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Dollar Slides after NFPs Shove S&P 500 to Record High

By , Chief Currency Strategist
04 May 2013 06:18 GMT
  • Dollar Slides after NFPs Shove S&P 500 to Record High
  • Euro Fundamentals Worsening, Difficult to Veil Despite Risk Trends
  • British Pound: Should Sterling Bulls Fear the BoE Rate Meet?
  • Australian Dollar May not Be Able to Handle Another RBA Cut
  • Japanese Yen: The Yield Chase Feed the Bubble, But for How Long?
  • Canadian Dollar Deals with a New BoC Governor, Jobs Data Ahead
  • Gold: Bullish Positioning Hits a Four-Year Low, $1,500 Looking Insurmountable

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

Dollar Slides after NFPs Shove S&P 500 to Record High

There are many fundamental contradictions that are bound to fall apart for the markets – and the discrepancy between the S&P 500’s record move and safe haven USDollar’s stubborn hold to two-and-a-half year highs is one of the most endangered. This past week, the combination of relief in the Fed’s avoidance of setting a plan for managing QE and a positive showing from the labor data offered a perfect combination for investors looking for a reason to leverage up. The move above 1,600 for the benchmark equity index personified the exuberance, and the natural momentum of the upgrade ensured commitment. Yet, traditional market returns are still near record lows, participation is struggling and asset prices are rich. This is an issue only so long as investors believe it is – and collective beliefs require clear themes to change. If it dawns that stimulus will end, there would be no greater scythe to risk taking, but that has yet to transpire. In the meantime, the dollar tries to hang on.

Euro Fundamentals Worsening, Difficult to Veil Despite Risk Trends

The euro may have found a spat of relief from the European Central Bank’s restrained policy move this past week, but the situation is hardly bullish. Months ago, an argument could be made that the shared currency was attractive for its greater yield potential; but the stimulus efforts of the ECB have all but erased any hope of return on ‘safe’ assets in the region. Investors have taken to the more exceptional risks of periphery debt from Spanish to Greek sovereign bonds, which themselves have seen yields drop on demand. This is the epitome of desperation for yield. To top off weeks of discouraging fundamentals, the European Commission further downgraded the 2013 growth outlook for the region to a 0.4 percent contraction. The outlook is lifeless, but capital seeks any and all yield. But given all problems in the EZ, should the tide go out…

British Pound: Should Sterling Bulls Fear the BoE Rate Meet?

On a docket spotted with notable event risk, the sterling carries one of the more noteworthy releases: the Bank of England rate decision. Nothing is expected of the central bank, but therein lies the opportunity for a more significant surprise and currency reaction. The last time the policy group met, they surprised doves who had expected the Chancellor’s remit (allowances to deviate from its inflation mandate), the general malaise of the economy and actions of fellow policy groups would spur the MPC to action. Yet, they held the line. The pound has regained significant ground since then as bearish fears were unwound. Yet, we shouldn’t write off the possibility that fresh support will be offered and the sterling be hurt for it. Given the ECB moved the non-traditional and non-QE route, the BoE has a track to follow.

Australian Dollar May not Be Able to Handle Another RBA CutDespite enjoying the highest benchmark yield amongst the majors, the Australian dollar fell against most of its counterparts this week – and did so as equities hit records… Given the blind demand for return, it should be very concerning that this investment currency is showing such an uneven performance. Moving forward, this unusual bearing will be fully exposed by a heavy docket of event risk. Perfect fodder for volatility – and a significant sway over growth expectations when those matter again – we have employment, retail sale and trade data on deck. The real potential rests with the RBA rate decision though. There seems a near 50-50 chance of a move according to swaps, and that will spur concerns. With China showing signs of slowing and the Aussie dollar refusing to ease, can the central bank afford not to cut?

Japanese Yen: The Yield Chase Feed the Bubble, But for How Long?

Since September, USDJPY has advanced as much as 30 percent. That is a long way to move in such a short time – particularly for the relatively calm FX market. What is even more remarkable about this impressive move is the fact that the market has put in for a meaningful correction to allow for profit taking and offer attractive levels for new players to enter the trade. The yen crosses have become the currency model to the extreme conditions in global markets. An all out appetite for return has dropped traders’ sense of risk – few would say the yen is not at least moderately oversold in the short-term – in the pursuit of carry. However, that carry is extremely thin. The yield differentials on pairs like EURJPY, AUDJPY, NZDJPY and others are record lows. This run doesn’t have to stop as long as the risk drive continues. Yet, should investors catch any whiff that an unwind is nigh; these over-extended pairs could perhaps be the most exposed.

Canadian Dollar Deals with a New BoC Governor, Jobs Data Ahead

The Canadian dollar managed to advance against all of its major counterparts this week – a considerable feat given the strength of risk trends (which could have favored higher yielding currencies) and the level of event risk. The strong showings in February GDP and the March trade balance no doubt played a role in that strength. Fundamentals will continue to carry a heavy sway over the currency in the week ahead. For traditional event risk, the April employment statistics due Friday are top billing. Yet, that doesn’t come into play until the end of the week. The risk of event risk can actually temper movement before its release and prove more burdensome than helpful to active traders. That said, the possible bearings of the newly announced BoC Governor-designate Stephen Poloz could capture rate watchers’ imaginations.

Gold: Bullish Positioning Hits a Four-Year Low, $1,500 Looking Insurmountable

Following a week-and-a-half of recovery, gold spent this past five trading days bleeding momentum and developing congestion. Considering the well-worn $1,500/25 stand overhead, bulls have lost their influence at a particularly inopportune level. Yet, it is inevitable that the recovery effort would stall before a serious advance to new highs without the commitment to drive the market beyond its former floor. From a fundamental perspective, the balance of power has shifted. Fear of devalued currencies – a key support for the alternative to fiat assets – has lost its potency in the financial world’s relentless search for yield. Gold provides no yield. Profit only comes when the position is closed; and for long-term bulls, that realization is starting to set in. Meanwhile, a look to market positioning further reflects an unflattering view for gold. The CFTC’s Commitment of Traders (COT) report revealed futures traders further reduced their net long interest in the metal to their lowest levels since December 2008 this past week. Similarly, ETF holdings of the metal dropped another 0.9 percent this past week – a 14 percent drop from December.

**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

JPY

Official Reserve Assets

$1254.4B

0:30

AUD

TD Securities Inflation (MoM)

0.20%

A monthly estimate of inflation in the Australian economy; Has pointed lower for 3M, providing more room for the RBA to cut interest rate on May 7.

0:30

AUD

TD Securities Inflation (YoY)

2.10%

1:30

AUD

Retail Sales s.a. (MoM)

1.30%

Showed cyclical fluctuations with signs of softening retail sales; Indicating weak domestic demand as the effects of tax rates in 2011-12 started to level off.

1:30

AUD

Retail Sales Ex Inflation(QoQ)

0.10%

1:45

CNY

HSBC Services PMI

54.3

A preliminary survey of factory managers

7:45

EUR

Italian Purchasing Manager Index Services

45.5

Germany, France and Italy 3 biggest EU economies. All EU PMI indicate contraction.

7:50

EUR

French Purchasing Manager Index Services

44.1

7:55

EUR

German Purchasing Manager Index Services

49.2

8:00

EUR

Euro-Zone Purchasing Manager Index Services

46.6

8:00

EUR

Euro-Zone Purchasing Manager Index Composite

46.5

8:30

EUR

Euro-Zone Sentix Investor Confidence

-17.3

Previously fell to 12/12 level. With the Italian government formation and Cyprus dead, investors’ confidence may improve

9:00

EUR

Euro-Zone Retail Sales (MoM)

-0.30%

Has improved for 3 months, albeit at a slowing pace.

9:00

EUR

Euro-Zone Retail Sales (YoY)

-1.40%

12:30

CAD

Building Permits (MoM)

1.70%

1Y avg. -0.9; High 17.5; Low –16.5.

14:00

CAD

Ivey Purchasing Managers Index SA

61.6

Survey based on small sample size.

22:45

NZD

Average Hourly Earnings (QoQ)

-0.40%

Strong kiwi dollar and drought effect have hurt some companies’ revenue, decline in earnings of the country’s largest bank ANZ may weight on wages earnings.

22:45

NZD

Private Wages ex Overtime (QoQ)

0.50%

22:45

NZD

Labor Cost Private Sector (QoQ)

0.60%

23:01

GBP

BRC Shop Price Index YoY

1.40%

Steady uptrend for three months.

23:30

AUD

AiG Performance of Construction Index

39

Leading indicator of business activities.

GMT

Currency

Upcoming Events & Speeches

May 3-5

CNY

China Leading Index (MAR)

(SUN)

USD

Fed’s Pianalto Speaks

(SUN)

JPY

Asian Fin Mins and Central Bankers Meet for Asian Dev Bank Meet

-:-

RUB

Russia Updates Wellbeing and Reserve Funds (APR)

-:-

ALL

OPEC Board of Governors Meeting

7:45

EUR

Italian PM Letta Speaks in Milan Expo

9:00

EUR

German Chancellor Merkel Speaks on EU’s Future

13:00

EUR

ECB’s Draghi Speaks

16:00

EUR

Italian PM Letta and Spain PM Rajoy Meet

-:-

USD

US Senate Holds Final Vote on Online Sales Tax

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

12.0730

1.7943

8.9097

7.7588

1.2340

Spot

6.5062

5.6838

5.8015

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

1.3222

1.5683

100.19

0.9429

1.0142

1.0401

0.8619

131.73

156.14

Resist. 2

1.3195

1.5656

99.89

0.9410

1.0126

1.0381

0.8597

131.26

155.65

Resist. 1

1.3168

1.5629

99.59

0.9391

1.0111

1.0360

0.8576

130.78

155.15

Spot

1.3114

1.5574

98.99

0.9354

1.0080

1.0319

0.8533

129.84

154.17

Support 1

1.3060

1.5519

98.39

0.9317

1.0049

1.0278

0.8490

128.90

153.19

Support 2

1.3033

1.5492

98.09

0.9298

1.0034

1.0257

0.8469

128.42

152.70

Support 3

1.3006

1.5465

97.79

0.9279

1.0018

1.0237

0.8447

127.95

152.20

--- 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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04 May 2013 06:18 GMT