given fundamentals, this outcome was not at all a surprise. A purely speculative effort to reverse this particular currency or any other asset is always potent. However, without a concurrent effort to rally a similar move from underlying risk aversion or some other unifying fundamental catalyst to align the masses interest, there simply was not enough participation to generate a meaningful move. Taking stock of the most potent potential dollar drivers (risk appetite trends and interest rate speculation), the benchmark equity indexes worked their way deeper into their month-long congestion patterns. It is difficult to envisage a particular fundamental catalyst for underlying risk trends given the known threats over the coming days and weeks. On the other hand, sentiment itself has proven sufficient in the past to jumpstart meaningful and lasting trends.
In the meantime, it is worth noting the leak that PIMCO (the world’s largest bond fund) totally divested itself of government debt holdings in its Total Return fund. On one hand, this can be seen as a preemptive shift ahead of the end of the Fed’s QE2 program and reflect expectations of a hawkish turn. Alternatively, it may just reflect a lack of confidence in the US government. If it is the former, equities should soon follow suit.
Related:Discuss the Dollar in the DailyFX Forum,
British Pound Traders Prepare for the Different Outcomes for a Contentious BoE Decision
One interest rate decision down this week, one to go. While the conclusion of the Bank of England’s policy meeting (the announcement is due at 12:00 GMT) is not backed by serious expectations for a change to the benchmark rate like the recent RBNZ cut; the decision is nevertheless backed by heavy speculation for clarity on the timing and intentions for an eventual shift to a hawkish policy regime. So, while the consensus amongst economists (61 polled by Bloomberg) shows a unanimous expectation for no change to the overnight lending rate; the market is still pricing in an 11 percent probability of a 25 basis point (bps) rate hike. Far more influential though is the fact that over the coming 12 months, the central bank is expected to raise the benchmark a cumulative 86 bps (surpassed only be the ECB and Bank of Canada). This suggests that the market has built up the sterling’s position not on the potential for immediate satisfaction in higher rates but rather in an effort to front-run a series of hikes later down the line. Yet, at some point, speculation will is not enough. Confirmation that forecasts are in-line with reality needs to draw capital in to offer the opportunity for hawkish rate traders to fulfill the ‘buy the rumor, sell the news’ strategy.
The pound has held buoyant for months despite the BoE’s steadfast position on holding the benchmark rate unchanged at 0.50 percent and the bond purchasing program at 200 billion pounds. Bullish conviction in the face of these repeated disappointments, however, is clearly fading. And, with the ECB seemingly on pace for a hike in April, the hesitance from the MPC is considered increasingly irksome. Heading into this particular event, we are reminded that consumer-level inflation is still running far above the tolerance band at 4 percent while the minutes from the last rate decision showed three members voted for a hike. Though there is significant premium already built into the pound, the immediate reaction to an unexpected hike would be a sharp rally. That said, the resulting statement would likely curb the development of new trend by suggesting further adjustments will be widely spaced or not on the books. Alternatively, the more likely outcome is for no change; and with no change, there is no statement clarifying their decision. Without some level of fundamental support, the sterling could very well start to lose its resilience.
New Zealand Dollar: Bigger Reaction to RBNZ Rate Decision Still to Come
The Reserve Bank of New Zealand’s (RBNZ) rate decision was every bit as dramatic as we had expected it to be. And, the price for this drama was exceptional volatility. However, a severe price shock does not necessarily translate into clear direction – as we saw with this particular event. Heading into the decision, the market was debating between a 25bp and 50bp cut while the economists were nearly evenly split between those same two scenarios and no change at all. This left a wide berth for surprise regardless of the outcome. And the 50bp cut to 2.50 percent certainly did catch a significant portion of the market off guard. Yet the impact didn’t end there. In the commentary that followed, Governor Bollard made it clear that this was temporary relief given to the economy and further cuts were unlikely unless conditions deteriorated significantly. In fact, now after the event has passed, we see the 12-month rate forecast has jumped right back to 43bps of tightening. This should lead us to question whether the kiwi’s plunge prior to the meeting was just accounting for a single cut, or confirmation of a series…
Euro Weathers a Poor Portuguese Bond Auction, Much More to Test its Resolve Ahead
With the Euro-area’s financial health under the microscope, it shouldn’t surprise anyone that the financial media would pick up on the disappointing Portuguese bond sale. While a full auction may suggest success to some; the yield for the three-year note surged to unsustainable levels. In the upcoming session, we will see headlines about the Spanish cajas (savings banks) and Friday brings the special EU summit.
Australian Dollar Stumbles after a Mixed Employment Report, Is this the Breaking Point?
The Australian dollar is marching lower in the start of Wednesday’s session, and the volatility from the session’s data hasn’t helped. The consumer inflation expectation for March was unambiguously disappointing cooling to a 3.6 percent annual pace. Yet, the employment report required deliberation. The headline figure reported a 10,100 contraction; but full-time jobs surged by 47,600. The market seems unimpressed.
Canadian Dollar Hits a Fresh Three Year High against the Greenback Despite Tame Oil, Data
Through the past North American trading session the loonie traders would see a steady depreciation in housing prices and stalled oil prices. Alongside a curbed risk trend effort, we would expect this to leave the Canadian currency unchanged. Instead, USDCAD would make a very noteworthy slide below 0.97 and to lows not seen since November 2007. Without fundamental support, this move won’t likely last.
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ECONOMIC DATA
Next 24 Hours
|
Currency |
GMT |
Release |
Survey |
Previous |
Comments |
|
JPY |
02:00 |
Tokyo Avg Office Vacancies (%) (FEB) |
9.04 |
Likely to hold above 9.00 for eighth time in 10 months. |
|
|
CNY |
02:00 |
Imports (YoY) |
32.6% |
51.0% |
Higher reserve requirements have caused the Yuan to appreciate, sending down exports. |
|
CNY |
02:00 |
Trade Balance (USD) |
$4.90B |
$6.45B |
|
|
CNY |
02:00 |
Exports (YoY) |
27.1% |
37.7% |
|
|
NZD |
05:00 |
REINZ House Sales (YoY) |
-11.3% |
Drop in housing market in wake of natural disaster wouldn’t surprise; would mark fourth straight decline. |
|
|
NZD |
05:00 |
REINZ Housing Price Index |
3119.80 |
||
|
NZD |
05:00 |
REINZ Housing Price Index (MoM) |
-2.6% |
||
|
JPY |
06:00 |
Machine Tool Orders (YoY) |
89.8% |
Orders are nearly three times lower than March 2010. |
|
|
EUR |
06:30 |
French Non-Farm Payrolls (QoQ) |
0.2% |
0.2% |
Signs of a sustained recovery in Europe’s second largest economy will boost rate hike expectations by ECB for next month. |
|
EUR |
07:45 |
French Industrial Production (MoM) |
0.5% |
0.3% |
|
|
EUR |
07:45 |
French Manufacturing Production (MoM) |
0.4% |
-0.1% |
|
|
EUR |
07:45 |
French Industrial Production (YoY) |
5.0% |
7.0% |
|
|
EUR |
07:45 |
French Manufacturing Production (YoY) |
5.0% |
6.6% |
|
|
EUR |
08:00 |
German Imports s.a. (MoM) |
1.5% |
-2.6% |
Imports likely to outweigh exports as Euro remained stronger than start of year, though recent weaker performance expands surplus. |
|
EUR |
08:00 |
German Current Account (euros) |
10.5B |
17.6B |
|
|
EUR |
08:00 |
German Exports s.a. (MoM) |
0.7% |
0.5% |
|
|
EUR |
08:00 |
German Trade Balance (euros) |
13.0B |
11.9B |
|
|
EUR |
09:00 |
Italian Industrial Production w.d.a. (YoY) |
5.4% |
Regardless of what data shows, Italian economy remains weak fundamentally. |
|
|
EUR |
09:00 |
Italian Industrial Production n.s.a. (YoY) |
8.7% |
||
|
EUR |
09:00 |
Italian Industrial Production s.a. (MoM) |
0.3% |
||
|
GBP |
09:30 |
Industrial Production (MoM) |
0.4% |
0.5% |
Strong industrial and manufacturing data could add to hawk’s ammunition for a rate hike, proving economy has continued recovery and it is necessary to fight inflation. |
|
GBP |
09:30 |
Industrial Production (YoY) |
4.2% |
3.6% |
|
|
GBP |
09:30 |
Manufacturing Production (MoM) |
0.6% |
-0.1% |
|
|
GBP |
09:30 |
Manufacturing Production (YoY) |
6.3% |
4.4% |
|
|
GBP |
12:00 |
BoE Asset Purchase Target |
200B |
200B |
Rates to hold, though markets will look at commentary for guidance on inflation situation. |
|
GBP |
12:00 |
Bank of England Rate Decision |
0.50% |
0.50% |
|
|
CAD |
13:30 |
International Merchandise Trade (C$) |
2.6B |
3.0B |
Trade could plateau after rising every month since July 2010. |
|
USD |
13:30 |
Initial Jobless Claims |
378K |
368K |
Labor market expected to show further signs of improvement. |
|
USD |
13:30 |
Continuing Claims |
3774K |
||
|
USD |
13:30 |
Trade Balance |
-$41.4B |
-$40.6B |
Deficit to expand for fourth month. |
|
USD |
14:45 |
Bloomberg Consumer Comfort |
-39.3 |
Comfort level likely to decline following drop in other sentiment indicators |
|
|
USD |
15:30 |
EIA Natural Gas Storage Change |
-78 |
-85 |
Short-term supply shock effects could be felt on MeNa turmoil. |
|
USD |
19:00 |
Monthly Budget Statement |
-$225.2B |
-$220.9B |
Reading would be worst deficit in a year. |
|
Currency |
GMT |
Upcoming Events & Speeches |
|
EUR |
-:- |
Deadline for Spanish Cajas to Meet New Reserve Requirements |
|
EUR |
09:00 |
ECB Publishes Monthly Report |
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 |
1.3907 |
1.6203 |
82.69 |
0.9297 |
0.9687 |
1.0100 |
0.7375 |
115.00 |
133.98 |
|
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 |
11.9312 |
1.5803 |
6.8650 |
7.7864 |
1.2680 |
Spot |
6.3236 |
5.3630 |
5.5716 |
|
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 |
1.3988 |
1.6299 |
83.10 |
0.9412 |
0.9737 |
1.0169 |
0.7457 |
115.51 |
134.69 |
|
Resist 1 |
1.3947 |
1.6251 |
82.89 |
0.9354 |
0.9712 |
1.0134 |
0.7416 |
115.25 |
134.33 |
|
Pivot |
1.3902 |
1.6195 |
82.74 |
0.9312 |
0.9690 |
1.0098 |
0.7376 |
115.01 |
133.95 |
|
Support 1 |
1.3861 |
1.6147 |
82.53 |
0.9254 |
0.9665 |
1.0063 |
0.7335 |
114.75 |
133.59 |
|
Support 2 |
1.3816 |
1.6091 |
82.38 |
0.9212 |
0.9643 |
1.0027 |
0.7295 |
114.51 |
133.21 |
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 |
1.4065 |
1.6357 |
83.50 |
0.9402 |
0.9769 |
1.0222 |
0.7470 |
116.33 |
135.52 |
|
Resist. 2 |
1.4025 |
1.6318 |
83.30 |
0.9376 |
0.9748 |
1.0191 |
0.7446 |
116.00 |
135.14 |
|
Resist. 1 |
1.3986 |
1.6280 |
83.09 |
0.9349 |
0.9728 |
1.0161 |
0.7423 |
115.67 |
134.75 |
|
Spot |
1.3907 |
1.6203 |
82.69 |
0.9297 |
0.9687 |
1.0100 |
0.7375 |
115.00 |
133.98 |
|
Support 1 |
1.3828 |
1.6126 |
82.29 |
0.9245 |
0.9646 |
1.0039 |
0.7327 |
114.33 |
133.21 |
|
Support 2 |
1.3789 |
1.6088 |
82.08 |
0.9218 |
0.9626 |
1.0009 |
0.7304 |
114.00 |
132.82 |
|
Support 3 |
1.3749 |
1.6049 |
81.88 |
0.9192 |
0.9605 |
0.9978 |
0.7280 |
113.67 |
132.44 |
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
