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Euro Refuses Trend after Greek Announcements, ECB Decision Up

Euro Refuses Trend after Greek Announcements, ECB Decision Up

2012-02-09 03:24:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Awaiting Euro, Risk Guidance, S&P Warns of Downgrades
  • Euro Refuses Trend after Greek Announcements, ECB Decision Up
  • British Pound Deviates from Euro Intraday - An Expectation of Stimulus?
  • Australian Dollar: RBA New Member Taking Aim at High Currency
  • New Zealand Dollar Can’t Sustain Volatility after Employment Report
  • Japanese Yen: Officials Trying to Be More Creative with Intervention
  • Gold Consolidating as ECB and BoE on Deck to Define Stimulus

Dollar Awaiting Euro, Risk Guidance, S&P Warns of Downgrades

The dollar doesn’t move under its own power. It reacts to strong fundamental cross winds. That said, those trading the majors should be on high alert for catalysts and major trend shifts. For known catalysts, greenback traders should keep an eye on the ECB and BoE rate decisions scheduled the upcoming London session. A general shift towards stimulus can help pad global stimulus and thereby risk taking, but there has been limited engagement on speculative reaction outside of the Fed’s big programs over the months. Alternatively, an expansionary policy helps to close the unfavorable gap the dollar has pushed. That hole could grow deeper however. Standard & Poor’s Chambers reiterated his warning that the US could be downgraded again in 6 to 24 months. And, of course, if we are watching the dollar; we should be tracking larger risk trends.

Euro Refuses Trend after Greek Announcements, ECB Decision Up

Though we are naturally skeptical of any deadlines or promises made on the account of a Greek bailout or bond swap, the news out of this previous session was more notable than what we have seen as of late. The Troika-Greece draft accord was released with terms of a commitment to permanent spending cuts, cutting 15,000 public jobs and a 20 percent cut to the minimum wage. Sure, these conditions were rumored previously, but official confirmation makes it far more influential. Yet, there was no market response to these terms. That said, news that the Greek ministers couldn’t pass the deal due to pension fund disagreements led to a sharp and short-lived euro decline. Perhaps pessimism is becoming more permanently engrained – a risk that we could see a shift to a lasting bear trend. While we wait for that theory to pan out, we have key event risk to watch for in the upcoming session: the ECB rate decision. No change to benchmark is expected (which would make a cut a surprise), but there is a lot of interest in faltering stimulus policies at the moment. As such, Draghi’s commentary will be closely watched.

British Pound Deviates from Euro Intraday - An Expectation of Stimulus?

Between the two European policy announcements tomorrow, the Bank of England’s decision is expected to yield the most tangible change. When the MPC (Monetary Policy Committee) decided to increase its bond purchasing program back in October, it projected the initiative would take four months to fully implement. So, here we are in February, for months after the 75 billion sterling hike to the program; and the market is projecting that another 50 billion vow will be announced. Further stimulus has a mixed impact for the pound as it pumps more currency into the market, yet it also works to offset the ill-effects of fiscal austerity. Looking back at the October decision, we had a tremendous reversal that eventually led to a remarkably rally. Yet this that outcome was more of a surprise and risk trends were rising as well. Is this event fully priced?

Australian Dollar: RBA New Member Taking Aim at High Currency

If you want a fundamental bead on the Australian dollar in a glance, just look at the S&P 500 or any other benchmark equity index. The high yield currency is running fully on the balance of sentiment amongst the speculatively minded. This is a relationship that was further confirmed since the RBA rate decision in which the central bank unexpectedly held its benchmark lending rate. Rather than drive forward as the overly ambitious bears are forced to reprice, the Aussie dollar has held fast alongside equities and other risk-sensitive assets. To give a sense of the connection, the 20-day rolling correlation between the S&P 500 and AUDUSD is currently 0.92 (1.00 is perfect). Furthermore, that relationship hasn’t slipped below 80 percent over the past three months. However, there may be a new factor that Aussie dollar traders need to monitor. The RBA has added a new member (Heather Ridout) and she has vowed to champion the argument that the currency is excessively expensive.

New Zealand Dollar Can’t Sustain Volatility after Employment Report

Expectations for volatility for the kiwi following the fourth quarter employment statistics were relatively low. Over the previous few releases for this particular data series, the market reaction was mute. Yet, there was also very little change to be found in those readings. This time around, there was a little more to the data. Against expectations of a 0.4 percent increase in the employment level, the economy added a more reserved 0.1 percent. Yet, that seems to contrast with the bigger than expected downshift (0.3 percent points) in the jobless rate to 6.3 percent. This confusion likely prevented the short bust of volatility from taking a consistent direction. Anchored underlying risk trends fully killed it though.

Japanese Yen: Officials Trying to Be More Creative with Intervention

Much to the relief of Japanese policymakers, the yen has slid against most of its liquid counterparts so far this week. However, the risk that the safe haven and funding currency finds itself suddenly back at record highs is very real. Both Bank of Japan Governor Shirakawa and Minister of Finance Azumi have remarked in the past that the yen is under the influence of speculative capital flows – leveraging volatility through both carry interest and sudden changes in sentiment (factors that are themselves related). That means, a sudden drop in the slow move higher in risk trends or a hit to a popular carry trade funded in yen could send crosses right back to record lows. The prudent official would take a proactive approach to prevent such extremes from being reached – and further work the national currency lower from its current bearing. To this point, the effort has been limited to outright intervention (and, as we learned earlier this week, stealth intervention). Direct yen selling has netted the BoJ and MoF little, so they are no doubt looking into new approaches. According to Prime Minister Noda, one option that he is looking into involves setting up a fund that will be used to buy foreign assets. This is not too novel given their EFSF bond purchases. They need size to be successful.

Gold Consolidating as ECB and BoE on Deck to Define Stimulus

An effort to revive gold’s other consistent 2012 bull trend - curbed this past Friday - has stalled. The metal has now fallen into the same pattern of congestion at the extreme of a trend that has plagued equity indexes, EURUSD and carry pairs. Considering a lot of the drive behind gold is dependent upon the strength or weakness (more of the latter recently) of the US dollar, finding a breather shouldn’t surprise us too much. Yet, whether we price the commodity in euro, sterling, yen or any other currency; Wednesday’s decline consistently comes through. Further influence from the steady rise in sentiment benchmarks no doubt contributes an additional component to this disappointment, but there could also be an element of uncertainty surrounding upcoming monetary policy decisions that may be at work here as well.

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ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

1:30

CNY

Producer Price Index (YoY) (JAN)

0.7%

1.7%

Chinese price indices expected to fall again, may ease policies

1:30

CNY

Consumer Price Index (YoY) (JAN)

4.0%

4.1%

5:00

JPY

Consumer Confidence (JAN)

38.5

38.9

Gauge relatively steady

6:45

CHF

SECO Consumer Confidence (JAN)

-22

-24

Some recovery driving

9:30

GBP

Industrial Production (MoM) (DEC)

0.2%

-0.7%

Industrial data still weak, could signal need for more than just asset purchases

9:30

GBP

Industrial Production (YoY) (DEC)

-3.1%

-3.1%

9:30

GBP

Manufacturing Production (MoM) (DEC)

0.2%

-0.2%

9:30

GBP

Manufacturing Production (YoY) (DEC)

0.3%

-0.6%

9:30

GBP

Visible Trade Balance (Pounds) (DEC)

-£8600

-£8644

British trade deficit relatively stable, shows Europe still not buying

9:30

GBP

Trade Balance Non EU (Pounds) (DEC)

-£5000

-£5021

9:30

GBP

Total Trade Balance (Pounds) (DEC)

-£2700

-£2566

12:00

GBP

BOE Asset Purchase Target

325B

275B

QE expected to increase by GBP 50 billion on Governor’s comments

12:00

GBP

Bank of England Rate Decision

0.50%

0.50%

12:45

EUR

European Central Bank Rate Decision

1.00%

1.00%

Expected to hold, but commentary will drive overall market

13:30

CAD

New Housing Price Index (YoY) (DEC)

0.2%

0.3%

Housing prices stable in Canada, no alarm for higher rates

13:30

CAD

New Housing Price Index (YoY) (DEC)

2.5%

2.5%

13:30

USD

Initial Jobless Claims (FEB 4)

370K

367K

Weekly data expected to also show improvement after NFPs

13:30

USD

Continuing Claims (JAN 28)

3505K

3437K

15:00

USD

Wholesale Inventories (DEC)

0.5%

0.1%

Inventory spending increasing

15:00

GBP

NIESR Gross Domestic Product Estimate (JAN)

0.1%

Output still expected weaker

21:45

NZD

NZ Card Spending - Retail (MoM) (JAN)

0.5%

-0.3%

Expected to be helped by post-season spending, could taper

21:45

NZD

NZ Card Spending (MoM) (JAN)

0.5%

-0.2%

23:50

JPY

Domestic Corporate Goods Price Index (MoM)(JAN)

0.1%

0.1%

Domestic goods still experiencing slow inflation

23:50

JPY

Domestic Corporate Goods Price Index (YoY) (JAN)

0.8%

1.3%

GMT

Currency

Upcoming Events & Speeches

7:45

EUR

French Survey of Industrial Investments (JAN)

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

16.5000

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

14.3200

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

12.7343

1.7488

7.5835

7.7542

1.2478

Spot

6.6615

5.6161

5.7709

Support 1

12.6000

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.4295

7.7450

1.1800

Support 2

5.8085

4.9115

4.9410

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

1.3394

1.5928

77.85

0.9259

1.0069

1.0891

0.8439

103.44

123.27

Resist. 2

1.3354

1.5895

77.68

0.9230

1.0046

1.0855

0.8411

103.11

122.92

Resist. 1

1.3314

1.5862

77.51

0.9201

1.0024

1.0820

0.8383

102.78

122.58

Spot

1.3234

1.5796

77.16

0.9143

0.9979

1.0748

0.8326

102.12

121.89

Support 1

1.3154

1.5730

76.81

0.9085

0.9934

1.0676

0.8269

101.46

121.20

Support 2

1.3114

1.5697

76.64

0.9056

0.9912

1.0641

0.8241

101.13

120.86

Support 3

1.3074

1.5664

76.47

0.9027

0.9889

1.0605

0.8213

100.80

120.51

v

--- Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com.

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