Trade FOREX with FXCM

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

Resources

Dollar Reacts to Bernanke and Risk, EURUSD and AUDUSD Different Pace

By , Chief Currency Strategist
19 July 2012 04:46 GMT
  • Dollar Reacts to Bernanke and Risk, EURUSD and AUDUSD Different Pace
  • Euro Drops Across the Board as Spain Yields Rise, IMF Says Overvalued
  • British Pound Suffers as BoE Contemplates Rate Cut
  • Australian Dollar Rides Risk Rebound with Moderating Rate Outlook
  • Canadian Dollar Mixed Despite Encouraging Monetary Policy Report
  • Japanese Yen: BoJ Policy Shows Conviction, Desperation
  • Gold Closes Red for a Third Session, Direction will Come with a Bang

Dollar Reacts to Bernanke and Risk, EURUSD and AUDUSD Different Pace

Another strong push for risk-sensitive, capital market benchmarks delivered another pummeling to the safe haven dollar this past session. For those keeping track, Wednesday’s decline brings the Dow Jones FXCM Dollar Index to a four-day serial decline – matching the stumble through April 27 and falling a day short of the five-day slide through April 12 (for a six day bear trend you have to go back to January). Consistency in direction is important, but conviction through momentum is more significant when we are weighing the possibility of a trend. On that point, we need to look at the different fundamental components to the dollar’s bearish drive. Looking at the different components of the index (each playing unique fundamental roles), there is reason to be skeptical of this trend and remain on guard for reversal.

The biggest contributor to the greenback’s tumble Wednesday was AUDUSD. This pair is the most sensitive dollar-based major pairing to risk appetite trends. As such, the second 0.7 percent rally for the S&P 500 to a two-and-a-half month high sets a distinct to tone for this particular pair. That said, when risk appetite is truly strong, we typically find that the ultimate safe haven currency (the dollar) eases against counterparts that aren’t at the top end of the yield spectrum and/or are exposed to fundamental and speculative scrutiny. Yet, the market’s most liquid pairing, EURUSD, notably closed a bullish day for the dollar. Furthermore, we haven’t seen significant progress from this particular pair even though it is turning up from a two-year low - which should be an easy read for speculative covering if investor confidence were robust. In other words, risk appetite isn’t as solid as AUDUSD and equities would suggest.

While there isn’t a strong backbone to risk appetite now, that doesn’t mean it doesn’t set in later. Whether conviction rises or not depends on the fundamental backdrop. Where would support for risk come from? Market-based returns aren’t going to recover anytime soon. On that front, 2Q US earnings may seem to support bullish progress; but a look beyond the EPS shows declining top-line growth – commensurate with a downturn in economic activity. Speaking of growth, the IMF’s downgrade for global expansion expectations sets the tone. A stalling US economy could cater to the ever-present QE3 speculation (a speculative favorite and dollar headache), but the Beige Book reported ‘modest to moderate’ growth for most regions. That is the view they will supposedly work with going into the next rate decision in early August. It seems more likely that additional support from the Fed only comes with a shock to the system – which means the next aggressive move would be risk bearish (dollar bullish). And, if the stimulus injection doesn’t offer the high traders want, the crash could be bigger. Keep an eye on expected volatility.

Euro Drops Across the Board as Spain Yields Rise, IMF Says Overvalued

On a day that is supposedly strong for risk appetite, we would expect the fundamentally-saddled euro would find some relief and a moderate level of recovery. That wasn’t the case however Wednesday. The shared currency closed lower against all its largest counterparts on the day – safe haven and high-yield alike. From the headlines, we saw Portugal auction of 12 month debt with the lowest yields since November 2010 and the ECB reportedly changed its view on offering Ireland more favorable terms on its bailout program. On the flip side of the coin, Spain’s 10-year yield inched closer to 7 percent (unusual for a country inline for a bailout). Perhaps the most interesting update on the session was the IMF’s assessment of the Euro Zone. Normally the cheerleader, the group said the region was in ‘critical’ danger and the euro was overvalued.

British Pound Suffers as BoE Contemplates Rate Cut

The BoE’s stimulus level doesn’t come close to competing size-wise with the programs in the US and Euro-area, so expectations for volatility this past session fell to the labor data. The 6,100 net increase to jobless claims in June was bigger than expected, but partially attributed to benefits changes. In the meantime, the ILO jobless rate dropped to a nine-month low, 9 percent. That didn’t help out the sterling though as the FX market was more interested by the suggestion from the BoE minutes that the policy group was contemplating a further rate cut.

Australian Dollar Rides Risk Rebound with Moderating Rate Outlook

With equities on the rise, it comes as little surprise that the high-yield Australian dollar leads the corresponding rise in carry interest. Yet, we have seen similar advances in more traditional lines of risk appetite produce little or no gains from the same currency in the very recent past. What is the difference now? The shift in interest rate expectations. We haven’t changed to an outlook for hikes – they haven’t even turned flat – but from pricing in a certainty of a 25 bp cut at the next RBA meeting (even a 50 percent chance of 50 bp), swaps now show uncertainty.

Canadian Dollar Mixed Despite Encouraging Monetary Policy Report

After the hawkish lean from the Bank of Canada from the statement following their rate decision on Tuesday, the Monetary Policy report from this past session was already expected to be encouraging for the loonie. It certainly lived up to expectations, but neither rate decision or policy assessment would generate a meaningful advance from the Canadian currency. With a competitive yield, a hawkish bias, steady financial markets, solid domestic growth and a connection to the US; this is an exceptionally well placed currency. Will the market catch up to that belief?

Japanese Yen: BoJ Policy Shows Conviction, Desperation

The 10-year Japanese government bond (JGB) yield slipped to a fresh record low 0.744 percent this morning. While this government yield isn’t in danger of seeing negative real returns (yield minus inflation), there are other destabilizing issues. The BoJ’s recent decision to drop its 0.1 percent floor on its JGB purchases (after 14 failures to fill its purchases on the asset program) reflects trouble and maybe even desperation.

Gold Closes Red for a Third Session, Direction will Come with a Bang

Technically speaking, gold closed its third consecutive daily decline Wednesday; but this series didn’t really tally progress. The CBOE’s gold implied (expected) volatility index is at a two-month low and the average true range is at its lowest level since May 28. The commodity is turning into dubious congestion as the market’s dependency on stimulus speculation grows. Confirm or deny central bank action, this ends with abruptly.

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 towww.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

22:00

NZD

ANZ NZ Job Ads (MoM)

-

3.3%

01:30

AUD

NAB Business Confidence

-

-1

04:30

JPY

All Industry Activity Index (MoM)

-0.3%

0.1%

05:00

JPY

Leading Index (MAY F)

-

95.9

Preliminary figures showed decline in coincident

05:00

JPY

Coincident Index (MAY F)

-

95.8

06:00

CHF

Trade Balance (Swiss franc)

-

2.52B

06:00

CHF

Exports (MoM)

-1.5%

1.8%

06:00

CHF

Imports (MoM)

-

-0.1%

08:00

EUR

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

-

1.6B

08:00

EUR

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

-

4.6B

08:30

GBP

Retail Sales (MoM)

0.4%

0.9%

08:30

GBP

Retail Sales w/Auto Fuel (YoY)

2.3%

2.4%

08:30

GBP

Retail Sales (YoY)

2.6%

3.0%

08:30

GBP

Retail Sales w/Auto Fuel (MoM)

0.6%

1.4%

12:30

CAD

Wholesale Sales (MoM)

0.2%

1.5%

12:30

USD

Initial Jobless Claims

263K

350K

June Inflation held constant at 8.2%

12:30

USD

Continuing Claims

3300K

3304K

14:00

USD

Philadelphia Fed.

-8.0

-16.6

Gauges manufacturing sector.

14:00

USD

Leading Indicators

-0.1%

0.3%

14:00

USD

Existing Home Sales (MoM)

1.5%

-1.5%

June building permits rose 7.9%, and hit a 44 month high in May.

14:00

USD

Existing Home Sales

4.62M

4.55M

GMT

Currency

Upcoming Events & Speeches

8:30

EUR

Spain to Sell 3,5 and 7-year Notes

22:00

EUR

EUR Italy Chamber of Deputies Votes to Approve ESM and Fiscal Pact

SUPPORT AND RESISTANCE LEVELS

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

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

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USDMXN

USDTRY

USDZAR

USDHKD

USDSGD

Currency

USDSEK

USDDKK

USDNOK

Resist 2

15.5900

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

15.0000

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

13.1387

1.8017

8.1539

7.7561

1.2567

Spot

6.9314

6.0519

6.0930

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

1.2418

1.5781

79.21

0.9873

1.0167

1.0491

0.8090

97.85

124.42

Resist. 2

1.2387

1.5749

79.06

0.9848

1.0148

1.0464

0.8068

97.54

124.08

Resist. 1

1.2355

1.5718

78.90

0.9822

1.0130

1.0437

0.8045

97.23

123.73

Spot

1.2292

1.5656

78.59

0.9771

1.0093

1.0382

0.8001

96.61

123.04

Support 1

1.2229

1.5594

78.28

0.9720

1.0056

1.0327

0.7957

95.99

122.35

Support 2

1.2197

1.5563

78.12

0.9694

1.0038

1.0300

0.7934

95.68

122.01

Support 3

1.2166

1.5531

77.97

0.9669

1.0019

1.0273

0.7912

95.37

121.66

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

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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

19 July 2012 04:46 GMT