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Dollar Struggled Before Equities Rebound, Yields and Bernanke Weigh

By , Chief Currency Strategist
30 March 2012 03:14 GMT
  • Dollar Struggled Before Equities Rebound, Yields and Bernanke Weigh
  • Euro Drops Across the Board in the Lead Up to the EU’s Meeting
  • Japanese Yen Puts in for Another Rally: Repatriation or Risk Trends?
  • Australian Dollar Volatile on Fickle Risk Trends, Rate Outlook Getting Serious
  • Canadian Dollar Tips Lower after Budget Report, GDP Data Ahead
  • British Pound Hardly Flinches on Drop in Housing Data, Sentiment
  • Gold Slides for a Third Day but Curbing More of its Losses

Dollar Struggled Before Equities Rebound, Yields and Bernanke Weigh

The dollar has put in for a remarkable showing in volatility terms this past 24 hours, and that is likely to carry through over the final hours of this trading week. However, as we’ve discussed before: volatility does not necessarily translate into trend generation. There is a lot in the fundamental backdrop currently that can stir volatility for the greenback, but underlying risk trends are once again holding the reins. If the greenback is playing its risk appetite connections, its erratic performance makes a little more sense. The benchmark S&P 500 took a high-profile dive below the round, 1,400-figure on the open of the New York session at the behest of the bearish pressure in the preceding futures trade. Yet, what could have been a marked step towards securing a larger shift in bearing was instead sharply retraced before the close of the day. We could attempt to attribute this sudden change in attitude to event risk or Fed speak, but that would be more convenient than accurate.

As long as sentiment is anchored just off multi-year highs, the dollar will struggle to make meaningful progress. That said, we should appreciate the scheduled event risk from this past session for its influence on future developments. The final reading of the 4Q GDP figures wasn’t a repricing event on its own, but the 2.1 percent increase in consumer spending and weakest increase in corporate profits in three-years reminds us of the balance of power going forward. Similarly, the weekly jobless claims data doesn’t disrupt a multi-month trend, but the near, four-year low in initial filings sets up speculation for next week’s NFPs. Even the commentary from Bernanke, Lockhart, Plosser and Lacker offers limited influence. The market is trying to read everything the Chairman says for QE3 potential while the others are more straightforward. Is there anything that can change this state of indecision over the final day? Unlikely. But, watch the newswires for catalysts, not the economic docket.

Euro Drops Across the Board in the Lead Up to the EU’s Meeting

EURUSD may be trading back above 1.3300 in the early hours of Friday’s session, but the euro is hardly putting up a strong showing of its own. In fact, the shared currency was lower against all of its major counterparts except for the Swiss franc through the past trading day’s close. Once again, the data available doesn’t necessarily paint the picture of a currency that should come under significant pressure. The Euro-area confidence figures were generally mixed (business confidence was hit hard but consumer and economic sentiment was steady) and the German unemployment rate dropped to a two-decade low. Far more interesting were the updates on running fears. Ahead of the EU’s meeting of Finance Ministers and central banks to discuss increasing the ‘firewall’ to €700-940 billion, there is a strong consensus for approval and the implications seem to already be priced in. Another threat that may have been defused was the due date on Ireland’s €3.06 billion payment on its bank bailout funds – which it now plans to pay with a government bond. That said, there are plenty of periphery problems that could flare up.

Japanese Yen Puts in for Another Rally: Repatriation or Risk Trends?

The yen put in a notable rally Thursday morning, and the currency seems to be making a repeat performance through the early hours of this new session. However, despite the aggressive rallies, critical levels on the crosses have yet to cave. A few key figures to keep track of: USDJPY at 82.00; EURJPY at 108.75; GBPJPY at 130; and 85.00 for AUDJPY. Whether we can overpower the floor on these pairs depends on what the fundamental fuel happens to be powering the volatility. It seems highly likely that repatriation of earnings by Japanese corporations from their international operations is involved in this unusual activity; but if that is the case, we have a closing window for its influence – Monday is a new fiscal year. If we intend to break support and generate follow through afterwards, it will have to come through risk aversion. Carry unwinding is a constant threat for most high yielding pairs, but the situation is a little different for the USDJPY. We’ll discuss that should it happen.

Australian Dollar Volatile on Fickle Risk Trends, Rate Outlook Getting Serious

A swell in risk appetite through the second half of the US session helped carry the carry-favorite, Australian dollar higher. A little more interesting though was the volatile drive through the early Asian trading hours. Normally, we would look to the Chinese economic docket for guidance on regional risk sentiment and export-derived growth expectations for the currency, yet the MNI business confidence report for the world’s second largest economy disappointed. This is a dangerous time to take a stance on risk without a clear catalyst. In the meantime, the 12-month rate forecast for the RBA has grown to 80 bps worth of cuts. That’s the most bearish outlook since February 6th – and just before the RBA decision…

Canadian Dollar Tips Lower after Budget Report, GDP Data Ahead

Canadian Finance Minister Flaherty released the 2012-2013 budget forecast to a growth-minded market. According to the policy maker, the economy will run a deficit of C$21.1 billion through the period following a C$24.9 billion shortfall through the previous fiscal year. He expects a balanced budget in the 2015-2016 period – which would give an added level of appeal in fiscal stability if growth holds. Speaking of the economy, we have January GDP figures due in the upcoming North American trading session. Expectations are set low.

British Pound Hardly Flinches on Drop in Housing Data, Sentiment

There was a round of notable UK event risk – generally unflattering, but it seemed like the sterling traders were more interested in matching the health of its euro counterpart. For event risk this past session, the housing market soured with the biggest drop in the Nationwide House Prices reading in two years and an eight-month low in mortgage approvals. Of further concern the GfK Consumer sentiment survey unexpectedly slipped with the current read on personal finances matching a series’ record low. Austerity isn’t looking so good in this data.

Gold Slides for a Third Day but Curbing More of its Losses

It was technically a third consecutive decline for gold through Thursday, but the metal has shown increasingly aggressive rebound through the end of its sessions. That said, the late recoveries haven’t turned into true strength as we see every currency (again, except for the franc) made progress against the alternative store of wealth. On a side note, volume on the futures market notable eased back from Wednesday’ six-month high 379,000 contract turnover.

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

0:00

AUD

HIA New Home Sales (MoM) (FEB)

-7.3%

Housing market softening

0:30

AUD

Private Sector Credit (MoM) (FEB)

0.3%

0.2%

Credit seeing some short term expansion on lower rates

0:30

AUD

Private Sector Credit (YoY) (FEB)

3.3%

3.5%

1:35

CNY

MNI March Business Condition Survey

58.87

Own survey improving

2:00

NZD

Money Supply M3 (YoY) (FEB)

5.4%

Rapid rise suggest tightening

5:00

JPY

Annualized Housing Starts (FEB)

0.840M

0.822M

Construction also rising on higher demand

5:00

JPY

Housing Starts (YoY) (FEB)

-1.1%

-1.1%

6:00

EUR

German Retail Sales (YoY) (FEB)

0.1%

-2.3%

Retail sales expected to rise, though continued improvement may be questionable

6:00

EUR

German Retail Sales (MoM) (FEB)

1.2%

-1.6%

7:00

CHF

KOF Swiss Leading Indicator (MAR)

0.07

-0.12

Swiss index improving

9:00

EUR

Italian CPI EU Harmonized (YoY) (MAR P)

3.3%

3.4%

Italian prices seeing shorter term fall with consumer spending waning

9:00

EUR

Italian CPI (NIC Incl. Tobacco) (YoY) (MAR P)

3.2%

3.3%

9:00

EUR

Euro-Zone CPI Estimate (YoY) (MAR)

2.5%

2.7%

Price estimates lower, could indicate recession due to lack of consumer spending, demand

12:30

CAD

GDP (MoM) (JAN)

0.1%

0.4%

Canadian GDP figures for January expected to rise slower, may be due to input price increases

12:30

CAD

GDP (YoY) (JAN)

1.7%

1.8%

12:30

USD

Personal Income (FEB)

0.4%

0.3%

US spending, income data showing consumers receiving benefit of recovering economy

12:30

USD

Personal Spending (FEB)

0.6%

0.2%

12:30

USD

PCE Deflator (YoY) (FEB)

2.3%

2.4%

12:30

USD

PCE Core (MoM) (FEB)

0.1%

0.2%

12:30

USD

PCE Core (YoY) (FEB)

1.9%

1.9%

12:30

USD

PCE Deflator (MoM) (FEB)

0.3%

0.2%

13:45

USD

Chicago Purchasing Manager (MAR)

63

64

Midwest index moderating

13:55

USD

U. of Michigan Confidence (MAR F)

74.8

74.3

Final revision still expected higher

14:00

USD

NAPM-Milwaukee (MAR)

58

58.6

Manufacturing industries weaker

GMT

Currency

Upcoming Events & Speeches

07:00

EUR

Euro Zone Finance Ministers Meet in Denmark

10:30

EUR

EU-27 Finance Ministers and Central Bankers Meet in Denmark

14:00

USD

Revisions: Wholesale Trade Sales

16:00

USD

Revisions: Industrial Production

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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30 March 2012 03:14 GMT