Trade FOREX with FXCM

  • Award-Winning Platform
  • 24/7 Customer Support
  • Trade Directly on Charts
  • Free $50K Practice Account

Resources

Dollar Little Moved Despite Aggressive Rebound in Risk Trends

By , Chief Currency Strategist
18 April 2012 03:06 GMT
  • Dollar Little Moved Despite Aggressive Rebound in Risk Trends
  • Euro Stubborn in the Face of Poor Bond Auction Growth Concerns
  • Canadian Dollar Surges after BoC Says Hawkish Move a….Possibility
  • Australian Dollar Traders Cap Their Rate Expectations for Cuts, Turn to Risk
  • British Pound Rallies In Spite of CPI, Jobs and BoE Minutes Due
  • New Zealand Dollar: Does Inflation Data Carry as Much Sway Here as with the Aussie?
  • Gold Once Again Delivers on Volatility, Fails for Trend

Dollar Little Moved Despite Aggressive Rebound in Risk Trends

The fundamental flow was heavy and the S&P 500 was particularly strong this past session; yet through that fundamental drive, the benchmark US dollar found itself virtually unmoved through the close. In fact, the Dow Jones FXCM Dollar Index closed Tuesday’s active trading session with a 0.04 percent change at 9940. Alone, the benchmark’s lack of momentum would not be particularly surprising; but against the backdrop of otherwise active markets, the restraint is somewhat surprising. This could speak to two underlying truths: either the dollar is lagging capital markets, or the rally in risk trends lacks the kind of conviction we would need to generate follow through. Following Occam’s Razor (the principle whereby the simpler explanation or the one with the fewest assumptions is usually the correct one), we would expect the disconnect was the dollar’s responsibility. However, there is still no clear trend for our primary sentiment gauges and recent data does little to encourage bulls.

In the most easily made connection to broader risk trends this past session, macro traders could pick up on the IMF’s updated growth forecasts. From January, the group notched its 2012 global GDP outlook up from 3.3 to 3.5 percent. That pace draws a notable contrast to the more moderate 2.1 percent outlook for the US. Any optimism that may have accompanied these projections were offset by the market’s preexisting expectations of moderate growth for the year and the IMF’s own concern that downside risks were “extremely present.” The preoccupation with a global crisis borne from the Euro Zone found another mixed picture. Headlines from Spain were far from encouraging (more on that below), but the gauges of regional stress seemed unfazed – much less global measures.

Ultimately, it is the view on general risk trends where the greenback will defer its intentions. While the S&P 500 managed its biggest single day rally in a month (1.6 percent), the move didn’t shake the index free from weeks of general congestion. If the dollar is to take to a prevailing and durable trend (bullish or bearish), FX interests will likely need to be guided by the influence of a general sentiment shift.

Euro Stubborn in the Face of Poor Bond Auction Growth Concerns

Through Tuesday’s session, the euro dropped against all of its major counterparts with the exception of the Japanese yen. Weakness on the shared currency’s part is reasonable against the discouraging round of fundamentals the euro faced through the session. Continuing with the IMF’s optimism, the Euro Zone’s 2012 recession was upgraded from a 0.5 percent expected contraction to 0.3 percent. That said, Spain’s growth forecast was lowered further to a 1.8 percent projected contraction alongside expectations of a 6.0 percent debt-GDP ratio (missing the 5.3 percent target). Following along with the Spain theme, the 12 and 18 month bond auctions met higher demand but at the price of significantly higher yields (investors demanding greater return to take a risk on a loan to the country). Furthermore, Prime Minister Rajoy said the region is going through another round of credit crunch. Through all of this though, Spanish 10-year yields actually fell. Now on to Thursday’s 10yr auction.

Canadian Dollar Surges after BoC Says Hawkish Move a….Possibility

The Canadian dollar was far and away the best performer through the past trading session. Normally, we trace the currency’s strength back to general risk trends; but this time around, the bounce in a few risk gauges was merely an amplifier to inherent strength. The catalyst this time was the Bank of Canada rate decision. The actual policy decisions roused little interest as the policy authority kept the benchmark at the same place it has maintained the rate since September 2010. Nowadays, the market is trading off of the subtle shifts in rhetoric to gauge the eventual change. On that front, the BoC said removing stimulus in the future “may become appropriate”. The question is: how far will an option get us?

Australian Dollar Traders Cap Their Rate Expectations for Cuts, Turn to Risk

Whether it is a general slide in risk trends, economic or financial troubles in China or the RBA’s predisposition towards rate cuts, the Australian dollar seems to always have a negative catalyst it can turn to. That said, speculation may have overreached on its Aussie fundamentals. From risk trends, the outlook is certainly a cautious one; but benchmarks like the S&P 500 have yet to feed momentum behind a reversal. China is an abstract risk as its troubles don’t have clear milestones. Furthermore, stimulus is always an option available to them. Finally there are rate expectations. The market is virtually certain of a May 1 rate cut, so where to go from here. Until next week’s CPI, guidance will be lacking.

British Pound Rallies In Spite of CPI, Jobs and BoE Minutes Due

Sterling traders that were in the market around the release of the UK CPI data may have attributed the second stage of the cable’s rally to the inflation numbers. A modest uptick from a 28-month low for core inflation (to 2.5 percent) is hardly a strong bullish catalyst. There is little chance of a rate hike from the BoE through the foreseeable future (the 12mth outlook according to swaps is a 2bp increase), so bulls would really have to dig. Instead, the pound was likely borrowing from the euro. That said, the BoE minutes and jobs figures will likely carry more influence.

New Zealand Dollar: Does Inflation Data Carry as Much Sway Here as with the Aussie?

Over the past four weeks, the hawkish rate outlook for the RBNZ has backed off significantly. Where the 12 month forecast was for 36 bps of hikes back on March 22, the outlook is now for a mere 9 bps over the same period. We will find an unusually effective indicator for rate watchers to work with over the coming 24 hours. After Wednesday’s US close, the first quarter CPI data is expected to cross the wires, and the consensus is for a further deceleration in the annual figure to a 1.6 percent clip. That would set up an interesting RBNZ rate decision next week.

Gold Once Again Delivers on Volatility, Fails for Trend

Gold’s general bear trend from late February continues to exert pressure on the precious metal. Eventually we will come to a head on medium-term trend for the commodity, however, as this bearish drift confronts the long-term rising trendline that has carried the market higher since the end of 2008. For a general assessment of market health, the CBOE’s gold volatility index is moving back towards 9 month lows (one of the few volatility readings not inversely correlated to price) while the one-week average on futures volume is testing its lowest levels of the year.

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

0:30

AUD

Westpac Leading Index (MoM) (FEB)

0.6%

Australian index weaker

1:00

NZD

ANZ Consumer Confidence Index (APR)

110.2

Drifting confidence indices may hurt domestic spending, prices

1:00

NZD

ANZ Consumer Confidence Index (MoM) (APR)

-2.7%

1:30

CNY

Property Prices (New Residential YoY) (MAR)

37

Controls hitting new home prices

8:00

EUR

Euro-Zone Current Account n.s.a. (euros) (FEB)

-12.3B

Seasonally, non-seasonally adjusted data not expected to move markets

8:00

EUR

Euro-Zone Current Account s.a. (euros) (FEB)

4.5B

8:30

GBP

Claimant Count Rate (MAR)

5.0%

5.0%

British labor market seems to be stable, still weak. Bank of England easing still helping

8:30

GBP

Jobless Claims Change (MAR)

6.0K

7.2K

8:30

GBP

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

1.2%

1.4%

8:30

GBP

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

1.6%

1.7%

8:30

GBP

ILO Unemployment Rate (3M) (FEB)

8.4%

8.4%

9:00

EUR

Euro-Zone Construction Output s.a. (MoM) (FEB)

-0.8%

Demand from investment spending seen to hit index

9:00

EUR

Euro-Zone Construction Output w.d.a. (YoY) (FEB)

-1.4%

9:00

CHF

ZEW Survey (Expectations) (APR)

0

Swiss ZEW still tracks EU, DE

11:00

USD

MBA Mortgage Applications (APR 13)

-2.4%

Weekly data may continue drop

14:30

USD

DOE U.S. Crude Oil Inventories (APR 13)

2791K

Crude and gasoline levels returning to near term highs, may pressure price as supply swells

14:30

USD

DOE Cushing OK Crude Inventory (APR 13)

292K

14:30

USD

DOE U.S. Distillate Inventory (APR 13)

-4000K

14:30

USD

DOE U.S. Gasoline Inventories (APR 13)

-4277K

22:00

NZD

ANZ NZ Job Ads (MoM) (MAR)

5.3%

NZ labor still relatively strong

22:45

NZD

Consumer Prices Index (QoQ) (1Q)

0.6%

-0.3%

New Zealand prices expected to fall even without rate cut reversal. Eventual hike looking less likely

22:45

NZD

Consumer Prices Index (YoY) (1Q)

1.6%

1.8%

23:50

JPY

Merchandise Trade Balance Total (MAR)

-223.2B

29.4B

Japanese trade expected to weaken again on yen strength, exports continue to grow slowly

23:50

JPY

Adjusted Merchandise Trade Balance (MAR)

-446.3B

-313.2B

23:50

JPY

Merchandise Trade Exports (YoY) (MAR)

0.2

-2.7

23:50

JPY

Merchandise Trade Imports (YoY) (MAR)

7

9.2

GMT

Currency

Upcoming Events & Speeches

8:30

GBP

Bank of England Minutes

14:30

CAD

Bank of Canada Monetary Policy Report

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

13.0822

1.7881

7.7962

7.7608

1.2478

Spot

6.7678

5.6661

5.7443

Support 1

12.5000

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

1.3272

1.6062

82.00

0.9257

0.9970

1.0527

0.8325

108.00

130.92

Resist. 2

1.3236

1.6029

81.80

0.9231

0.9949

1.0498

0.8300

107.65

130.52

Resist. 1

1.3200

1.5996

81.59

0.9205

0.9929

1.0468

0.8276

107.30

130.13

Spot

1.3129

1.5930

81.19

0.9153

0.9889

1.0408

0.8226

106.60

129.35

Support 1

1.3058

1.5864

80.79

0.9101

0.9849

1.0348

0.8176

105.90

128.56

Support 2

1.3022

1.5831

80.58

0.9075

0.9829

1.0318

0.8152

105.55

128.17

Support 3

1.2986

1.5798

80.38

0.9049

0.9808

1.0289

0.8127

105.20

127.78

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.

Additional Content:Money Management Video

Trading the News Video

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.

18 April 2012 03:06 GMT