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Dollar Likely to Find Greater Drive in NFPs than FOMC

By , Chief Currency Strategist
03 May 2013 04:53 GMT
  • Dollar Likely to Find Greater Drive in NFPs than FOMC
  • Euro Slammed by ECB Rate Cut, Threats for More
  • Japanese Yen: BoJ Governor Confirms Stimulus Cap, Sees No Asset Bubble
  • Swiss Franc Extends Longest Rally Versus Euro Since May 2011
  • Canadian Dollar: What Will the New BoC Governor Bring for the Loonie?
  • Oil Posts Biggest Rally in 6 Months After Supply-Glut Plunge
  • Gold Tempers Wednesday’s Bearish Break as ECB Nibbles at Stimulus

Dollar Likely to Find Greater Drive in NFPs than FOMC

The dollar advanced against all of its primary counterparts this past session – a move that contradicted the prevailing risk trend for the session and notably spared the greenback from critical support. This could prove a fortuitous move for the currency considering the heavy event risk through the final trading day of the week. Given the typical sway the Nonfarm Payrolls (NFPs) have over general sentiment trends and its history as a volatility fan, it would have been particularly easy to force the dollar into the next leg of a structural bear wave. Yet, with the Dow Jones FXCM Dollar Index (ticker = USDollar) up appreciably from 10,400, EURUSD nearly 200 pips below 1.3250 and USDJPY avoiding the 96.50; there is comfortable breathing room should the upcoming event risk ‘disappoint’.

Looking for the source of the dollar’s strength through this past session, the economic docket provided modest support to the benchmark. Initial jobless claims dropped sharply to the lowest levels in over five years for the week ending April 27, while the March trade balance report printed a substantially smaller-than-expected $38.8 billion deficit (versus $42.3 billion expected). Weightier in terms of headline clout, the trade shortfall was the second smallest in three years – a feat considering the USDollar has appreciated 5 percent since the beginning of the year and thereby makes US goods more expensive. Yet, the inordinate drop in imports (the biggest since February 2009) mars the reading as it suggests domestic consumption struggled.

While the weekly unemployment benefit claims are individually low on the market-moving totem, they plug into a deeper fundamental current: tomorrow’s labor data. There are few indicators more recognizable – and volatility-inducing for that familiarity – than the US labor numbers. The NFPs change alone is likely to generate immediate market swells simply through a kneejerk reaction to ‘front run the market’. However, the real impact comes through the stimulus implications in the Fed’s pursuit of a more temperate unemployment rate. The central bank has set an explicit target for its current regime of loose policy in a 6.5 percent jobless rate. In March, that figure was 7.6 percent. It is important to recognize that the express benchmark is level at which the FOMC will start discussing rate hikes. A full halt on QE3 purchases will likely come well before that milestone and a tapering of the $85 billion in monthly purchases of Treasuries and mortgage-backed securities, even sooner. After the write-off rate decision Wednesday, a downtick in unemployment can revive speculation on the deceleration of stimulus. This has direct implications for a smaller increase in the money supply, but far more remarkable would be the possible blow this could deliver to risk trends.

Euro Slammed by ECB Rate Cut, Threats for More

The European Central Bank (ECB) met economists’ expectations for a 25 basis point benchmark rate cut, but they would also go further in their effort to provide support to the region’s strained economy and financial system. Alone, lowering the key lending rate to 0.50 percent does little to further improve the Eurozone’s health as there are clear issues with transmitting the benefits of previous policy moves to periphery economies (like Greece, Cyprus, Spain, etc) much less individuals and smaller businesses. Therefore, had the central bank simple taken this step, the euro may not have dropped. Yet, tumble it did with EURUSD moving back to 1.3050 and EURGBP bouncing at 0.8400. To further show commitment, ECB President Draghi also lowered the marginal lending rate 50 bps to 1.00 percent, noted that the growth outlook was tipped to the ‘downside’ and they would remain open to negative rates on deposits. This is certainly substantial, but it is largely a balance sheet neutral move (doesn’t engage the stimulus war) and supports risk. We may have see the extent of the specific ECB reaction move.

Japanese Yen: BoJ Governor Confirms Stimulus Cap, Sees No Asset Bubble

Bank of Japan Governor Kuroda was on the wires Thursday to reaffirm his confidence in the stimulus plan the central bank adopted and ensure the lip service is paid to pacify the G7 by saying the effort is not aimed at manipulating the currency. What is interesting from the various remarks was his suggestion that they would eventually hold after April’s aggressive move. The bulk of the USDJPY and other yen crosses’ moves came well before the central bank actually adopted stimulus regime. We will so find out how important constant escalation was to sustaining the move.

Swiss Franc Extends Longest Rally Versus Euro Since May 2011While the Swiss franc dropped against most of its global counterparts this past session – thanks to the fundamental sympathy to the Euro – the EURCHF actually slid for a sixth session. That is the longest bearish slide for the pair since May of 2011. However, we haven’t seen any serious momentum develop alongside the consistency. Euro-area crises are the franc’s true appeal, and so we wait.

Canadian Dollar: What Will the New BoC Governor Bring for the Loonie?

A replacement was named for Governor of the Bank of Canada when standing head Mark Carney leaves for London in July. Given the USDCAD’s modest jump after Stephen Poloz was named the designate, the market is leery of its inflation-fighting credentials. Few remarks were given by Poloz, but a plan that depends on exports – which he voiced – should also be questioned.

Oil Posts Biggest Rally in 6 Months After Supply-Glut Plunge

Following the third biggest decline in US oil prices this year, the commodity remarkably rallied 3.3 percent for the biggest surge in six months. This incredible reversal was supported by a general sense of risk trend, but the lack of confirmation from the rest of the energy complex draws concerns about follow through. Also of note, futures volume showed relatively little conviction in the move.

Gold Tempers Wednesday’s Bearish Break as ECB Nibbles at Stimulus

The policy decisions this week have done what they can to ensure there isn’t too much pain for the gold. Then again, they haven’t really helped upgrade the fiat alternative’s appeal to the next level and above $1,500. After the Fed abstained from a downgrade of its currency devaluing QE3 program, the ECB delivered new measures of support. However, the moves taken by the European authority doesn’t serious expose the currency and thereby leverage the appetite for an alternative. Meanwhile, ETF holdings of gold have dropped for 23 straight days.

**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

1:00

CNY

Non-manufacturing PMI

55.6

Indicative of domestic demand; 12 month range between 55-57

1:30

AUD

Producer Price Index (QoQ)

0.20%

Steady downtrend since 12/11, Indicates weak domestic consumption as producers’ lower price to boost revenues.

1:30

AUD

Producer Price Index (YoY)

1.00%

6:00

CHF

UBS Real Estate Bubble Index

1.11

Steady capital inflow from Eurozone has supported the uptrend since recession.

8:30

GBP

Purchasing Manager Index Services

52.4

52.4

Expansionary for three months, reflecting the impact of monetary easing.

8:30

GBP

Official Reserves (Changes)

$202M

9:00

EUR

Euro-Zone Producer Price Index (MoM)

-0.20%

0.20%

Downtrend since 04/11 as overall PMIs are in contraction; Companies’ lower prices to boost revenues.

9:00

EUR

Euro-Zone Producer Price Index (YoY)

0.60%

1.30%

12:30

USD

Change in Non-Farm Payrolls

150K

88K

The time frame for easing back on QE3 depends on the strength of US labor market. 6.5 percent is the stated target for rate hikes, but what about QE easing?

12:30

USD

Unemployment Rate

7.60%

7.60%

12:30

USD

Change in Private Payrolls

160K

95K

12:30

USD

Change in Manufacturing Payrolls

5K

-3K

The strongest sector during recovery; Declined for the first time after 5M increase.

12:30

USD

Average Hourly Earnings All Employees (MoM)

0.20%

0.00%

With inflation around 1.5%, Real YoY earnings growth minimal.

12:30

USD

Average Hourly Earnings All Employees (YoY)

1.90%

1.80%

12:30

USD

Underemployment Rate (U6)

13.80%

Approaching 5 year low, sharp fall due to lower participation rate.

14:00

USD

ISM Non-Manufacturing Composite (APR)

54

54.4

Accounting for nearly three-quarters of US economic output

14:00

USD

Factory Orders

-3.00%

3.00%

Subject to cyclical fluctuations.

GMT

Currency

Upcoming Events & Speeches

5:30

INR

India Central Bank Rate Decision

9:00

EUR

EU Releases Spring Economic Forecasts

16:30

USD

Fed’s Tarullo Speaks on Financial Stability

16:45

USD

Fed's Lacker Speaks on the Economy in Virginia

17:05

CAD

Bank of Canada Gov Carney Speaks on Panel

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

12.1773

1.7933

8.9509

7.7597

1.2351

Spot

6.5305

5.7011

5.7983

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

1.3187

1.5645

99.21

0.9420

1.0167

1.0346

0.8603

130.06

154.24

Resist. 2

1.3159

1.5617

98.92

0.9400

1.0152

1.0325

0.8581

129.59

153.75

Resist. 1

1.3131

1.5589

98.63

0.9381

1.0137

1.0304

0.8559

129.13

153.27

Spot

1.3076

1.5534

98.04

0.9343

1.0106

1.0262

0.8515

128.20

152.29

Support 1

1.3021

1.5479

97.45

0.9305

1.0075

1.0220

0.8471

127.27

151.32

Support 2

1.2993

1.5451

97.16

0.9286

1.0060

1.0199

0.8449

126.81

150.83

Support 3

1.2965

1.5423

96.87

0.9266

1.0045

1.0178

0.8427

126.34

150.35

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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03 May 2013 04:53 GMT