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FOREX: US Dollar: Dollar to See Volatility on Housing data, FOMC in Days Ahead

FOREX: US Dollar: Dollar to See Volatility on Housing data, FOMC in Days Ahead

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  • US Dollar: Dollar to See Volatility on Housing data, FOMC in Days Ahead
  • Euro Tracks S&P 500 as Correlation Trades Near Record High
  • British Pound Unchanged Ahead of Key CPI, BoE Minutes
  • Australian Dollar to see Sharp Moves on Reserve Bank of Australia Minutes
  • Government Policy Guidelines Fails to Soften Yen
  • Swiss Franc Top Performer on Euro Zone Debt Fears

US Dollar: Dollar to See Volatility on Housing data, FOMC in Days Ahead

The US Dollar started off the week on a softer note as euro and the Swissie advanced throughout the US session. Disappointing economic data released this morning showed Empire manufacturing slipping to 11.88, missing expectations for a read of 19.55. The print is the lowest read on the survey since January, and comes on the heels of a 12-month high reported last month at 21.7. The data was followed by another weaker than expected print on the NAHB housing market index which held at 16, missing calls for a print of 17. The net result was to leave the Dow Jones FXCM Dollar Index as much as 0.8 percent off of overnight highs before a later bounce. The dollar now becomes vulnerable as traders cite euro shorts squaring their positions.

Tomorrow’s economic diary will be closely eyed by investors, with April housing starts expected to print at 3.6%, down from a the previous read of 7.2% in March. Building permits are expected to see a larger slowdown with consensus estimates calling for a print of just 0.9%, down from a firm 11.2% a month earlier. Later in the day, industrial production data is expected to show a gain of just 0.4% in April, confirming fears of a slowdown as traders anticipate the completion of QE2 next month.

Related:Dow Jones FXCM Dollar Index Eases on Euro Gains, Discuss the Dollar in the DailyFX Forum

Euro Tracks S&P 500 as Correlation Trades Near Record High

The Euro bounced noticeably off of recent lows against the resurgent Greenback, but a late-day reversal warns that the single currency could remain within its short-term downtrend channel through the coming days of trade. Overnight data showed Euro Zone Consumer Price Index inflation figures in line with forecasts but considerably above the European Central Bank’s stated target of 2.0 percent. At 2.8 percent on a year-over-year basis, Overnight Index Swaps show expectations of fairly aggressive ECB rate hikes through the coming 12 months. Interest rates remain a focus for the single currency, and markets could react to the morning’s German ZEW Economic Sentiment figures due at 09:00 GMT.

The real difference-maker for the euro remains broader financial market ‘risk’, however; we see its correlation to the S&P 500 trade near record-highs. Sharp S&P futures losses after the NYSE close warn that short-term momentum favors the downside for the S&P and Euro alike.

British Pound Unchanged Ahead of Key CPI, BoE Minutes

The sterling closed out the New York session virtually flat against the greenback ahead of inflation data tomorrow and more importantly, the release of the BoE minutes from the latest policy meeting on Wednesday. With inflation concerns around Europe continuing to mount, greater emphasis will be put on tomorrow’s report, with Wednesday’s BoE minutes proving traders with a better picture as to where the committee stands on rates. MPC voters find themselves in a difficult position with regards to agreeing to move on interest rates. Although recent data out of the UK continues to suggest sluggish growth, pressure on the committee may mount as other European policy makers remain focused on addressing high rising inflation. With Andrew Sentance stepping down this month, investors are anxious to see the tally of the May 5th vote to hold rates at 0.5%. If the spread has widened, it may become increasingly difficult for the hawkish camp to gain traction without their most vocal member. The pound held above key support at the 1.6170 support level after failing to break through interim resistance at 1.6250. A higher than forecasted inflation print tomorrow could see expectations for a rate hike from the central bank rise, providing the sterling with some lift.

Australian Dollar to see Sharp Moves on Reserve Bank of Australia Minutes

The Australian Dollar finished the day roughly flat against its US namesake, but AUDUSD volatility could pick up on the release of Reserve Bank of Australia meeting minutes at 01:30 GMT. RBA Governor Glenn Stevens struck a relatively balanced tone following the bank’s decision to leave interest rates unchanged through its May 3rd meeting, and traders will look to further elaboration on the bank’s stance through upcoming minutes. That said, it may take particularly surprising rhetoric to force major Aussie dollar moves. Overnight Index Swaps show that markets predict the RBA will raise rates slowly if at all with a cumulative 31bps in hikes through the coming 12 months. Markets will in particular look for clarity on the RBA’s closing line of the statement: “In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.”

Government Policy Guidelines Fails to Soften Yen

The Japanese yen was marginally higher against the greenback throughout the US trading session, with the pair resting just above interim support at 80.50. Traders remain wary of propping the yen too high, too quickly as concerns about a possible coordinated G7 FX intervention continued to mount after the government released a draft of its policy guidelines today. Officials stressed that a stable yen was crucial for one of the world’s leading exporters as the fragile economy struggles to cope with aftermath of the recent disasters. Economic data on Wednesday is widely anticipated as consensus estimates call for an annualized contraction of 1.9% in GDP, while the quarter on quarter print is expected to show an accelerated 0.5% contraction. The yen is likely to remain supported as traders test the resolve of government policymakers.

Swiss Franc top Performer on Euro Zone Debt Fears

The Swiss Franc was the top-performing G10 currency despite an effectively empty economic calendar, rallying as a safe-haven alternative to the Euro amidst a broader US Dollar correction. The EURCHF remains the proxy of choice for trading Euro Zone fiscal crises. Portugal and Irish bond yields pulled back slightly as the currency bloc formally approved Portugal’s financial aid. Yet continued uncertainty surrounding Greece kept its government bond prices near lows. We expect the EURCHF to continue tracking ‘risk’ through the foreseeable future.

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

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

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

2:00

CNY

Actual FDI (YoY) (APR)

36.1%

32.9%

Foreign investment grow faster as domestic investment slows

6:00

JPY

Machine Tool Orders (YoY) (APR)

32.3%

May follow March orders higher

6:00

EUR

EU 25 New Car Registrations (APR)

-5.0%

Risk cut new car purchases

8:30

GBP

DCLG UK House Prices (YoY) (MAR)

0.7%

Higher prices may indicate inflation

8:30

GBP

Consumer Price Index (MoM) (APR)

0.7%

0.3%

Higher CPI may not budge BoE’s position to take a slower stance to not impede recovery

8:30

GBP

Consumer Price Index (YoY) (APR)

4.1%

4.0%

8:30

GBP

Core Consumer Price Index (YoY) (APR)

3.2%

3.2%

8:30

GBP

Retail Price Index (MoM) (APR)

0.8%

0.5%

Near-term RPI expected to increase pushed by commodities prices

8:30

GBP

Retail Price Index (YoY) (APR)

5.2%

5.3%

8:30

GBP

Retail Price Index (APR)

234.6

232.5

8:30

GBP

RPI Ex Mort Int.Payments (YoY) (APR)

5.3%

5.4%

9:00

EUR

German ZEW Current Situation (MAY)

87.5

87.1

Sentiment expected to fall as periphery concerns once again arise

9:00

EUR

German ZEW Economic Sentiment (MAY)

4.5

7.6

9:00

EUR

Euro-Zone ZEW Econ Sentiment (MAY)

17.3

19.7

12:30

CAD

Int’l Securities Transactions CAD (MAR)

5.0B

2.502B

Suggests large inflow of foreign cash

12:30

USD

Housing Starts (MAY)

568K

549K

Construction-side indicators suggest slower recovering domestic real estate sector as Fed may raise interest rates

12:30

USD

Housing Starts (MoM) (MAY)

3.5%

7.2%

12:30

USD

Building Permits (MAY)

590K

585K

12:30

USD

Building Permits (MoM) (MAY)

0.3%

11.2%

13:15

USD

Industrial Production (MAY)

0.4%

0.8%

Lower larger orders may cut into industrial production

13:15

USD

Capacity Utilization (MAY)

77.6%

77.4%

22:45

NZD

Producer Prices- Inputs (QoQ) (1Q)

0.9%

Producer prices may also rise due to higher commodities prices

22:45

NZD

Producer Prices- Outputs (QoQ) (1Q)

0.2%

23:50

JPY

Tertiary Industry Index (MoM) (MAR)

-5.8%

0.8%

Earthquake seen to hit services hard

GMT

Currency

Upcoming Events & Speeches

1:30

AUD

Reserve Bank of Australia Meeting Minutes

6:30

EUR

EU Finance Ministers Summit in Brussels

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist 2

1.5160

1.6750

89.00

0.9345

1.0275

1.1800

0.8400

116.80

146.05

Resist 1

1.5000

1.6600

86.00

0.8900

1.0000

1.1000

0.8215

115.20

140.00

Spot

1.4163

1.6199

80.78

0.8841

0.9750

1.0565

0.7808

114.41

130.85

Support 1

1.4000

1.6160

80.00

0.8600

0.9500

1.0400

0.7745

113.80

125.00

Support 2

1.3700

1.5750

75.00

0.8500

0.9055

1.0200

0.6850

105.50

119.00

CLASSIC SUPPORT AND RESISTANCE EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

13.8500

1.6575

7.4025

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

12.5000

1.6300

7.3500

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

11.7658

1.5915

7.0036

7.7769

1.2506

Spot

6.3560

5.2649

5.5742

Support 1

11.5200

1.5040

6.5575

7.7490

1.2145

Support 1

6.0800

5.1050

5.3040

Support 2

11.4400

1.4725

6.4295

7.7450

1.2000

Support 2

5.8085

4.9115

4.9410

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist 2

1.4349

1.6300

81.26

0.9015

0.9822

1.0703

0.7932

116.16

132.02

Resist 1

1.4256

1.6249

81.02

0.8928

0.9786

1.0634

0.7870

115.29

131.44

Pivot

1.4152

1.6205

80.83

0.8864

0.9735

1.0574

0.7813

114.35

130.92

Support 1

1.4059

1.6154

80.59

0.8777

0.9699

1.0505

0.7751

113.48

130.33

Support 2

1.3955

1.6110

80.40

0.8713

0.9648

1.0445

0.7694

112.54

129.82

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

1.4353

1.6364

81.69

0.8954

0.9851

1.0715

0.7920

116.31

132.90

Resist. 2

1.4306

1.6323

81.46

0.8926

0.9825

1.0677

0.7892

115.83

132.39

Resist. 1

1.4258

1.6282

81.24

0.8897

0.9800

1.0640

0.7864

115.36

131.88

Spot

1.4163

1.6199

80.78

0.8841

0.9750

1.0565

0.7808

114.41

130.85

Support 1

1.4068

1.6116

80.32

0.8785

0.9700

1.0490

0.7752

113.46

129.83

Support 2

1.4020

1.6075

80.10

0.8756

0.9675

1.0453

0.7724

112.99

129.31

Support 3

1.3973

1.6034

79.87

0.8728

0.9649

1.0415

0.7696

112.51

128.80

v

Written by: David Rodriguez, Quantitative Strategist and Michael Boutros, Currency Analyst for DailyFX.com

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