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Dollar Extends its Longest Advance Against Euro Since Sept 2009

By , Chief Currency Strategist
09 May 2012 03:24 GMT
  • Dollar Extends its Longest Advance Against Euro Since Sept 2009
  • Euro: Greek Defect not an Immediate Threat, But the Risk is There
  • Japanese Yen Continues its Course Lower, Carry Unwind vs BoJ Buying
  • Swiss Franc: Are the IMF’s EURCHF Suggestions to Be Taken Seriously?
  • New Zealand Dollar Continues Lower as Bollard Says He Would Intervene if Effective
  • Australian Dollar Responds to Budget, Gillard Suggesting RBA Free to Cut
  • Gold Prints its Biggest Decline Since Bernanke Sunk QE3 Hope, Cracks Major Trendline

Dollar Extends its Longest Advance Against Euro Since Sept 2009

The dollar has made remarkable progress over the past week and a half. The progress the currency has made against its high-yield Australian and New Zealand counterparts as well as the seven day decline for EURUSD (the longest run since September 2009) speak for themselves. That said, the most liquid currency pair is still struggling to build momentum below 1.3000. Further, the Dow Jones FXCM Dollar Index is still well off its 16-month range high with a significant push ahead of it if bulls wish to forge an irrefutable trend. This position, in fact, fits the fundamentals well. There are two ways to set the greenback on a strong and lasting bull run: spark panic that lends itself to wholesale deleveraging or alter the dollar’s competitiveness (higher yields). We know where the rate picture fits. As for risk aversion, the S&P 500 is lower but not a full bear trend.

Euro: Greek Defect not an Immediate Threat, But the Risk is There

Is the Euro at imminent risk of collapse or at the least another round of painful crisis? No. And it is that reason that that we find the Euro a mixed performance (the shared currency gained against the risk-sensitive commodity bloc) through yesterday’s close. It is further, most likely the reason EURUSD has found restraint in its slide below 1.3000. Over-ambitious bears may think the fundamentals have disconnected from reality due to the negative implications of this past weekend’s elections; but speculation surrounding the headlines has already been fully fleshed out. Socialist candidate Francois Hollande’s election to the French presidency, is a distinct shift away from the ambitious austerity that Sarkozy pushed, but it isn’t exactly unprecedented. The Euro Zone has had a voice for more growth-accommodative policy for weeks now. Hollande’s more moderate approach doesn’t cast out the euro, it simply falls in line with the growth-first approach. Far more uncertain is the situation in Greece. The weekend vote fell far short of a majority, and New Democracy’s leader Samaras (a pro-bailout, but looking for renegotiation) has failed to raise a coalition. Second place Syriza (anti-bailout) has three days, but they will unlikely garner the votes. PASOK’s Venizelos (pro-bailout) will unlikely yield further ground, nor will the Greek President after that. There is a lot of uncertainty, but there is still a little time.

Japanese Yen Continues its Course Lower, Carry Unwind vs BoJ Buying

Monday, it was reported that the Bank of Japan made its largest net purchase of ETFs on record - 39.7 trillion yen. That is a notable intervention, but it isn’t the size that we would expect fundamentally shifts the market’s assessment of the Japanese currency’s primary role, that of a funding asset. Furthermore, it is important to note that this is a purchase that falls within the existent asset purchasing program the central bank had laid out previously. Even if this move did come out of the blue, it would unlikely yield the same kind of impact that we had mid-February to the BoJ’s first announcement of an asset purchasing plan increase. Though risk trends are still lacking momentum, carry unwind is still very prominent.

Swiss Franc: Are the IMF’s EURCHF Suggestions to Be Taken Seriously?

The IMF Tuesday released a statement that the SNB’s ceiling on the strong currency was “appropriate” for now. Yet, traders – frustrated by a lack of meaningful direction and momentum – weren’t interested in this assessment. Their attention went to the suggestion that policy should revert to a freely floating exchange rate when growth and price pressures stabilize. There was no real time frame given to that scenario, and they went on to warn that Switzerland was vulnerable to the Euro Zone debt crisis. Should we be concerned of the IMF’s stage 2 advice? No, even if this were an immediate suggestion, the SNB has its own agenda and the reins. They have stated their interests plainly. Dissuade the franc.

New Zealand Dollar Continues Lower as Bollard Says He Would Intervene if Effective

RBNZ Governor Bollard was active on the wires this morning. In the Financial Stability Report, the policy maker was a voice of caution as he warned that Europe was still a prime source of uncertainty for the island nation as much as the rest of the system. It is interesting to see an official speak candidly about how little progress the most troubled region has made on its fiscal imbalances and competitiveness – most others pander to avoid the repercussions of negative sentiment on their own markets. Kiwi traders, however, should be more focused on what Bollard had to say about the kiwi. In reference to the currency, the central banker said recent declines match fundamental trends but it could remain high despite a deflation in prices domestically. A particularly interesting statement was that Bollard would not hesitate to use a tool to drive the kiwi down if he had one that was actually effective.

Australian Dollar Responds to Budget, Gillard Suggesting RBA Free to Cut

There is plenty to keep the Aussie dollar on its back foot; but just to make sure the depreciation continues, policy officials are doing their best to keep the pressure on. Referring to the official Aussie fundamental ‘trinity’, we find first that the Chinese equity markets are taking a turn lower yet fear in this element undermining Australia’s future isn’t particularly active. Interest rate expectations are still the most active concern as we find the market pricing in a 91 percent probability of a 25 bp RBA rate cut next week. Nothing particularly new there. Where the greatest untapped potential still lies is in underlying risk trends. With equity benchmarks still floating near meaningful heights, this is the catalyst we await. In the meantime, Australia’s budget shows it is trying to avoid a poor grade for financing. Fitch approved the effort to balance the budget and agreed with the 2012, 2013 GDP forecasts the budget laid out. Prime Minister Gillard used the occasion to suggest that they had done everything necessary to provide the “maximum room” for the RBA to “move” on rates. Still feeding rate expectations rather than underlying risk trends.

Gold Prints its Biggest Decline Since Bernanke Sunk QE3 Hope, Cracks Major Trendline

We have discussed the fundamental forces working to define gold’s bearings for some time, but the threats have only offered us so much guidance. Finally, we have found drive to the build up – and the spark was distinctly bearish. The 2.0 percent tumble through Tuesday’s session is notable as the biggest drop from the precious metal since the 4.9 percent plunge on February 29 that followed Bernanke’s suggestions that QE3 expectations were overblown (it is also the second biggest drop this year). Where the move really registers however is in its technical picture. Any chart trader would recognize that the day’s drop officially pulled us below a bullish trendline that has been in place since November 2008. This is a changing of the guard, but to make it a true bear’s market, we need liquidity concerns or strong individual dollar.

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ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

5:00

JPY

Leading Index CI (MAR P)

96.9

96.3

Major economic indicators could show signs of improvement, but effects of strong JPY, stalling global growth continue to weigh

5:00

JPY

Coincident Index CI (MAR P)

96.2

95.0

6:00

EUR

German Exports SA (MoM) (MAR)

-0.5%

1.5%

German trade balance generally improving since 2009, while low external competitiveness continues to present challenge to French economy

6:00

EUR

German Imports SA (MoM) (MAR)

1.0%

3.6%

6:00

EUR

German Current Account (Euro) (MAR)

18.0B

11.1B

6:00

EUR

German Trade Balance (MAR)

14.3B

14.7B

6:45

EUR

French Trade Balance (Euros) (MAR)

-6000M

-6398M

11:00

USD

MBA Mortgage Applications (May 4)

0.1%

14:00

USD

Wholesale Inventories (MAR)

0.6%

0.9%

22:30

NZD

Business NZ PMI (APR)

54.5

Previous NZ PMI reading was sharply lower in relation to prior month

23:50

JPY

Bank Lending incl Trusts (YoY) (APR)

0.8%

Japanese trade balance expected to swing to negative as Yen resumes appreciation versus US Dollar

23:50

JPY

Bank Lending Ex-Trusts YoY (APR)

0.9%

23:50

JPY

Current Account Total (MAR)

¥1449.0B

¥1177.8B

23:50

JPY

Adjusted Current Account Total (MAR)

¥650.0B

¥854.1B

23:50

JPY

Current Account Balance YOY% (MAR)

-17.1%

-30.7%

23:50

JPY

Trade Balance - BOP Basis (MAR)

-¥42.8B

¥102.1B

GMT

Currency

Upcoming Events & Speeches

7:00

EUR

Italian PM Monti Gives Speech at Conference on European Economy

7:30

EUR

ECB Vice-President Constancio Speaks on Euro Area

8:15

EUR

Germany’s Schäuble, EU’s Van Rompuy, Barroso Speak

10:00

GBP

UK Outlines Government Program in Queen’s Speech

14:00

USD

Fed’s Kocherlakota Speaks on Monetary Policy in Minneapolis

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 & SCANDIES 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

13.1680

1.7583

7.8310

7.7608

1.2447

Spot

6.8171

5.6844

5.7986

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

1.3217

1.6277

80.59

0.9280

1.0043

1.0296

0.8050

105.79

130.46

Resist. 2

1.3184

1.6245

80.41

0.9256

1.0022

1.0268

0.8026

105.46

130.09

Resist. 1

1.3151

1.6214

80.22

0.9231

1.0002

1.0239

0.8002

105.14

129.71

Spot

1.3084

1.6151

79.85

0.9182

0.9961

1.0182

0.7955

104.49

128.97

Support 1

1.3017

1.6088

79.48

0.9133

0.9920

1.0125

0.7908

103.84

128.23

Support 2

1.2984

1.6057

79.29

0.9108

0.9900

1.0096

0.7884

103.52

127.85

Support 3

1.2951

1.6025

79.11

0.9084

0.9879

1.0068

0.7860

103.19

127.48

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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09 May 2012 03:24 GMT