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Dollar Unable to Capitalize on Euro, Yen Weakness

By , Chief Currency Strategist
27 March 2013 05:18 GMT
  • Dollar Unable to Capitalize on Euro, Yen Weakness
  • Euro: Why Doesn’t the Risk of Region-wide Bank Levies Spur Selling?
  • Japanese Yen Now Dependent on Risk Moves Before April 4
  • Australian Dollar: RBA Relents to Strong Currency
  • British Pound Traders Should Look Closer at Osborne’s Comments
  • Canadian Dollar Volatility Threshold High for February CPI Data
  • Gold Drops a Third Day Despite Eurozone Financial Risks

Range Trade Strategies work best in quiet market conditions - such as the Asia trading session

Dollar Unable to Capitalize on Euro, Yen Weakness

The euro was crushed under headlines suggesting systemic risks are returning to the region and risk trends were pushing the yen crosses higher, yet the US dollar found itself unable to capitalize on its counterparts’ weakness. The Dow Jones FXCM Dollar Index (ticker = USDollar) ended Tuesday virtually unchanged at 10,450 – but perhaps that is a win for the safe haven considering the Dow Jones Industrial Average reflected a record high close for US equities. Weight was giving to the data offered on the day, but durable goods were just as weak as new home sales and consumer confidence figures when you look at the details. For the dollar to truly take off, we need one of three motivating catalysts: a committed risk trend move; the Fed to imply a QE3 end date; or other central banks to pick up the pace.

Euro: Why Doesn’t the Risk of Region-wide Bank Levies Spur Selling?

Volatility has proven the bane of euro traders’ existence the past two weeks. While a heightened level of activity can be a boon for FX traders, when it lacks for consistency in direction or a foundation in perceptible fundamental trends; it is merely dangerous chop. The issue once again is Cyprus. While the country seems to have secured a bailout and liquidity for the time being, there are deeper questions as to what the use of a ‘bank levy’ on deposits means as an option in future rescues in the Eurozone. This is particularly troubling considering Eurogroup President Dijsselbloem stated explicitly that its use is a very real option moving forward. Systemic fears take time to gain a head of steam however.

Japanese Yen Now Dependent on Risk Moves Before April 4

There are some remarkable wedge patterns on a number of yen-based crosses that look like they are primed for breakout. However, a true breakout – that leads to trend development – needs the fundamental pressure to build momentum. That critical component is missing for the Japanese currency. There are two things that can unilaterally jumpstart a bullish or bearish trend for the funding currency: a committed risk-based move or a serious change in Japan’s monetary policy regime. For the Bank of Japan (BoJ), it is now highly unlikely that extraordinary steps are taken (an emergency meeting or surprise policy) before the official meeting on April 4. In fact, it was new Governor Kuroda who said he will discuss policy specifics at the actual decision. That means the burden for serious trends is on risk. It is difficult to imagine a momentum-backed move for risk appetite building at these levels given fundamentals, but there is certainly a strong risk aversion possibility lingering.

Australian Dollar: RBA Relents to Strong CurrencyThe saying that ‘no one likes a quitter’ doesn’t apply to FX trading. When it comes to a central bank that refuses to enter the stimulus or verbal manipulation game, bulls take note. The Reserve Bank of Australia (RBA) has had multiple attempts so far this week to sound its alarm and try their hand at tempering the side effects of the United States’ massive stimulus effort and Japan’s eventual upgrade to its own program. But they haven’t. RBA Governor Stevens managed to avoid meaningful commentary in his prepared speech on the economy Tuesday morning. On a similar tack, the RBA’s Financial Stability report didn’t go any further than stating that business and consumer confidence have reflected the negative implications of a high currency. RBA member Broadbent went directly to the point when she said that the Australian dollar would likely remain elevated going forward and the country has adapted to the burden. Not a driver, but a ‘hands off’ blessing for future gains.

British Pound Traders Should Look Closer at Osborne’s Comments

With the exception of GBPJPY, the British pound was universally weak through the past session. For those watching the docket, the CBI’s retail sales activity report for March printed a much-weaker-than-expected ‘0’ reading against a 13 forecast (a five month low). The cable was sliding around the time of the release, but it was hardly a serious escalation of the bearish trending that was in place before the data hit. As is always the key to fundamentals – we must ask whether this data taps the fundamental issues that truly matters to pound traders. While we can make the connection to tepid growth which is a side effect of austerity and the Bank of England’s lack of buttressing, but there are too many degrees of separation for it to be a ready market mover. Far more interesting – but also generally overlooked – was a comment made by Chancellor Osborne, who in testimony said the remit given to the BoE was catching up to MPC practices. It is subtle, but essentially suggests that the greater degree of freedom given to the bank is not an automatic license a massive stimulus swell. We’ll see this again.

Canadian Dollar Volatility Threshold High for February CPI Data

The Canadian dollar was one of the best performing currencies through the past 24 hours of trading. It seems the investment appeal coupled with a financial system that has avoided serious crisis was the top billing for the period. The traditional lines of loonie price action were quiet. An empty economic docket and lack of buzz on the interest rate outlook tapped out the fundamental opportunities for heavy volatility or trend development, but it would offer enough of a contrast to its counterparts’ issues to offer a glow. The upcoming session will carry a more active tone to it with the scheduledrelease of the Consumer Price Index (CPI) data for February. If the Bank of Canada (BoC) is to regain that hawkish character and revive rate hike potential, inflation is key. The headline figure is seen picking up, but 0.8 percent is far from target.

Gold Drops a Third Day Despite Eurozone Financial Risks

So far this week we have seen the fears of aEuro-area financial crisis pick up and policy officials (Fed Chairman Bernanke included) extolling the virtues of the modern stimulus program. There is no better fundamental combination to leverage the appeal of an alternative store of value – one not at risk of existence or manipulation. And yet, the designated substitute for those traditional assets priced in massaged currencies – gold has actually dropped for a third consecutive day through Tuesday. Meanwhile, volume continues to contract and the brief respite in ETF holdings has once again turned lower. This is not a ‘pricing’ concern as the metal has shown a broad drop against the other major currencies (even against the likes of the euro and yen). Rather, this shows the market’s tolerance for ‘tentative’ signs of a Euro-region financial crunch and acclimation to well-worn stimulus lines. In other words, we need to up the ante on both accounts to incite the gold bulls.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:00

NZD

NBNZ Business Confidence

39.4

Expectation for the next 12M; Highest confidence in 19M.

0:00

NZD

ANZ Activity Outlook

37.6

Approaching previous high on 3/12

7:00

EUR

German Import Price Index (MoM)

0.20%

0.10%

Import prices (YoY) fell for the first time since 12/09 (3Y). The decline was led by cheaper energy goods.

7:00

EUR

German Import Price Index (YoY)

-1.60%

-0.80%

7:00

EUR

German GfK Consumer Confidence Survey

5.9

5.9

Within a tight range from 5.7 to 6.1

7:00

CHF

UBS Consumption Indicator

1.18

Retail and businesses improved; Decline led by new car registration.

7:45

EUR

French Gross Domestic Product (QoQ) (4Q F)

-0.30%

-0.30%

Contraction as a result of deficit reduction; Abandoned the 3% deficit-GDP target.

7:45

EUR

French Gross Domestic Product (YoY) (4Q F)

-0.30%

-0.30%

8:00

CHF

KOF Swiss Leading Indicator

1.04

1.03

Declined for the fifth months.

9:30

GBP

Gross Domestic Product (QoQ) (4Q F)

-0.30%

-0.30%

2013’s growth was trimmed, which is pounds negative fundamentally.

9:30

GBP

Gross Domestic Product (YoY) (4Q F)

0.30%

0.30%

9:30

GBP

Total Business Investment (QoQ)

-1.20%

-1.20%

Previous decline led by construction and corporate investment, less gov’t spending.

9:30

GBP

Total Business Investment (YoY)

0.40%

9:30

GBP

Current Account (Pounds) (4Q)

-12.5B

-12.8B

Deficit funded by foreign market funds or foreign asset withdrawals.

10:00

EUR

Euro-Zone Consumer Price Index Estimate (YoY)

1.80%

Austerity caps inflationary pressure

10:00

EUR

Euro-Zone Economic Confidence

90.5

91.1

Although Cyprus only accounts for 0.2% of Eurozone GDP, its unprecedented measure to raise funds has unnerved depositors in euro area; Uncertainty on capital flows and insolvency risk will affect euro and liquidity in the EU

10:00

EUR

Euro-Zone Business Climate Indicator

-0.79

-0.73

10:00

EUR

Euro-Zone Consumer Confidence

-23.5

-23.5

10:00

EUR

Euro-Zone Services Confidence

-6.5

-5.4

10:00

EUR

Euro-Zone Industrial Confidence

-12

-11.2

11:00

USD

MBA Mortgage Applications

-7.10%

Low mortgage rate buoys demand.

12:30

CAD

Consumer Price Index (YoY)

0.80%

0.50%

BOC’s inflation rate holds below its target range of 1-3%.

12:30

CAD

Bank Canada Consumer Price Index Core (YoY)

1.00%

1.00%

14:00

USD

Pending Home Sales (YoY)

8.70%

10.40%

Steady growth in demand, bolstered by institutional investors.

14:00

USD

Pending Home Sales (MoM)

-0.40%

4.50%

21:45

NZD

Building Permits (MoM)

3.00%

-0.40%

Strong productivity boosts demand

23:30

AUD

TD Securities Inflation (MoM)

0.00%

Reached 2.5 previously but ticked lower year on year.

23:30

AUD

TD Securities Inflation (YoY)

2.40%

23:50

JPY

Retail Trade s.a. (MoM)

0.80%

2.30%

Demonstrated the J curve effect; Expensive imported goods and weak export decreases disposable income; Abe is planning to increase sales tax in 2014 & 2015.

23:50

JPY

Retail Trade (YoY)

-1.30%

-1.10%

23:50

JPY

Large Retailers' Sales

-1.50%

-3.50%

23:50

JPY

Foreign Buying Japan Bonds (Yen)

-¥485.6B

Demand for Japanese stock has retreated from record high.

23:50

JPY

Foreign Buying Japan Stocks (Yen)

¥471.9B

GMT

Currency

Upcoming Events & Speeches

-:-

-

BRICS 2013 Summit in South Africa

00:30

AUD

RBA Financial Stability Review

10:00

EUR

ECB Announces Allotment of 3-Month Refi / Dollar Tend

-:-

GBP

BoE Fin Committee Releases Regulator Capital Report

17:00

USD

Fed's Kocherlakota Speaks on Monetary Policy in Edina, MN

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 GMT

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

15.0000

2.0000

9.8365

7.8165

1.3650

Resist 2

7.5800

5.8300

6.1150

Resist 1

12.9000

1.9000

9.5500

7.8075

1.3250

Resist 1

6.8155

5.7955

5.8200

Spot

12.3273

1.8188

9.3142

7.7617

1.2506

Spot

6.4652

5.7567

5.8427

Support 1

12.2385

1.6500

8.7750

7.7490

1.2000

Support 1

6.0800

5.6075

5.5000

Support 2

11.5200

1.5725

8.5650

7.7450

1.1800

Support 2

5.8085

5.4440

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

1.3066

1.5247

97.13

0.9532

1.0315

1.0454

0.8351

126.04

146.89

Resist. 2

1.3036

1.5216

96.83

0.9511

1.0298

1.0435

0.8330

125.57

146.43

Resist. 1

1.3006

1.5185

96.52

0.9491

1.0282

1.0415

0.8310

125.11

145.96

Spot

1.2947

1.5122

95.91

0.9450

1.0249

1.0376

0.8270

124.18

145.04

Support 1

1.2888

1.5059

95.30

0.9409

1.0216

1.0337

0.8230

123.25

144.12

Support 2

1.2858

1.5028

94.99

0.9389

1.0200

1.0317

0.8210

122.79

143.65

Support 3

1.2828

1.4997

94.69

0.9368

1.0183

1.0298

0.8189

122.32

143.19

v

--- Written by: John Kicklighter, Chief 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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27 March 2013 05:18 GMT