Trade FOREX with FXCM

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

Resources

Dollar Advances to 6 Week High, On Verge of Critical EURUSD Break

By , Chief Currency Strategist
23 May 2014 05:08 GMT

Talking Points:

  • Dollar Advances to 6 Week High, On Verge of Critical EURUSD Break
  • Euro: Economic Activity Readings Push ECB Further Towards Stimulus
  • Japanese Yen Crosses Rebound – How Long Does It Last?

Dollar Advances to 6 Week High, On Verge of Critical EURUSD Break

It’s happening again. The S&P 500 is parked just below a record high at the same time the Dow Jones FXCM Dollar Index (ticker = USDollar) is tentatively turning a bear trend having closed a six-week high. Has the position of the currency as a ‘safe haven of last resort’ changed to one of a carry currency? No. This is a reflection of the quality of sentiment we are dealing with. Rather than look at the relationship between benchmark ‘risk’ gauge and ‘safe haven’, we can also refer to activity measures on the high-flying equity measure. Volatility already flat-lined recently below 12 percent – a rare occurrence over the past seven years – and this past session’s push above 1,890 was forged on one of the lowest readings of volume outside of holidays on record. This has the characteristics of a zombie bull market where complacency and habit dictate progress rather than committed positioning. With Monday’s market holiday, a struggle to rekindle momentum behind either a bullish break or bearish reversal should be expected. In the meantime, that may not prevent the dollar from edging out more serious technical levels. The trouble for the Euro, pullback from AUDUSD and GBPUSD, and the risk move on USDJPY may inadvertently forge a bull trend.

Euro: Economic Activity Readings Push ECB Further Towards Stimulus

The Euro’s troubles don’t end with EURUSD. Against the Japanese Yen, the world’s second most liquid currency has turned a reversal despite a positive risk move; while a monetary policy contrast is pushing EURGBP to two-and-a-half year lows. The looming upgrade to the Eurozone stimulus program in two weeks is keeping the currency on a steady trajectory – with a slow leak in rate premium favoring momentum. In this past session, the regional PMI figures added another facet of certainty for the bear. While the figures didn’t collapse, they certainly aren’t compensating for shortfalls in other areas of the market and economy. Moving forward, a stimulus upgrade will slowly weigh on the Euro. To add a sense of haste to that move, a clear move to a QE-level move or a reversal of capital from the periphery could provide amplitude.

Japanese Yen Crosses Rebound – How Long Does It Last?

The yen crosses are amongst the more sensitive FX pairs to the ebb and flow in general risk trends. Therefore, a rebound for the group as global equities rallied is not necessarily a surprise. Yet, just as there is doubt over the waves of investor interest that will come as the S&P 500 and Nikkei 225 cross upper thresholds, expectations for carry interest at exceptionally low yields and against an abstinent BoJ are founded on circumspect beliefs. Looking ahead to next week, the Japanese docket is loaded. Consumer, business and trade figures will gauge economic health; jobs and spending the consumer; and CPI for monetary policy metrics. But if we are looking for that spark, it is with risk.

British Pound Conviction Wilts as 1.7000 Comes Into View

On the week, the British Pound is up against all of the majors. The rebound in interest rate expectations is sound – it just hasn’t developed all at once. Following up on the better CPI readings and the BoE’s lean towards a more timely tightening schedule in their minutes, the past session provided the details of the 1Q GDP reading – with notable improvements in private spending. However, like everything else off the docket, the reports breakdown has its misses: like the cooling in investment and the drop in exports. Through yields and forward swaps the UK rate forecast is still holding a substantial advantage; but that lead isn’t building.

Canadian Dollar Rallying Ahead of Inflation Data

The Canadian dollar was the best performing major on the day despite a disappointing showing on the economic docket – retail sales unexpectedly contracted in March. Where was the currency finding its strength? Monetary policy. The bearings for the Bank of Canada haven’t necessarily changed, but the market’s perceptions are easing up on the dovish fears that the loonie had come under. If the yield outlook is indeed a key driving for the currency, the upcoming event risk may carry serious weight. TheApril CPI figures are due, and the consensus is for the headline reading to jump back to a 2.0 percent annual clip. That would pull it up to a two-year high and change carry talk.

Emerging Market Index Jumps to 7 Month High, Currency Set Mixed

Though the swell in risk appetite of late is founded on dubious levels of conviction, that doubt didn’t dissuade the highly sensitive emerging market benchmarks from taking advantage. The MSCI Emerging Market ETF jumped a second consecutive day – by 0.7 percent – to top a level last seen in October. Yet, here too, volume seemed to be absent. Amongst the currencies within the class, the performance was notably mixed. The best performer on the day was the Turkey Lira run of 0.7 despite the central bank’s decision to cut the benchmark lending rate and the Indian Rupee running 0.6 percent in the aftermath of the election. At the opposite end of the spectrum, the Brazilian Real dropped 0.4 percent despite a drop in the official jobless rate and a modest 0.3 percent slip for the Thai Baht as a military coup unfolded.

Gold and Silver Flagging While Commodities Advance

It is difficult not to notice the contrast in performance between the market’s favorite precious metals – gold and silver – and that of the other heavily traded metals. Gold has worked its way deeper into a wedge that offers less than $20 of room while silver has carved out a similarly stunted space of $0.40. A breakout seems inevitably for these two; but like risk trends, it is unclear what could motivate a serious breakout one way or the other. In the meantime, the CRB Commodity Index is trading a mere 1.3 percent off its 20-month high set in April – with a clear bullish trend behind it. Amongst the metals Platinum hit an 8-month high and Palladium a near 3-year high this past session. Gold’s – and its cheaper proxy – is still suffering for its adoption of the ‘alternative currency’ reputation. Watch the dollar for breakout guidance.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

2:00

CNY

Conference Board Leading Economic Index (APR)

The Tiger economy continues to face an economic slowdown and an upbeat outcome may support AUD, NZD.

6:00

EUR

German Gross Domestic Product s.a. (QoQ) (1Q F)

0.8%

0.8%

Final estimates of first quarter German GDP are to show QoQ at highest level since 1Q 2012. These figures are final estimates and may do little to prop the Euro.

6:00

EUR

German Gross Domestic Product w.d.a. (YoY) (1Q F)

2.3%

2.3%

6:00

EUR

German Gross Domestic Product n.s.a. (YoY) (1Q F)

2.5%

2.5%

6:00

EUR

German Private Consumption (1Q)

0.7%

-0.1%

These indicators are useful for traders to assess the output growth and economic health. With GDP figures on tap it is likely traders will focus on the headline figures for directional cues, but an upbeat outcome may do little to discourage

6:00

EUR

German Government Spending (1Q)

0.3%

0.0%

6:00

EUR

German Capital Investment (1Q)

1.4%

6:00

EUR

German Construction Investment (1Q)

1.4%

6:00

EUR

German Domestic Demand (1Q)

-0.7%

6:00

EUR

German Exports (1Q)

0.7%

2.6%

6:00

EUR

German Imports (1Q)

1.1%

0.6%

8:00

EUR

German IFO - Business Climate (MAY)

111.0

111.2

German business climate and expectations index are near the highest levels since 2011.

8:00

EUR

German IFO - Current Assessment (MAY)

115.3

115.3

8:00

EUR

German IFO - Expectations (MAY)

106.7

107.3

12:30

CAD

Consumer Price Index (MoM) (APR)

0.3%

0.6%

Key headline inflation rate is important in contact of BoC monetary policy, but inflation might lack the necessary punch this time around as Canadian dollar traders are seemingly more focused on housing market for a broader outlook regarding the single-currency.

12:30

CAD

Consumer Price Index (YoY) (APR)

2.0%

1.5%

12:30

CAD

Canada Consumer Price Index Core (MoM) (APR)

0.2%

0.3%

12:30

CAD

Canada Consumer Price Index Core (YoY) (APR)

1.4%

1.3%

14:00

USD

Releases New Home Sales Revisions

14:00

USD

New Home Sales (APR)

425K

384K

14:00

USD

New Home Sales (MoM) (APR)

10.7%

-14.5%

GMT

Currency

Upcoming Events & Speeches

7:30

EUR

ECB's Luis Linde Speaks on Euro Economy

7:30

EUR

ECB's Sabine Lautenschlager Speaks on Euro Economy

10:00

EUR

ECB Publishes 3-Year LTRO Repayment

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

13.5800

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.1500

2.3000

11.8750

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.8967

2.0968

10.3637

7.7522

1.2514

Spot

6.5914

5.4445

5.9346

Support 1

12.8350

2.0700

10.2500

7.7490

1.2000

Support 1

6.0800

5.3350

5.7450

Support 2

12.6000

1.7500

9.3700

7.7450

1.1800

Support 2

5.8085

5.2715

5.5655

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.3796

1.6904

102.26

0.8983

1.0936

0.9377

0.8689

140.38

1312.53

Res 2

1.3774

1.6881

102.08

0.8968

1.0921

0.9359

0.8671

140.09

1307.71

Res 1

1.3753

1.6858

101.91

0.8952

1.0906

0.9341

0.8652

139.81

1302.89

Spot

1.3711

1.6812

101.55

0.8921

1.0876

0.9305

0.8615

139.23

1293.26

Supp 1

1.3669

1.6766

101.19

0.8890

1.0846

0.9269

0.8578

138.65

1283.63

Supp 2

1.3648

1.6743

101.02

0.8874

1.0831

0.9251

0.8559

138.37

1278.81

Supp 3

1.3626

1.6720

100.84

0.8859

1.0816

0.9233

0.8541

138.08

1273.99

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.

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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

23 May 2014 05:08 GMT