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Euro: So When is the Second Greek Bailout Vote Happening?

By , Chief Currency Strategist
15 February 2012 04:50 GMT
  • Dollar Wins Critical Break Only to be Knocked Back in Greek Churn
  • Euro: So When is the Second Greek Bailout Vote Happening?
  • British Pound Traders Ready to React to Labor Data, BoE Inflation Report
  • Japanese Yen Mixes BoJ Stimulus and Risk Appetite for Effective Decline
  • Australian Dollar Finds Asian Session Strength as PBoC Talks EU Crisis
  • New Zealand Dollar Jumps after Retail Sales Figure, Continues with Risk
  • Gold: The Only Thing Not Moving on a Tense, Volatile Day

Dollar Wins Critical Break Only to be Knocked Back in Greek Churn

The dollar looks as if it is manic-depressive. Through the first half of the US session the currency forged significant gains against most of its most liquid counterparts (European and high-risk currencies alike). Yet, by the end of the New York session heading into Asian trading hours, the greenback retreated sharply. The indecisiveness is the work of underlying risk trends which are taking a greater interest in what happens with the Euro Zone’s financial crisis (Greece). Where the Euro and S&P 500 head, expect the dollar to be moving in the opposite direction.

Euro: So When is the Second Greek Bailout Vote Happening?

The fundamental compass on the euro has gone haywire and we have paid for it in volatility. The shared currency suffered multiple reversals over the past 24 hours as the read on the region’s financial crisis improved, deteriorated and improved again. We were heading into Tuesday’s trading session equipped with the knowledge that the Greek Parliament had approved what it believed were the necessary requirements from the EU to secure the second bailout package. That relief didn’t last long, however, as the region’s ministers determined ‘not all the paperwork was done’ and therefore, the meeting would be postponed until next week. It non-political speak, this translates into: ‘we haven’t heard a unanimous agreement from Greece’s political leadership to stay the course after they win the €130 billion package.’ The impact on the euro and general risk trends was clear and severe (relative to recent trading conditions). That wasn’t the final word as unnamed Greek officials said conservative party leader Samaras (most likely the next Prime Minister) would sign a letter of commitment and the PBoC vowed support. Yet, there has been nothing to suggest Wednesday’s originally-scheduled meeting would be back on. Yet another monkey wrench in a mechanism that has been harangued by problems. How long does the market tolerate this spectacle is a real concern. In the meantime, we’ll see how euro sentiment settles in the upcoming session and see if the big-ticket Euro Zone, German, French and Italian 4Q GDP figures add to the equation.

British Pound Traders Ready to React to Labor Data, BoE Inflation Report

If there was any doubt as to the sterling’s connection to the euro’s bearing, the 20-day rolling correlation between EURUSD and GBPUSD is currently 0.84 (1.00 being perfect and 0.00 representing complete randomness). On a shorter time frame, the connection is even stronger (the 5-day or one-week link is a remarkable 0.96). As such, those looking for the pound’s trend should keep a close eye on how the Euro-area financial situation progresses. That said, there is plenty of room for short-term divergence in the form of scheduled event risk. We’d reserve expectations of separation from dominant theme only through meaningful developments, but the upcoming docket fulfills that requirement. With the focus still firmly fixed on the balance between economic activity and austerity in the UK, we come upon the jobless claims figures and BoE Inflation Report. What should we look for? A strong employment figure and outlook for more stimulus would fit nicely with the current ‘risk-on’ theme.

Japanese Yen Mixes BoJ Stimulus and Risk Appetite for Effective Decline

I had set my expectations for a reaction from the Japanese yen to the Bank of Japan’s policy decision yesterday low – perhaps too low. In the aftermath of the central bank’s changes, the USDJPY surged another 100-plus points while other yen-based crosses carved out rallies of their own. Where is this strength coming from? In the policy decision itself, the ¥10 trillion increase in the asset purchasing program to ¥30 trillion total represents a significant bid for the region. Yet, does it really differ that much from the previous steps taken at previous meetings? Alternatively, setting an inflation goal of 1 percent merely offers a target without means to reach it. Plenty of people have speculated that this is a sign of ‘stealth intervention’ which presents a temptingly simple explanation. Yet, there is perhaps a more reasonable explanation: risk appetite trends. Though both the dollar and yen are safe haven currencies, USDJPY has shown positive risk correlations when major themes are stable.

Australian Dollar Finds Asian Session Strength as PBoC Talks EU Crisis

Consumer Confidence survey figures for February posted an unexpectedly strong 4.2 percent increase through the Westpac’s index. This would have matched the previous reading’s five-year high had it not been revised higher. Regardless of this historical performance, the data itself would generate little response from the market. Fundamentally, domestic consumption expectations matter relatively little to a currency that is basing much of its strength on the foreign demand for its raw materials and the inflow of capital seeking yield. Therefore, with an eye on risk appetite trends, we could spot the meaningful correlation between AUDUSD and the S&P 500 futures or the Nikkei 225 future. The session-end rally in risk through the New York market offered a boost, but this run through the Asian session following the PBoC’s open promise to help the EU through its difficulties is proving more fruitful.

New Zealand Dollar Jumps after Retail Sales Figure, Continues with Risk

Where goes risk, so does the New Zealand dollar. As surely as the Aussie currency has taken higher alongside equities in the Asian session; the kiwi will be making a similar advance. That said, the currency received an additional boost from its own scheduled event risk in the form of a 4Q retail sales report that handily bested expectations with a 2.2 percent climb. For consistent influence though, just in case sentiment returns in a meaningful way, we should be aware of the yield that the New Zealand dollar will be working with to whet the appetites of carry traders. The benchmark yield may be 2.50 percent, but the money market rate is running 2.95 percent while the 10-year bond rate is currently 3.98 percent. In fact, when adjusted for 4Q inflation figures, the real rate return (yield minus inflation) on the New Zealand government bond is significantly better at 2.18 percent versus the Australian 0.9 percent equivalent.

Gold: The Only Thing Not Moving on a Tense, Volatile Day

Volatility has notably picked up for the FX and capital markets over the past 12 hours; and yet, gold is still working its way deeper into congestion. As a safe haven asset, it isn’t difficult to generate activity for the metal; yet this is not a freely associated alternative to a currency (the greenback is a preferred FX alternative to something like the Aussie dollar) or equities (bonds or cash have been generally preferable on this front). To rouse gold to life, we need underlying sentiment with drive behind it. In the meantime, we find the average five-day daily range through Tuesday’s close was $16.95 (the lowest since July 18th), the CBOE’s volatility measure for gold is just off seven month lows and futures volume is still exceptionally light. If the dollar maintain a clear trend (bullish or bearish), gold will find greater charge for a counter-run.

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**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

0:30

AUD

New Motor Vehicle Sales (MoM) (JAN)

-2.9%

Australian large purchases continue to see declines

0:30

AUD

New Motor Vehicle Sales (YoY) (JAN)

-3.0%

2:00

NZD

Non Resident Bond Holdings (JAN)

59.1%

Interest in NZ bonds recovering

6:00

JPY

Machine Tool Orders (YoY) (JAN F)

-6.6%

Machine tools continue to drop

6:30

EUR

French GDP (QoQ) (4Q P)

-0.2%

0.3%

Focus remains on German output

6:30

EUR

French GDP (YoY) (4Q P)

1.1%

1.5%

7:00

EUR

German GDP n.s.a. (YoY) (4Q A)

1.8%

2.5%

German GDP expected to drop in 4Q, in line with global data; ECB reaction may be limited

7:00

EUR

German GDP s.a. (QoQ) (4Q A)

-0.3%

0.5%

7:00

EUR

German GDP w.d.a. (YoY)(4Q A)

2.0%

2.6%

9:00

EUR

Italian GDP s.a. and w.d.a. (QoQ) (4Q P)

-0.6%

-0.2%

Peripheral GDP continues to sink

9:00

EUR

Italian GDP s.a. and w.d.a. (YoY) (4Q P)

-0.3%

0.2%

9:30

EUR

Italian General Government Debt (DEC)

1905.0B

Recovering on austerity

9:30

GBP

Claimant Count Rate (JAN)

5.1%

5.0%

British labor market expected to weaken further, though any additional BoE easing will have to wait until market takes in effects of latest round of QE

9:30

GBP

Jobless Claims Change (JAN)

3.0K

1.2K

9:30

GBP

Average Weekly Earnings (3M/YoY) (DEC)

1.9%

1.9%

9:30

GBP

Weekly Earnings exBonus (3M/YoY) (DEC)

1.9%

1.9%

9:30

GBP

ILO Unemployment Rate (3M) (DEC)

8.4%

8.4%

10:00

EUR

Euro-Zone GDP s.a. (QoQ) (4Q A)

-0.4%

0.2%

Overall Eurozone still growing, though at a much slower pace

10:00

EUR

Euro-Zone GDP s.a. (YoY) (4Q A)

0.7%

1.4%

10:00

CHF

ZEW Survey (Expectations) (FEB)

-50.1

Swiss ZEW may fall further

10:00

EUR

Euro-Zone Trade Balance s.a. (euros) (DEC)

4.5B

6.1B

Eurozone trade expected to slow again as German exports weaker

10:00

EUR

Euro-Zone Trade Balance (euros) (DEC)

3.5B

6.9B

12:00

USD

MBA Mortgage Applications (FEB 10)

7.5%

Weekly data showing improvement

13:30

USD

Empire Manufacturing (FEB)

14.8

13.48

NY industries stronger

14:00

USD

Total Net TIC Flows (DEC)

$48.6B

Market interest in treasuries tapering as risk appetite increases

14:00

USD

Net Long-term TIC Flows (DEC)

$35.0B

$59.8B

14:15

USD

Industrial Production (JAN)

0.6%

0.4%

National production expected to still grow

14:15

USD

Capacity Utilization (JAN)

78.6%

78.1%

15:00

USD

NAHB Housing Market Index (FEB)

26

25

Index recovering slowly

15:30

USD

DOE U.S. Crude Oil Inventories (FEB 10)

304K

Energy data could show additional demand as US economy climbs back

15:30

USD

DOE Cushing OK Crude Inventory (FEB 10)

367K

15:30

USD

DOE U.S. Distillate Inventory (FEB 10)

1174K

15:30

USD

DOE U.S. Gasoline Inventories (FEB 10)

1629K

21:00

NZD

ANZ NZ Job Ads (MoM) (JAN)

-2.3%

Jobs market may soften

21:30

NZD

Business NZ Perf of Manufacturing Index (JAN)

51.9

Index has been hovering near 50

JPY

Bank of Japan Rate Decision

0.10%

0.10%

Widely expected to hold

CNY

Actual FDI (YoY) (DEC)

-12.7%

Investment continues to drop

GMT

Currency

Upcoming Events & Speeches

10:30

GBP

Bank of England Inflation Report

13:30

USD

Revisions: Consumer Price Index

17:15

USD

Fed's Fisher Speaks in San Marcos

19:00

USD

Fed Releases Minutes From Jan. 24-25 FOMC Meeting

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

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

16.5000

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

14.3200

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

13.1813

1.8298

7.9516

7.7618

1.2719

Spot

6.7826

5.7501

5.9324

Support 1

12.6000

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.4295

7.7450

1.1800

Support 2

5.8085

4.9115

4.9410

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

1.3096

1.5727

77.65

0.9464

1.0227

1.0620

0.8168

100.92

121.26

Resist. 2

1.3055

1.5689

77.49

0.9434

1.0203

1.0586

0.8142

100.59

120.94

Resist. 1

1.3014

1.5652

77.33

0.9405

1.0179

1.0552

0.8116

100.27

120.61

Spot

1.2931

1.5576

77.01

0.9345

1.0132

1.0484

0.8063

99.62

119.97

Support 1

1.2848

1.5500

76.69

0.9285

1.0085

1.0416

0.8010

98.97

119.32

Support 2

1.2807

1.5463

76.53

0.9256

1.0061

1.0382

0.7984

98.65

119.00

Support 3

1.2766

1.5425

76.37

0.9226

1.0037

1.0348

0.7958

98.32

118.67

v

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

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com.

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15 February 2012 04:50 GMT