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Dollar Closes its First Advance in Three Days with Assistance from Data and Greece

Dollar Closes its First Advance in Three Days with Assistance from Data and Greece

2010-03-31 01:44:00
John Kicklighter, Chief Currency Strategist
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Dollar Closes its First Advance in Three Days with Assistance from Data and Greece
Technically, the dollar crossed the line and briefly traded back within the congestion zone that snarled progress from the benchmark currency for the better part of two months. However, at this stage in the game, hardfast levels have far less influence on the dollar or any other asset than the primary fundamental themes that underlie speculative markets. Problem is: these prominent themes are themselves anchored. This is the reason the dollar’s promising bullish breakout last week was cut short and the subsequent retracement is has also been moderated. Yet working with various shades of grey, today’s picture of risk would deteriorate modestly and help boost the greenback’s appeal as a safe haven and liquidity provider. In an otherwise protracted docket, the most remarkable event was obvious relapse in the effort to revive and stabilize the fiscal health of Greece. A crushing short-fall from a new debt auction today and notable drop in yesterday’s fresh issue (which we will talk more about below) was a clear indication to international investors that risk is far from sterilized; and once again, government support is swallowed up by the vastness of speculative uncertainty. That being said, this event would fall far short of tipping the market’s into a panic that would induce a strong flight-to-safety. For evidence of this, we merely have to refer to the Dow Jones Industrial Average which edged to a fresh 18-month high close.

Shifting the focus from overall risk, to the dollar’s place on the spectrum; the currency’s hopeful climb up the ladder was curbed by discouraging commentary from one of the more dovish members of the Fed’s Governing Board. Chicago President Charles Evans stands on the exact opposite pole as his hawkish colleague Thomas Hoenig. A dour assessment of the US economy centered on a painful outlook for labor activity in the United States. The central banker forecasted a 9.25 percent jobless rate by the end of this year; and suggested the policy tightening currency traders are waiting for would not likely come until after there were notable improvements in employment. In fact, he suggested the “extended period” language that has thwarted tentative hawks for so many months now was primarily the result of poor labor trends. He went on to indicate that the benchmark lending rate would likely be held at its record low for approximately six months. The market took this warning to heart as the 12 month interest rate forecast (measured with Credit Suisse overnight index swaps) fell by 14 basis points to 79 basis points through the day. Though, it is worth noting that the Fed rate outlook still bests the ECB, BoE and SNB at its current bearing.

Looking at the economic docket, there were a few notable releases to price in. The Conference Board’s Consumer Confidence survey rose more than expected in March to a 52.5 reading. This was not historically impressive; but details for the report showed a seven-month high in consumers’ perception of the labor market. Such an outcome likely reflects the importance with which employment has on spending habits going forward. The other notable release was the S&P/Case Shiller house price indicator for January. The year-over-year trend would mark its smallest contraction (0.7 percent) in three years; but limited income, rising foreclosures and already significant inventories tempers confidence in this report. Looking ahead to tomorrow, event-risk traders will watch the ADP job change data to better benchmark Friday’s NFPs.

Related: Discuss the US Dollar in the DailyFX Forum, US Dollar Surges then Pulls Back, What will Nonfarm Payrolls Bring?

Euro Advance Stalled by Renewed Troubles in Greek Financing
The euro’s health is fully invested in the performance and progress of its weakest member: Greece. This being the case, the currency’s outlook was depressed Tuesday by the obvious struggle the EU pariah would face in finding its way back into the debt market. It was only last week that the European Union members reached an accord that IMF and bilateral loans would be used as a contingency plan should Greece pitch into a crisis and edge closer to a default. Obviously finding confidence in this more-defined guarantee, the government is already diving back into the market in search of funding. Though, the market itself doesn’t seem to be as confident as policy makers. Yesterday’s five billion euro sale of seven-year notes received six billion in bids: not particularly strong considering the sale of 10-year paper at the beginning if this month was three times overbid. Not heading the already anemic draw from Monday, Greece issued a surprise auction on 12-year debt today and received bids for only 390 million euros on a cap of 1 billion. Not only was this ill-advised; but it has actually revived concern in Greece’s ability to cover its debts and the dependability of the backup bailout plan. Looking forward to Wednesday, euro traders will keep an eye on Greek debt and default swap premiums; but there will also be a distraction in scheduled event risk. The German employment change data is a known market-mover; but the Euro Zone unemployment rate and CPI estimate hold greater sway when it comes to policy decision.

British Pound Rallies More than Expected on Modest Improvement in GDP, House Data
Heading into the London trading hours for Tuesday, it seemed the British pound was looking at a quiet session. However, the fundamental draft was strong enough that it would offset the unfavorable deterioration in risk appetite trends. Top of the docket was the unexpected uptick in the final reading of 4Q GDP. The 0.4 percent improvement on the quarter is still restrained; but an improvement nonetheless. Of lesser clout and influence, the Nationwide house price index expanded on an annual basis, but cooled its pace for the first time in 13 months.

Japanese Yen Struggles to Benefit on a Drop in Sentiment as Data Curbs Distant Rate Hopes
A preoccupation with its role in the carry trade has kept the Japanese yen busy. But, in the background, the outlook for the economy’s own recovery from a decades’ long credit crisis and recent economic slump continues. Early Tuesday morning, the hold on an 11-month low unemployment rate was offset by the first drop in factory activity in 11 months and a contraction in household spending. In Wednesday’s session, earnings, housing construction and small business confidence will offer an update on other vital sectors.

Australia Dollar Faces another Wave of Top Tier Event Risk
As if there wasn’t enough fundamental activity to work with for the Australian dollar, the currency was facing another dense round of event risk for the new session. Private sector credit was the highlight with a third monthly increase in the annual pace of growth to 1.6 percent. In contrast, retail sales dropped the most in a year and build permits unexpectedly slipped a second straight month in February.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar


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Written by: John Kicklighter, Currency Strategist for DailyFX.com
E-mail: jkicklighter@dailyfx.com


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