• Dollar Slides on Disappointing NFPs but Risk Shift May Soon Change That
  • Euro: What Should We Expect from the Greece Drama and ECB Decision Next Week?
  • British Pound: Will Another Silent BoE Decision Drive the Sterling Down?
  • New Zealand Dollar at Significant Risk if the RBNZ Decides to Hold Rates
  • Australian Dollar Traders will See Whether a 1Q Contraction Should Spur Rate Concerns
  • Canadian Dollar Faces Volatility from Employment, Business Activity, Trade Data
  • Gold’s Tepid Climb Will Turn into a Tumble if the Dollar Finds its Footing

Dollar Slides on Disappointing NFPs but Risk Shift May Soon Change That

The greenback closed its third consecutive weekly decline – and the progress on the pullback seems to carry the same level of momentum that the larger bear trend through the opening four months of the year. Friday’s performance was particularly painful for the dollar because its declines would set the majors further back from a recovery while the commodity-based pairs failed immediate breakout opportunities. Looking to the benchmark currency’s individual performance, we note that the Dow Jones FXCM Dollar index closed at its lowest level in a month (at 9,477) and now stand only 140 points away from series low set at the beginning of May. The catalyst to the dollar’s negative performance was obvious enough; but the implications the fundamental driver has for the future is a little more complicated than some may appreciate. The most important consideration is that the negative impact from the NFPs may have only been the first round effect of the data.

Looking through the numbers for May’s labor report, it is clear that this important segment of the economy is struggling. As the shortfall on the ADP’s private payrolls figure suggested (perhaps the proprietary report isn’t so bad a guide), the government reading would show a remarkable shortfall on its alreadydownwardly-revised 165,000 forecast with a sparse print of 54,000. The details were more concerning with private payrolls (excluding government jobs) posting an equally sizable miss with an 83,000 addition and the jobless rate rising to 9.1 percent. If there were a silver lining it would be seen in the uptick in participation (meaning people are confidence enough in conditions to once again search for jobs) and the downtick in the underemployment rate. Yet, a record average period of 40 weeks of unemployment speaks to the true situation. What does all this mean? The US is facing a rather weak recovery. This comes as a surprise to no one; but investors have tried to ignore this fact while they try to squeeze out capital gains. More for the dollar is that this disappointing release tempers the Fed’s hawkish policy ambitions – at least, what the market thinks could have been their drive. As we have discussed before, the most fruitful prospect for a lasting-dollar recovery would be a swell in yields. Yet, one of the Fed’s primary mandates still slogging along, the potential withdrawal of stimulus and eventual rate hike looks much further down the road.

These are certainly concerns; but once again, they should not surprise. It was very unlikely that the Fed immediately reversed course on its policy course and start selling assets off its balance sheet wholesale. The move would be more measured regardless. Leveling off the books is the first step. Yet, in the meantime, this potential S&P 500 trend break could spark a risk aversion move that leverages another dollar trait…

Related:Discuss the Dollar in the DailyFX Forum, John’s Picks: AUDUSD, CADJPY and Other Breakout Opportunities Far from Sure-Bets

Euro: What Should We Expect from the Greece Drama and ECB Decision Next Week?

We should no longer worry about the Euro Zone’s financial troubles – at least that is what officials are shooting for. To end this week, the IMF and EU tried to calm the markets by agreeing to pay the next installment of Greece’s original bailout program (though whether they actually met their targets is questionable). To offer further peace of mind the EU’s Juncker said that the Euro-area had approved a new aid package for the troubled economy – though details would not be available until the end of the month. Is this a permanent fix? Unlikely, otherwise the first emergency program, the EFSF, Ireland bailout, Portugal bailout, etc would have done the trick. Yet, what this does do is buy the market some time to focus on the potential return to be made in the euro. With the focus on yield, we will look the ECB’s rate decision where the bank will release its new growth and inflation forecasts – and likely spur speculation for the timing of the next hike. All bullish, unless risk aversion kicks in.

British Pound: Will Another Silent BoE Decision Drive the Sterling Down?

The Bank of England will once again try to steal the ECB’s thunder (the MPC’s announcement comes before its European counterpart), and once again fail. The market is expecting no change as there is little to nudge the group to alter its stubborn refusal of inflation pressures. And, this time around, there is little outlier speculation of a surprise hike; so we immediately expect the same surprise selling that resulted last time.

New Zealand Dollar at Significant Risk if the RBNZ Decides to Hold Rates

Of the four central bank meetings scheduled for the coming week, this should be the most interesting. While the market isn’t really pricing in the chance of a hike and economists don’t expect it; the kiwi’s rally this past month reflects a strength that necessitates support. The currency has run without a clear fundamental catalyst; and its stark absence at this specific event could be the accelerant need to bring it back to earth.

Australian Dollar Traders will See Whether a 1Q Contraction Should Spur Rate Concerns

The Australian economy suffered a significant contraction through the first quarter of the year according to recently released data; and the flood-related weakness could carry forward in the form of weak growth. We should ask whether this is concerning enough to lead the RBA to consider accommodation. It is unlikely for now; but should China falter and capital markets ease, this may not be a far-fetched probability.

Canadian Dollar Faces Volatility from Employment, Business Activity, Trade Data

One week a month there is usually a round of heavy event risk for the loonie to react to. This is that week. The most influential report in the list is Friday’s employment figures; but the late release will limit its impact through the period. The Ivey PMI and trade figures are serious growth measures to draw a comparison to the US’s performance. Also worth noting is PM Harper’s budget which will be announced on Monday.

Gold’s Tepid Climb Will Turn into a Tumble if the Dollar Finds its Footing

Gold advanced for a third consecutive week against the greenback; but it tumbled against the recovering euro. In fact, if we really look at its dollar-based performance, the metal’s rise has been very restrained. The commodity is seen as an alternative store of wealth and is particularly treated as a non-fiat substitute for the benchmark currency. Therefore, a risk-generated run from the dollar could hammer gold.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**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

23:01

(Sun)

GBP

Lloyds Employment Confidence (MAY)

-58

Expected to damped after slowed outlook

23:30

(Sun)

AUD

AiG Performance of Construction Index (MAY)

37.9

Construction may weaken further

0:30

AUD

TD Securities Inflation (MoM) (MAY)

0.3%

Preliminary estimate of inflation may be pushed by retail sales, consumer spending data

0:30

AUD

TD Securities Inflation (YoY) (MAY)

3.6%

1:30

AUD

ANZ Job Advertisements (MoM) (MAY)

1.0%

Early indicator of Australian labor markets

6:30

AUD

Foreign Reserves (Australian dollar) (MAY)

A$38.4B

Outflow may be due to high investment levels and buying of foreign goods

8:30

EUR

Euro-Zone Sentix Investor Confidence (JUN)

10

10.9

Confidence expects to drop as peripheral risk still high

9:00

EUR

Euro-Zone Producer Price Index (MoM) (APR)

0.9%

0.7%

Higher month-to-month PPI may give ECB some ammunition to raise rates, though outlook still dim

9:00

EUR

Euro-Zone Producer Price Index (YoY) (APR)

6.7%

6.7%

12:30

CAD

Building Permits (MoM) (APR)

17.2%

Could increase following investment

14:00

CAD

Ivey Purchasing Managers Index (MAY)

57.7

Higher overall PMI pending on investment, though US economy in focus as well

14:00

CAD

Ivey Purchasing Managers Index SA (MAY)

58.8

57.8

23:01

GBP

BRC Sales Like-For-Like (YoY) (MAY)

5.2%

Real estate indicator may suggest further British slowdown

GMT

Currency

Upcoming Events & Speeches

7:30

USD

Fed’s Plosser Speaks on Central Banking in Helsinki

21:30

USD

Fed’s Fisher Speaks in New York

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

1.4623

1.6420

80.23

0.8358

0.9776

1.0724

0.8167

117.32

131.74

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

11.6585

1.5725

6.6968

7.7776

1.2286

Spot

6.1440

5.0985

5.3457

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

1.4764

1.6524

81.39

0.8491

0.9898

1.0878

0.8267

118.59

133.58

Resist 1

1.4694

1.6472

80.81

0.8425

0.9837

1.0801

0.8217

117.96

132.66

Pivot

1.4572

1.6379

80.43

0.8380

0.9791

1.0698

0.8145

116.94

131.67

Support 1

1.4502

1.6327

79.85

0.8314

0.9730

1.0621

0.8095

116.31

130.75

Support 2

1.4380

1.6234

79.47

0.8269

0.9684

1.0518

0.8023

115.29

129.75

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

1.4805

1.6578

81.11

0.8461

0.9868

1.0868

0.8279

119.04

133.41

Resist. 2

1.4760

1.6538

80.89

0.8435

0.9845

1.0832

0.8251

118.61

132.99

Resist. 1

1.4714

1.6499

80.67

0.8409

0.9822

1.0796

0.8223

118.18

132.58

Spot

1.4623

1.6420

80.23

0.8358

0.9776

1.0724

0.8167

117.32

131.74

Support 1

1.4532

1.6341

79.79

0.8307

0.9730

1.0652

0.8111

116.46

130.91

Support 2

1.4486

1.6302

79.57

0.8281

0.9707

1.0616

0.8083

116.03

130.49

Support 3

1.4441

1.6262

79.35

0.8255

0.9684

1.0580

0.8055

115.60

130.07

v

Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

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