Trade FOREX with FXCM

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

Resources

Dollar Posts Another Rally But Still Short of Bull Trend

By , Chief Currency Strategist
18 April 2013 04:28 GMT
  • Dollar Posts Another Rally But Still Short of Bull Trend
  • Euro Tumbles as Market Makes Currency Pay for Undeserved Rally
  • British Pound Ignores BoE’s Refusal of Stimulus, Hit by Jobs
  • Japanese Yen Thwarts Tumble as US Equities Anchor to Support
  • Canadian Dollar Eases Against USD Despite Carney’s Hawkish Rhetoric
  • Australian Dollar Risks Growing as Bond Yields Drop, Risk Trend Unstable
  • Gold Consolidation Established Below $1,400, Bear Trend Solidifying

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

Dollar Posts Another Rally But Still Short of Bull Trend

The dollar posted a remarkable performance this past session. Leveraging a rally against all its most liquid counterparts – between both high yield currencies like the Australian dollar and fellow safe havens like the Japanese yen – the greenback managed its strongest move in nearly 10 months. Putting a number to the performance, the Dow Jones FXCM Dollar Index (ticker = USDollar) enjoyed a 0.8 percent rally – the best move for the benchmark since June 21, 2012. Fundamentally speaking, this performance wasn’t too surprising. There was a clear sense of risk aversion that fed the greenback’s safe haven status.

From the regular measures of ‘fear’, the S&P 500 put in for a substantial 1.4 percent drop (completely wiping the previous day’s gains), while the VIX volatility index temporarily jumped above Monday’s high and settled at 16.5 percent. Widening our gaze, a more convincing picture of concern was seen from the concert ‘risk off’ move seen in equities, commodities, Treasury yields and FX carry trade exposure. Yet, as significant as the sentiment move through the cross-market picture; it is clear that we have not yet made the critical transition where fear overtakes greed (complacency?) and leads a self-sustaining bear trend. From a technical perspective, the S&P 500 is still supported by 1,545 and the USDollar has not revived its effort to overtake 10,600.

To transition to a market-wide effort of risk deleveraging, we need a push that offsets the anesthesia delivered by the central banks’ incredible stimulus program. The Fed Beige Book released this past session was a weak contributor to this theme. Showing ‘moderate’ growth across the country, it tempers the need for ongoing QE; but it doesn’t meaningfully move forward the end of the program. Meanwhile, the progress of the 1Q US earnings season seems unable to convince investors to throttle back on cost cutting-led revenue growth despite a weaker showing from Bank of America. Moving forward, the G20 meeting may stir competitive stimulus conversations as well as Eurozone crisis issues; but that is far from action. If the scales are to tip this week, it would likely be an unforeseen event or purely the heft of speculative interests.

Euro Tumbles as Market Makes Currency Pay for Undeserved Rally

The euro’s performance Wednesday was the antithesis of its strength the previous day. That is fitting given that the headlines offered little support for that140-pip advance. Once again, the headlines were particularly unflattering for the shared currency. Traders were talking about Cyprus’ announcement that it would have to vote whether to agree to the rescue package – where many believed that agreement was implied. Ratings agency Egan-Jones announced it had downgraded the region’s anchor (Germany) from A+ to A and left it with a ‘Negative’ outlook. Former ECB member Bini-Smaghi said the ECB would look to keep the euro from appreciating going forward which focused market participants’ focus on Bundesbank head Weidmman’s comments that rate cuts may become necessary in the future. Then there was the IMF’s Financial Stability report that essentially named the Eurozone periphery as the world’s greatest threat.

British Pound Ignores BoE’s Refusal of Stimulus, Hit by Jobs

The sterling was a mixed bag yesterday. On the fundamental side, the docket served up serious concern about the state of the UK’s economy when the National Stats Office reported a concerning view of the labor market. While jobless claims for March dropped by 7,000 filings, the ILO measure of total unemployed jumped by 70,000 – the biggest increase since November 2011. With the unemployment rate rising to 7.9 percent and stagnate wage growth, that recovery looks further off. This unfavorable data print could have been overlooked had the market acted on overleveraged BoE stimulus expectations. The minutes showed the BoE ignored the Exchequer’s remit and voted again 6-3 to hold policy as is. Yet, that reality did little to feed a fundamental recovery from the pound. Winning the stimulus war isn’t doing much for the sterling.

Japanese Yen Thwarts Tumble as US Equities Anchor to SupportHaving suffered a three-day slump through Monday, the yen crosses were coming dangerously close to turning the tides on the Bank of Japan’s carefully crafted bull trend. We are still above the critical levels that define the bullish momentum for the various pairings, but risk aversion this past session has prevented a move to truly revive the USDJPY’s and other pairs’ run. With the BoJ working to devalue the currency, we need a concerted and active catalyst to rally the yen. Meanwhile, the distortion is obvious and appealing. The Japanese Ministry of Finance’s weekly capital flows report showed ¥1.57 trillion in foreign purchases of Japanese stocks last week – a record.

Canadian Dollar Eases Against USD Despite Carney’s Hawkish Rhetoric

USDCAD put in for a noticeable advance for the day, but the Canadian dollar eased back against all of its other major counterparts. The loonie felt the appeal of risk aversion through the day, but more mundane fundamentals took over for the rest of the market. The Bank of Canada (BoC) kept rates unchanged and Governor Carney reiterated the next move would be a hike, but he also downgraded growth forecasts.

Australian Dollar Risks Growing as Bond Yields Drop, Risk Trend Unstable

Risk aversion is good enough reason for most FX traders to move out of the high-yield Australian dollar. However, the fundamental degradation went deeper than this elemental connection. The benchmark 10-year Australian government bond yield, dropped to a four-month low 3.174 percent this morning. This could be a sign of demand, but recent bond auctions don’t support strength – nor does futures volume.

Gold Consolidation Established Below $1,400, Bear Trend Solidifying

The CBOE’s Gold Volatility Index has retreated for a second day, but the massive swell from the fear gauge Monday still has a ways before it is fully retraced. Yet, it is worth noting that prices are not improving with this measure of sentiment. The metal failed once again to make a play for $1,400 and selling has reemerged in early Thursday trade. The argument that global central banks are still active in devaluing their currencies is still a viable argument for bulls, but the practicality of gold representing an alternative seems undercut by the severe volatility.

**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

CNY

Actual FDI (YoY)

1.90%

6.30%

Fastest pace of increase since 10/2011; Hong Kong remains the destination of most investment.

1:00

NZD

ANZ Consumer Confidence Index

114.8

Modestly retreated from its 4M uptrend amid a robust economic growth prospect; Markets expect RBNZ will lift rate within the year.

1:00

NZD

ANZ Consumer Confidence (MoM)

-5.10%

1:30

CNY

China Property Prices

Prices continued to edge higher despite stricter credit policies.

1:30

AUD

RBA FX Transactions Other

Non-standard capital flows may look into stimulus-related moves

1:30

AUD

RBA Foreign Exchange Transaction (Australian dollar)

328M

Rising risk appetite could increase demand for Aussie.

1:30

AUD

NAB Business Confidence

-5

3Y downtrend; Weak domestic data signals downward pressure.

3:30

AUD

RBA FX Transactions Govt.

Follows predicatable patterns

5:30

JPY

Nationwide Department Store Sales (YoY)

0.30%

Indicative of consumer confidence and domestic demand

5:30

JPY

Tokyo Department Store Sales (YoY)

2.50%

8:30

GBP

Retail Sales (MoM)

-0.60%

1.90%

Cold weather hurts retailers particularly on clothing retailers; Consumer behaviors are affected by austerity sentiment.

8:30

GBP

Retail Sales w/Auto Fuel (YoY)

-0.20%

2.60%

8:30

GBP

Retail Sales (YoY)

0.90%

3.30%

8:30

GBP

Retail Sales w/Auto Fuel (MoM)

-0.60%

2.10%

12:30

USD

Initial Jobless Claims

350K

346K

Weakness in NFP may reflect on jobless claims; An alternative indicator for the labor market.

12:30

USD

Continuing Claims

3075K

3079K

14:00

USD

Philadelphia Fed.

3

2

Business sentiment in Phil. district fluctuating between positive and negative over last 8 months

14:00

USD

Leading Indicators

0.10%

0.50%

Composite of leading indicators; 6M straight of positive levels

14:30

USD

EIA Natural Gas Storage Change

-14

Uptrend in storage since beginning of year may indicate positive outlook for future gas sales

GMT

Currency

Upcoming Events & Speeches

-:-

JPY

BOJ Policy Member Miyao Speaks with Business Leaders

-:-

ALL

G-20 Meeting Begins

-:-

EUR

Italian Parliament Votes on New President

3:45

JPY

Japan Sells 20-Year Bonds

9:00

CHF

SNB’s Zurbruegg Speaks on Eurozone Crisis

11:15

USD

|| US Earnings – Morgan Stanely (Est $0.560)

13:00

USD

Fed's Kocherlakota Speaks in New York

13:30

USD

Fed's Lacker Speaks on Credit in Charlotte, North Carolina

16:00

USD

Fed's Raskin Speaks in New York

-:-

USD

|| US Earnings – Google (Est $10.684)

20:15

EUR

EU’s Rehn, Regling, Dijsselbloem, Asmussen Speak on Future

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

5.8950

6.1150

Resist 1

12.9000

1.9000

9.5500

7.8075

1.3250

Resist 1

6.8155

5.8300

5.8620

Spot

12.1752

1.7929

9.0974

7.7651

1.2401

Spot

6.4509

5.7383

5.7299

Support 1

12.0470

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

1.3101

1.5448

98.87

0.9419

1.0242

1.0460

0.8510

128.69

151.42

Resist. 2

1.3074

1.5420

98.54

0.9400

1.0226

1.0441

0.8490

128.21

150.95

Resist. 1

1.3046

1.5392

98.22

0.9382

1.0209

1.0422

0.8471

127.74

150.48

Spot

1.2991

1.5336

97.57

0.9344

1.0176

1.0383

0.8432

126.79

149.55

Support 1

1.2936

1.5280

96.92

0.9306

1.0143

1.0344

0.8393

125.84

148.61

Support 2

1.2908

1.5252

96.60

0.9288

1.0126

1.0325

0.8374

125.37

148.15

Support 3

1.2881

1.5224

96.27

0.9269

1.0110

1.0306

0.8354

124.89

147.68

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

Sign up for John’s email distribution list, here.

Additional Content:Money Management Video

Trading the News Video

DailyFX 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 FXCM.

18 April 2013 04:28 GMT