Trade FOREX with FXCM

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

Resources

Dollar Just Short of 16 Month High, We Need a Push

By , Chief Currency Strategist
17 May 2012 04:04 GMT
  • Dollar Just Short of 16 Month High, We Need a Push
  • Euro: Market Starting to Panic Over Greece, Crisis Fallout
  • British Pound Takes a Hit after BoE Repeats a Dovish Bias
  • Japanese Yen Unfazed by GDP Beat, Market Focuses on Risk
  • Australian Dollar Pauses as 10 Year Yield Stabilizes at Record Low
  • Swiss Franc: Risk to EURCHF Growing as EZ Crisis Fears Solidify
  • Gold Traders Weigh the Fundamentals at Next Massive Cliff

Dollar Just Short of 16 Month High, We Need a Push

We are keeping the count on the dollar’s impressive run. With Wednesday’s close, that is four consecutive bullish trading days and 11 advances in the past 13 sessions. This impressive run has yielded another official close at levels not traversed since January 2011, but one statistic that we have yet to nudge is a 16-month high on an intraday trading basis. Given the momentum behind this move, it may seem a shoo-in that a new high is in the cards; but follow through is becoming increasingly difficult to support on this drive. As we press new highs on the dollar, the burden for fundamental fuel grows higher and higher. Yet, as we have seen with the benchmark equity indexes (the most stubborn of risk-tracking barometers) panic isn’t leveraging the risk aversion drive. And, without panic, we don’t have that instinctive drive to seek shelter in the world’s last resort currency: the US dollar. Letting up on the fundamental gas and positioned at the tail end of large moves, risk of correction is high.

In the past session, the battered capital market bulls had the chance to revive the call that has led the charge behind reinvestment for the past three years: stimulus – specifically Fed stimulus. Though the Federal Reserve offered a statement, its forecasts and Chairman Bernanke for question and answer after its last policy decision; there was still a latent chance that the policy group could outline the procedure for further support should it be needed. This would set the pace for the more dovish policy forecasts (like Goldman Sachs) that believes further easing will be enacted within the next few months. What was seen in the minutes did little to tip the scales towards QE3 or another Operation Twist. Most notable was the account that ‘several’ FOMC members suggested further easing may be necessary should the recovery fall apart. If the market were particularly susceptible to stimulus hopes, this may have provided a real boost; but keeping the options open is far from a rally cry.

Over the coming 24 hours, there are few key pieces of event risk that could meaningfully nudge the dollar one way or another. As usual, greenback traders should remain tapped in to the larger ebb and flow of risk positioning. Here too, there are few definable catalysts to point to. That means we will have to gauge the propensity for speculators covering on the recent run versus unexpected headline fodder.

Euro: Market Starting to Panic Over Greece, Crisis Fallout

We are starting to see the signs of genuine panic surround the euro. While the euro itself is still stable (though notably weaker), we can see evidence of fear percolating through headlines and across various points of the market itself. Through the past 36 hours, the newswires were littered with stories that a full-blown bank run had taken over in Greece. This was later dismissed, but investors saw it as a viable enough threat that the concerns were taken seriously. In reality, the fear comes from reasonable evidence with net deposits in Greece’s banking system standing just off a six-year low 160 billion euros and given recent comments by the President that another 700 million euros had been withdrawn since the failed election. Another shock that ran through the system was speculation that the ECB was planning to up its crisis fight with LTRO 3 or reactivation of government bond purchases, but that too was rebuffed by ‘official sources’ who say previous efforts are being reviewed. When the market finds itself more prone to bombastic headlines, it suggests genuine fear. Default premiums and equity declines support that concern.

British Pound Takes a Hit after BoE Repeats a Dovish Bias

The sterling may have undermined its own detachment to the Euro-area’s troubles and risk trends in general with its fundamental round this past trading day. The April labour data was a pleasant surprise with a 13,700-person drop in jobless claims (the biggest drop since June 2010) and unexpected downtick in the unemployment rate from February’s16-year high. Yet, the market was not interested in employment figures that were fighting the trend of a double-dip recession. The focus was on the BoE’s Quarterly Inflation report. This report projected that the first hike was likely after 1Q 2014. Further, the report and Governor King reiterated the threat that the EU crisis posed – something the market tried to ignore.

Japanese Yen Unfazed by GDP Beat, Market Focuses on Risk

Perhaps the last big piece of event risk this week was the reading of first quarter Japanese GDP released this morning. The impact from the data, however, belied its economic importance. According to the figures, the world’s third large economy (after the US and China) grew a slightly-greater-than-expected 1.0 percent over the opening quarter, leading the annualized reading to climb to 4.1 percent expansion. That was a notable reading, but the support from reconstruction spending is expected to fade. And, in the end, this doesn’t spur carry interests.

Australian Dollar Pauses as 10 Year Yield Stabilizes at Record Low

The Australian dollar has outpaced the deterioration in its interest rate forecast as well as the slide in Australian and US shares. So then, where is this additional momentum coming from? The outlook for rates and underlying temperature for risk are critical components of the Aussie dollar’s performance, but current yield is also an important factor. In the past two months, the yield on the 10-year Australian bond has dropped more than 25 percent. Over the past three days, this benchmark has found some stability; but a true rebound has yet to materialize.

Swiss Franc: Risk to EURCHF Growing as EZ Crisis Fears Solidify

As the sting of panic starts to bite at the euro, Swiss policy officials have to recheck their contingency plans. If the regional crisis (which has been acknowledged and lamented over by Japan, the US, the UK, and of course European officials over just the past 24 hours) intensifies, the very real flight of capital out of the Euro Zone will put immediate pressure on EURCHF exchange rate. There was another rejected spike towards the 1.2000 floor this past session, but we haven’t seen another epic clash. That could soon change. What does the SNB have planned?

Gold Traders Weigh the Fundamentals at Next Massive Cliff

The count on gold is nearly as impressive as the dollar itself – for good reason. One is the premier reserve currency and the other the preferred alternative to fiat. We surpasses a significant threshold this past week breaking a multi-year rising trendline and now we find the next challenge, lining up at floor that has held since July of last year. If the dollar can’t keep moving, gold will likely find reprieve.

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

1:00

AUD

Consumer Inflation Expectation (May)

--

3.3%

RBA sees inflation near lower bound of forecasts

1:00

NZD

ANZ Consumer Confidence Index (May)

--

114

Could come under pressure with unemployment near 13-year high

1:00

NZD

ANZ Consumer Confidence MoM (May)

--

3.4%

1:30

AUD

Average Weekly Wages (QoQ) (Feb)

1.0%

0.5%

Most recent RBA statement projects slower wage growth on slowdown in non-mining sectors of economy

1:30

AUD

Average Weekly Wages (YoY) (Feb)

4.1%

4.3%

1:30

AUD

RBA Foreign Exchange Transactions (Apr)

--

944M

4:00

JPY

Tokyo Condominium Sales (YoY) (Apr)

--

-6.1%

4:30

JPY

Capacity Utilization (MoM) (Mar F)

--

-1.7%

YoY data to be high due to low base of comparison from Mar 2011 earthquake

4:30

JPY

Industrial Production (MoM) (Mar F)

--

1.0%

4:30

JPY

Industrial Production YOY% (Mar F)

--

13.9%

6:00

JPY

Machine Tool Orders (YoY) (Apr F)

--

0.5%

7:00

EUR

Spanish GDP (QoQ) (1Q F)

-0.3%

-0.3%

Final numbers expected to confirm Spain in technical recession

7:00

EUR

Spanish GDP (YoY) (1Q F)

-0.4%

-0.4%

12:30

CAD

Int'l Securities Transactions (Mar)

8.00B

12.49B

12:30

CAD

Wholesale Sales MoM (Mar)

0.3%

1.6%

12:30

USD

Initial Jobless Claims (May 12)

365K

367K

Jobless claims have seen an uptick over recent weeks

12:30

USD

Continuing Claims (May 5)

3230K

3229K

13:45

USD

Bloomberg Consumer Comfort (May 13)

--

-40.4

US consumer sentiment worsening since mid-April on job-market softness

13:45

USD

Bloomberg Economic Expectations (May)

--

-3

14:00

USD

Philadelphia Fed. (May)

10.0

8.5

Expected to rise again after retreating in April

14:00

USD

Leading Indicators (Apr)

0.1%

0.3%

US economic fundamentals more uncertain

GMT

Currency

Upcoming Events & Speeches

8:30

EUR

Spain Sells 2015, 2016 Bonds

16:35

USD

Fed’s Bullard Speaks in Louisville, Kentucky

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

13.7332

1.8186

8.2964

7.7685

1.2656

Spot

7.1515

5.8342

5.9523

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

1.2901

1.6076

81.10

0.9550

1.0215

1.0077

0.7773

103.79

129.53

Resist. 2

1.2861

1.6038

80.90

0.9519

1.0190

1.0043

0.7746

103.42

129.13

Resist. 1

1.2821

1.6001

80.71

0.9488

1.0164

1.0009

0.7718

103.05

128.72

Spot

1.2741

1.5925

80.31

0.9427

1.0113

0.9941

0.7664

102.32

127.90

Support 1

1.2661

1.5849

79.91

0.9366

1.0062

0.9873

0.7610

101.59

127.08

Support 2

1.2621

1.5812

79.72

0.9335

1.0036

0.9839

0.7582

101.22

126.67

Support 3

1.2581

1.5774

79.52

0.9304

1.0011

0.9805

0.7555

100.85

126.26

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

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

17 May 2012 04:04 GMT