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Forex: Dollar Awaits Clear Risk Bearing, EUR/USD Eyes 1.3000

By , Chief Currency Strategist
09 January 2013 05:29 GMT

  • Dollar Awaits Clear Risk Bearing, EUR/USD Eyes 1.3000
  • Japanese Yen Posts Biggest Rally in Over Four Months
  • Euro Draws Little Strength From ESM Bond Sale, Japan Interest, Data
  • Australian Dollar Absorbs Data Quickly, Yield Resisting Risk Trend Concerns
  • British Pound Drops Across the Board as Gilt Yields Slide, Growth Outlook Improves
  • New Zealand Dollar Looks to Trade Data Ahead
  • Gold’s First Rally in Four Days Lacks Luster

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Dollar Awaits Clear Risk Bearing, EUR/USD Eyes 1.3000

With the exception of USDJPY, the dollar managed to put in for an advance against all of its major pairings Tuesday. That said, the advance was clearly tepid. The market was holding its breath through the trading day as US equity futures were slowly starting to pullback – threatening a sharper retracement of the post Fiscal Cliff ‘resolution’ rally. That stumble never fully developed, however, as there was no stand out catalyst to promote it. Data for the day (such as the NFIB small business sentiment report and consumer credit figure) lacked the influence to commandeer sentiment. The best chance for a known spark to put speculative trends in motion was a surprise 4Q earnings report from Blue-Chip firm Alcoa. The $0.06 earnings-per-share figure came right in line and clearly did not cater to the weight of uncertainty that threatens to spur risk aversion.

The US corporate earnings season is still a notable risk to speculative stability moving forward, and is therefore a possible point of volatility for the dollar. Yet, the next notable report isn’t scheduled until Friday (Wells Fargo at 13:00 GMT). In the meantime, we will have to look for other drivers: QE3 exit fears, debt ceiling concerns, purely market-based moves. Even the ECB decision can spur the dollar. More on that tomorrow.

Japanese Yen Posts Biggest Rally in Over Four Months

That’s not something we have seen from the yen in a long time: a serious surge. The currency rallied between 1.2 and 0.83 percent against its benchmark counterparts Tuesday. In fact, the 0.8 percent slump for USDJPY was the biggest we have seen from this pair since August 22. This yen advance is particularly remarkable considering it comes directly after Japanese Finance Minister Aso announced the government’s intention to buy ESM bonds in Europe - a means for actively manipulating its currency while simultaneously short circuiting its trade partner’s ire. It is tempting to take this as a particularly glaring signal of a turn for a currency (the yen) that is extremely oversold across the board. However, we must be careful as this a modest correction in a strong trend that is backed by both carry and a vow to forcefully depreciate the currency’s value. The government is expected to announce a budget extension on Friday and the BoJ is on for January 22, but the next move is likely risk-based.

Euro Draws Little Strength From ESM Bond Sale, Japan Interest, Data

There was a lot going on Euro’s newsfeed Tuesday. Top event risk was the European Stability Mechanism’s (ESM) debt sale. Taking over for the EFSF, the rescue fund sold €1.927 billion in three-month bills and investors paid 0.0324 percent for the privilege to lend to the group. This is a sign of relative strength for the fund, but it is also a sign that investors are still seeking out safe havens for capital (a notable consideration when we see Greece’s debt auction pulled slightly better yields and Ireland had a ‘successful’ auction of 2017 notes). The ESM sale was no doubt helped out by Japan’s announcement that it would buy the debt going forward. This should not be read as a serious, bullish development, just as the round of data (jobless rate at record high against modestly better sentiment indicators) comes with serious caveats.

Australian Dollar Absorbs Data Quickly, Yield Resisting Risk Trend Concerns

Following on the heels of the worst trade deficit since 2008 reported yesterday, the Australian docket posted a 4.7 percent pickup in November new home sales (second largest in two years), a 0.1 percent slip in November retail sales and 6.9 percent plunge in job vacancies (the biggest since 2001). The mix was worth of a 40 pip, peak-to-trough stumble from AUDUSD and little more. To revive a serious trend, we need to see a clear bearing on risk appetite to either bolster the demand for yield or panic those that are collecting nickels in front of the steamroller. Yet, if it is risk aversion that we see next, the Aussie dollar is a little better buffered to the headwinds than before. Since the start of the year, the market’s expectation of another 25 bp rate cut from the RBA at the next meeting dropped by 20 percentage points (now at 40 percent).

British Pound Drops Across the Board as Gilt Yields Slide, Growth Outlook Improves

On a day that was relatively restrained for serious swings in speculative appetites and FX trends, the British pound stood out for a drop against all of its major counterparts. That uniform decline is evidence of an inherent weakness for the currency. Form the economic calendar, only the BRC’s sales figures pops up. The 0.3 percent increase for the December reading was weaker than expected and the survey projected weakness through 2013, but this data hardly carries serious influence. Far more interesting is what was happening to Gilt yields (a benchmark measure for returns for currencies). While most government bond rates fell; the UK’s were particularly steep, extending a tumble from April highs.

New Zealand Dollar Looks to Trade Data Ahead

Early Wednesday morning, the kiwi stumbled following the release of a sharper than expected 5.4 percent drop in building permits through the month of November. This curbs expectations that the rebuilding effort in New Zealand will add as much to growth as projected by Finance Minister English and Reserve Bank of New Zealand Governor Wheeler. A bear could say that this is evidence that the central bank could take a more dovish shift going forward – but that would be a considerable stretch. The data was met with a move was less than 20 pips deep before standard risk trends took over. The upcoming session, however, presents a data point with more clout: the November Trade balance. For growth, exports is far more critical a contributor. Though if we are to see anything resembling a medium term trend, the kiwi needs risk trends.

Gold’s First Rally in Four Days Lacks Luster

Having marked its lowest close in four months the previous day, gold managed to finally put in a bullish close Tuesday – its first in four trading days. Yet, nothing about this move looked particularly encouraging. The push was unable to cross back above the mid-point of its past year’s range and 200-day Moving Average at 1,665. There was plenty of talk of physical demand in Chinese markets from Monday ahead of the Lunar New Year holiday coming up as well as rumor that competitive currency devaluation (namely Japan) could stoke fresh demand for the alternative store of wealth. Though, for all the talk, volume was tepid and ETF holdings advanced little. The lack of progress resembles the restrained activity of most capital and FX markets. The metals general buoyancy under these conditions likely has more to do with the dollar’s performance.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:00

AUD

HIA New Home Sales (MoM)(NOV)

-

3.40%

Be wary of recent uptick, data set frequently wavers around Zero.

0:01

GBP

BRC Shop Price Index (YoY) (DEC)

0.30%

1.50%

Retail prices averaged 1.32% inflation throughout 2012.

0:30

AUD

Job Vacancies (NOV)

-

4.20%

4.2% marks highest rate since December 2010.

0:30

AUD

Retail Sales s.a. (MoM)(NOV)

0.30%

0.00%

Averaged 0.3% growth in 2012. Down-trend in progress.

9:30

GBP

Trade Balance Non EU (Pounds) (NOV)

-£4200

-£4532

The UK has been running massive deficits for a solid decade. An improvement won’t help much.

9:30

GBP

Visible Trade Balance (Pounds)(NOV)

-£9000

-£9539

9:30

GBP

Total Trade Balance (Pounds)(NOV)

-£3000

-£3644

11:00

EUR

German Industrial Production s.a. (MoM) (NOV)

1.00%

-2.60%

-2.6% is biggest decline since 4/2009.

11:00

EUR

German Industrial Production (YoY) (NOV)

-2.90%

-3.70%

In downtrend since high on 2/2011 at +15%.

12:00

USD

MBA Mortgage Applications (JAN 4)

-

-10.40%

Look for housing market to continue to improve.

13:15

CAD

Housing Starts (DEC)

195.0K

196.1K

Declined 22% since 4/2012 high at 251.80K starts.

21:45

NZD

Trade Balance (New Zealand dollars) (NOV)

-670M

-718M

High exchange rate to weigh heavily. Merchandise trade deficits since 3/2012, year-over-year.

21:45

NZD

Trade Balance 12 Mth YTD (NOV) (NOV)

-1429M

-1367M

21:45

NZD

Exports (New Zealand dollars) (NOV)

3.55B

3.46B

Average exports throughout 2012 were 3815.30B.

21:45

NZD

Imports (New Zealand dollars) (NOV)

4.20B

4.18B

Average imports throughout 2012 were 3929.64B.

23:00

NZD

QV House Prices YoY% (DEC)

-

5.70%

Been steadily inflating since 8/2011.

23:50

JPY

Official Reserve Assets (DEC)

-

$1270.9B

BoJ announced FX reserves to be used to buy ESM bonds.

23:50

JPY

Japan Buying Foreign Stocks (Yen) (JAN 4)

-

-

23:50

JPY

Japan Buying Foreign Bonds (Yen)(JAN 4)

-

-

BoJ will buy undetermined amount of ESM bonds. Date unknown.

23:50

JPY

Foreign Buying Japan Stocks (Yen)(JAN 4)

-

-

23:50

JPY

Foreign Buying Japan Bonds (Yen)(JAN 4)

-

-

Risk aversion move could send capital towards Yen holdings.

GMT

Currency

Upcoming Events & Speeches

03:00

CNY

Sells 5-Yr Notes

13:30

EUR

EU's Van Rompuy, Ireland's Kenny Brief Press in Dublin

18:00

USD

US to Sell $21 Bln in 10-Yr Notes

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

6.1875

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.8155

5.9190

5.8200

Spot

12.8016

1.7795

8.5865

7.7514

1.2281

Spot

6.5609

5.7054

5.6013

Support 1

12.5000

1.6500

8.5650

7.7490

1.2000

Support 1

6.0800

5.5840

5.6000

Support 2

11.5200

1.5725

6.5575

7.7450

1.1800

Support 2

5.8085

5.3350

5.3040

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

1.3175

1.6148

88.36

0.9313

0.9927

1.0576

0.8463

115.78

141.97

Resist. 2

1.3150

1.6123

88.14

0.9296

0.9913

1.0557

0.8444

115.44

141.58

Resist. 1

1.3125

1.6098

87.93

0.9279

0.9899

1.0537

0.8425

115.10

141.19

Spot

1.3076

1.6049

87.50

0.9245

0.9871

1.0498

0.8386

114.41

140.42

Support 1

1.3027

1.6000

87.07

0.9211

0.9843

1.0459

0.8347

113.72

139.65

Support 2

1.3002

1.5975

86.86

0.9194

0.9829

1.0439

0.8328

113.38

139.26

Support 3

1.2977

1.5950

86.64

0.9177

0.9815

1.0420

0.8309

113.04

138.87

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

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09 January 2013 05:29 GMT