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Dollar Advances Alongside Equities as Market Debates September Taper

By , Chief Currency Strategist
27 June 2013 00:27 GMT
  • Dollar Advances Alongside Equities as Market Debates September Taper
  • Euro Faces Short-Term Volatility on Data, Lasting Turbulence on Financial Issues
  • Japanese Yen: Looking for Stimulus Success in Data, Volatility
  • British Pound Drops after BoE Warns of Vulnerability, Osborn Presents Cuts
  • New Zealand Dollar Traders: Keep an Eye on RBNZ’s Currency Report
  • Swiss Franc: EURCHF Poised for Break as SNB Bulletin Due
  • Gold Sets Another Multi-Year Low on Another Jump in Volume

Dollar Advances Alongside Equities as Market Debates September Taper

The positive correlation between the US dollar and S&P 500 is solidifying again – which is a disappointing sign for those looking for an extended and momentous advance for the currency. It is absolutely possible that both the safe haven currency and sentiment-tied benchmark equity index can rise in tandem, but such a climb would be slow and choppy for both. Feeding stocks just off record highs as economic growth maintains a lackluster pace, earnings growth forecasts fade and cheap money evaporates is extraordinarily improbable – borderline impossible. The alternative would be a wave of ‘sidelined’ capital returning to the capital markets. To assume that that will / must happen with asset prices still near record highs falls into the category of ‘hope’. A deleveraging is likely inevitable, and that will no doubt usher a break of the positive correlation and spur the dollar to a much more prolific and momentous climb.

Switching from the big picture to the more immediate tides behind the greenback, the market was once again focusing in on speculation surrounding the ‘Taper’ time frame. There were two explicit highlights for market participants to work with. The first quarter GDP figure proved the source of a considerable debate. Though a ‘final’ reading – second update with more data following the flash reading – the sizable reduction from a 2.4 percent to 1.8 percent pace of expansion does stir concern. Personal consumption’s 0.8 percentage point slip to 2.6 percent was the principle catalyst for the general slowdown. Weaker growth can be interpreted as reducing the probability that the Fed will reduce its monthly QE purchases from $85 to $65 billion at the September meeting – the current consensus amongst economists – but not by much.

The same taper delay / risk booster / dollar weight can be drawn out of Minneapolis Fed President Kocherlakota’s comments this past session. A dovish non-voter, the central banker repeated his lament that the market’s reactions to the Fed warnings were ‘outsized’ and that dates shouldn’t be given on QE. In contrast, Richmond Fed President Lacker – a hawkish non-voter – said he would be “fine with tapering it off right now”. This is a balance of commentary that seems to support a general belief – that pumping the breaks in September seems to be the outcome FOMC members expect as well. In the upcoming US session, we will see the Fed headlines actually increase. On deck, we have Dudley (voter), Powell (voter) and Lockheart (non-voter). Pay particularly attention to the voters. Also, a 7-year Treasury auction is scheduled. The 5-year sale this past session met its lowest demand since August 2009. QE has plenty of influence on speculation alone…

Euro Faces Short-Term Volatility on Data, Lasting Turbulence on Financial Issues

There is plenty going on in the world of Euro-area event risk, but it has yet to generate much consistent influence on the currency. This past session, there were a number of comments that should have caught investors’ attention. ECB President Draghi (and a few of his fellow board members) found it necessary to repeat the bank’s readiness to act should financial conditions seize in the region. The EU’s Dijsselbloem reminded us of Cyprus, saying the country must stay its austerity course. Greek officials also remarked that recent failures in national asset sales towards privatization would not result in a funding gap for the country. Though once moving, it is difficult to stop; it takes a lot to get the ‘Euro Crisis’ theme rolling. Those watching the crisis track will watch the EU Summit details. Short-term traders: German jobs figures.

Japanese Yen: Looking for Stimulus Success in Data, Volatility

How successful has monetary policy in Japan been? How do we measure success – growth and inflation or a cheaper yen? We will wade into this debate in the upcoming session. On tap, we have a dense round of key economic indicators due Friday morning (Thursday evening for the Western world). May data on retail sales, factory activity, household spending, employment and inflation hits all the keys areas of the economy and covers approximately two months of stimulus influence. In the meantime, true success is keeping market volatility under control.

British Pound Drops after BoE Warns of Vulnerability, Osborne Presents CutsUnder an active stimulus regime – where weak data or policy concerns leads to increased external support – poor data can actually be interpreted as a positive. That isn’t the case for the UK and the sterling where bad news is met by a monetary policy authority that has no plans to play the knight in shining armor. This past session, Chancellor Osborne laid out his plans for cutting an additional £11.5 billion from spending after April 2015; while the BoE financial stability report said UK banks were ‘vulnerable’. Not encouraging without a stimulus counterbalance.

New Zealand Dollar Traders: Keep an Eye on RBNZ’s Currency Report

Reserve Bank of New Zealand (RBNZ) members have been unusually vocal over the past 24 hours. Yesterday, the central bank released the annual Statement of Intent and Governor Wheeler lamented the negative effect of the still-high kiwi dollar. This morning, Deputy Governor Spencer said a rate rise was not an option as it would put pressure on the kiwi dollar – policy via exchange rates? The pinnacle of central bank talk though comes later with the Monthly Assessment of Currency Flows. Did they intervene again? Do they see need to do so soon?

Swiss Franc: EURCHF Poised for Break as SNB Bulletin Due

While we haven’t seen EURCHF return to the SNB’s strictly enforced 1.2000-floor in the past nine months, the pair also hasn’t moved far from the hard floor. The central bank has essentially found itself unsuccessful in materially turning the trend on its currency – the franc- for two full years (when we first dropped below 1.2000). The longer we linger in this area and Euro uncertainty persists, the greater the need for forcible action. We have an SNB Bulletin due today, but it is unlikely to give guidance. A short-term break out is likely from the 1.2300 – 1.2225 range.

Gold Sets Another Multi-Year Low on Another Jump in Volume

Another 4.0 percent ($51) collapse from gold pushed the metal to its lowest close since August 2010. The pain simply doesn’t stop because the diehard holdouts for an ever-lasting bull run continue to jump ship. We are two days from the end of the quarter; but we can already see how the high time frame view will look unless there is a dramatic, last-minute rebound: awful. Currently, the second quarter 2013 has seen gold bleed 23 percent of its value – the most dramatic loss on record.

**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

NZD

NBNZ Business Confidence (JUN)

41.8

Whether overall sentiment moves with GDP numbers from Wednesday will be noted.

1:00

NZD

ANZ Activity Outlook (JUN)

34.3

1:30

CNY

Industrial Profits (YTD) (YoY) (MAY)

11.4%

Any data out of China will be closely watched following liquidity scares and spikes in inter-bank exchange rates.

3:00

NZD

RBNZ Publishes Currency Flows Report

Lingering risks of intervention

7:00

EUR

Spain Retail Sales (MAY)

Spain 10yr yields are up over 20%

7:55

EUR

German Unemployment Change (JUN)

8K

21K

Numbers have been stable as Germany continues to be the only bright spot in Europe.

7:55

EUR

German Unemployment Rate s.a. (JUN)

6.9%

6.9%

8:00

EUR

Euro-Zone M3 s.a. (3M) (MAY)

2.8%

3.%

Levels have stubbornly remained under 4.0 since 2009.

8:00

EUR

Euro-Zone M3 s.a. (YoY) (MAY)

2.9%

3.2%

8:30

GBP

Gross Domestic Product (QoQ) (1Q F)

0.3%

0.3%

Significant data like this out of the UK will impact GBP, which has seen extreme volatility over the past few weeks.

8:30

GBP

Gross Domestic Product (YoY) (1Q F)

0.6%

0.6%

8:30

GBP

Current Account (Pounds) (1Q)

-12.0B

-14.0B

9:00

EUR

Euro-Zone Economic Confidence (JUN)

90.4

89.4

As with any European data in these sensitive ‘taper’ times, any disappointments will make moves in the FX market as some call for a return to Eurozone volatility to the downside.

9:00

EUR

Euro-Zone Consumer Confidence (JUN F)

-18.8

-18.8

9:00

EUR

Euro-Zone Business Climate Indicator (JUN)

-0.65

-0.76

10:00

EUR

Ireland GDP (1Q)

12:30

USD

Personal Income (MAY)

0.2%

0.%

Data shows a recovery from sequester fueled spikes lower in January.

12:30

USD

Personal Spending (MAY)

0.3%

-0.2%

12:30

USD

PCE Deflator (MoM) (MAY)

0.1%

-0.3%

The FOMC’s preferred inflation figures expected to increase. Still far from 2% target.

12:30

USD

PCE Deflator (YoY) (MAY)

1.1%

0.7%

12:30

USD

Initial Jobless Claims (JUN 22)

345K

354K

Although 2013 has shown a steady downtrend, recent talk of the ‘taper’ may have spooked hirers.

12:30

USD

Continuing Claims (JUN 15)

2953K

2951K

13:00

CHF

SNB Publishes Quarterly Bulletin

Officials have voiced commitment to 1.2000, but admit balance sheet size

14:00

USD

Pending Home Sales (MoM) (MAY)

1.%

0.3%

Year over year data will be telling as concerns of rising mortgage rates rise.

14:00

USD

Pending Home Sales (YoY) (MAY)

8.3%

13.9%

23:01

GBP

GfK Consumer Confidence Survey (JUN)

-21

-22

Print has been below -20 since 2010.

23:15

JPY

Nomura/JMMA Manufacturing PMI (JUN)

51.5

With the Bank of Japan engaged in its unprecedented stimulus program, regular assessments of growth and inflation are necessary by officials. In May Figures, there are two months of the data for assessment.

23:30

JPY

National Consumer Price Index (YoY) (MAY)

-0.4%

-0.7%

23:30

JPY

Jobless Rate (MAY)

4.%

4.1%

23:30

JPY

Household Spending (YoY) (MAY)

1.3%

1.5%

23:50

JPY

Industrial Production (MoM) (MAY P)

0.2%

0.9%

23:50

JPY

Industrial Production (YoY) (MAY P)

-2.3%

-3.4%

23:50

JPY

Large Retailers' Sales (MAY)

0.2%

-2.3%

GMT

Currency

Upcoming Events & Speeches

EUR

EU Summit in Brussels

7:00

EUR

German Chancellor Merkel Speaks to Parliament on EU Summit

14:00

USD

Fed's William Dudley Speaks on U.S. Economy

14:30

USD

Fed's Jerome Powell Speaks on Monetary Policy

16:30

USD

Fed's Dennis Lockhart Speaks on U.S. Economy

17:00

USD

US to Sell $29 Bln in 7-Year Notes

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

10.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.1150

Resist 1

12.9000

1.9000

10.2500

7.8075

1.3250

Resist 1

6.8155

5.8300

5.9365

Spot

12.6508

1.8635

9.8671

7.7638

1.2504

Spot

6.4843

5.5860

5.7475

Support 1

12.0000

1.6500

9.3700

7.7490

1.2000

Support 1

6.0800

5.6075

5.7400

Support 2

11.5200

1.5725

8.9500

7.7450

1.1800

Support 2

5.8085

5.4440

5.5000

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

1.3471

1.5837

96.50

0.9339

1.0246

0.9728

0.8187

128.84

151.40

Resist. 2

1.3441

1.5805

96.12

0.9312

1.0226

0.9696

0.8159

128.34

150.84

Resist. 1

1.3412

1.5772

95.74

0.9285

1.0207

0.9665

0.8130

127.83

150.29

Spot

1.3353

1.5707

94.98

0.9231

1.0168

0.9602

0.8073

126.82

149.18

Support 1

1.3294

1.5642

94.22

0.9177

1.0129

0.9539

0.8016

125.81

148.08

Support 2

1.3265

1.5609

93.84

0.9150

1.0110

0.9508

0.7987

125.30

147.52

Support 3

1.3235

1.5577

93.46

0.9123

1.0090

0.9476

0.7959

124.80

146.97

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 June 2013 00:27 GMT