• Dollar Index Fails to Overtake 10,100 but S&P 500 Crosses 1,400
  • Euro: There are Plenty of Financial Concerns, But are they Immediate Threats?
  • Swiss Franc Reverse Three Days of Declines after SNB Keeps 1.2000
  • Japanese Yen Showing Hesitation Despite Azumi’s Warning, BoJ Minutes
  • British Pound Rally Flagging Despite Extended Gilt Rally
  • US Oil Sees False Breakdown after Rumors of US Strategic Reserve Release
  • Gold Advances the First Time This Week thanks to the Dollar

Dollar Index Fails to Overtake 10,100 but S&P 500 Crosses 1,400

The dollar finally took a breather this past trading session. After four consecutive days on the rise (the best run for the greenback since mid-November), the currency finally put in for a down day. And, it isn’t a coincidence that the correction occurred on a test of 10,100 for the Dow Jones FXCM Dollar Index – what is essentially the range high since January of last year and the symbolic barrier to a larger bullish reversal. This pullback finally puts the world’s reserve currency back on the opposite pole as my preferred benchmark for investor sentiment: the S&P 500. That said, this is not an immediate confirmation that everything will fall back into sync. Traditional correlations are still significantly off kilter. Yet, perhaps this unusual set of circumstances is not a reflection of questionable risk trends, but rather a larger fundamental shift for the dollar….

If the benchmark dollar were seeing a true tide change where it is no longer the headline safe haven currency, then both reserve and equities could theoretically rise in tandem. There is early evidence to support such a theorem as we have seen the 12-month forecast for the Fed’s benchmark hit a 10-month high (17bps), while the yield on the 10-year Treasury note surged as much as 16 percent to a four month high (2.346) this week. Yet, just because the dollar may not be the ideal funding currency, doesn’t mean it automatically is a high-flying carry currency. The yield is still exceptionally low on a historical and comparative basis, and it will remain that way for some time. On the other hand, if the market appreciates that the dollar isn’t an attractive funding currency then we are curbing a prominent sell-side pressure. Under these circumstances, it would still be difficult for the greenback to truly capitalize on a positive sentiment trend, but it may not suffer nearly as much as previously. Alternatively, a genuine risk aversion wave would still find the deep liquidity of the US markets highly attractive.

Euro: There are Plenty of Financial Concerns, But are they Immediate Threats?

What is driving the euro nowadays? Are we still concerned about Greece or have we graduated onto the next concern? To be sure, the financial issues for Greece and the Euro Zone are far from over. However, with the second bailout and bond swap for the region’s most troubled member, immediate disaster has been averted – in other words, we have once again bought a little time. The ability to buy time shouldn’t be discounted. Given a long enough period of stability, European officials could see their rescue programs take effect to offset the sting of austerity and stabilize the foundation of the credit and capital markets. Yet, it doesn’t take much for fear to return. This past session, the IMF announced it would contribute €28 billion to ongoing Greek rescue effort (with €1.65 billion immediately available) - another step to make it official. Yet, always have swap holdouts, the Greek elections expected in April, and strain in other EZ countries among other things to be keep an eye on.

Swiss Franc Reverse Three Days of Declines after SNB Keeps 1.2000

There was volatility in various corners of the FX market Thursday, but the franc without doubt was the most active. A three-day, nearly 100-pip tumble for the currency against its benchmark counterpart Euro (nearly six times the average daily range up to that point) reflected speculation that the upcoming central bank meeting could result in a meaningful change to the already unusual monetary policy approach. Specifically, the concern was that the SNB would raise the 1.20000 floor on EURCHF that they put into place back in September. The reasoning behind such expectations was that the currency won’t depreciate (thereby giving economic relief through exports) on its own. With a buildup in net franc short interest ahead of the event risk under the expectation of a big change means the lack of follow through would require a quick unwinding. Is an adjustment off the table for the future? Not necessarily, but the remarks offered suggest the pressure has eased with the Euro Zone’s health.

Japanese Yen Showing Hesitation Despite Azumi’s Warning, BoJ Minutes

Though the Japanese yen was pushing lower against its higher yielding counterparts (a trend certainly helped along by the S&P 500’s ability to top 1,400), the big-ticket run from USDJPY managed to put in for a pause. The performance for this pair particularly is an interesting mix of individual performance. We note that the US dollar itself pulled back significantly Thursday, a move that was aggressive enough to counter the yen’s own decline. In effect, the yen was the best of the worse for this pair. Looking ahead, however, the fundamental argument behind the yen’s bearish interest has not changed. Azumi once again warned he was watching the yen and the BoJ said it was confident in its JGB purchases.

British Pound Rally Flagging Despite Extended Gilt Rally

The sterling’s burgeoning advance through this the first half of this week was curbed Thursday despite a lack of indicators on the economic docket. Scheduled event risk isn’t always the primary source of action for the FX market. So, why did the pound suddenly cool its run now when it was previously outperforming high-yield counterparts during a supposedly ‘risk on’ situation? The strength of the currency was partly due to the remarkable surge in the 10-year gilt yields this week. However, that surge to a three-month high cooled Thursday with rates around 2.4 percent.

US Oil Sees False Breakdown after Rumors of US Strategic Reserve Release

Sometimes fundamentals and technicals match up nicely, and sometimes they conflict painfully. Pure technical traders may have had a hard time with WTI crude Thursday when a traditional descending wedge pattern lead to a bearish break below 105 seemed to usher in the potential for a deep selloff. There also seemed to be a catalyst for the move in the form of a rumor that US President Obama was preparing to open up the nation’s Strategic Petroleum Reserves (SPR) to ease prices. However, that rumor was soon rebuffed, and oil jumped right back above 105.

Gold Advances the First Time This Week thanks to the Dollar

Gold bugs were certainly breathing a sigh of relief Thursday with the first advance for the week. However, this is hardly a guarantee of a true trend reversal. The metal is now hovering around the mid-point of a range that has been in place since October. To extend the decline the most effective catalyst would be a continued run from the premier safe haven, fiat asset: the US dollar. Alternatively, if the currency transitions from stalled advance to true reversal, gold will likely overcome other concerns (deflation, risk trends, etc) and climb back towards 1,800.

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ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

5:00

JPY

Coincident Index (JAN F)

93.1

Final revisions not expected to move markets, focus remains on rates, recovery

5:00

JPY

Leading Index (JAN F)

94.9

9:00

EUR

Italian Trade Balance (Total) (euros) (JAN)

1447M

Italian trade deficit expected to increase

9:00

EUR

Italian Trade Balance Eu (euros) (JAN)

-577M

10:00

EUR

Italian Current Account (euros) (JAN)

402M

10:00

EUR

Euro-Zone Trade Balance s.a. (euros) (JAN)

7.5B

Zone wide trade still slowing on lack of spending

10:00

EUR

Euro-Zone Trade Balance (euros) (JAN)

1.0B

9.7B

12:30

CAD

International Securities Transactions (CAD) (JAN)

7.38B

Interest in Canadian assets higher

12:30

CAD

Manufacturing Shipments (MoM) (JAN)

0.5%

0.6%

Sector continues to grow

12:30

USD

CPI (MoM) (FEB)

0.4%

0.2%

CPI expected to be largely unchanged, may be higher due to energy price increases. Data higher than expectations will hasten rate hike expectations, may drive dollar

12:30

USD

CPI Ex Food & Energy (MoM) (FEB)

0.2%

0.2%

12:30

USD

CPI (YoY) (FEB)

2.9%

2.9%

12:30

USD

CPI Ex Food & Energy (YoY) (FEB)

2.2%

2.3%

12:30

USD

CPI n.s.a. (FEB)

226.665

12:30

USD

CPI Core Index s.a. (FEB)

227.684

13:15

USD

Industrial Production (FEB)

0.4%

0.0%

Industries continue to show increase, strength

13:15

USD

Capacity Utilization (FEB)

78.8%

78.5%

13:55

USD

U. of Michigan Confidence (MAR P)

75.6

75.3

Preliminary data for January expected to additional confidence on the heels of higher non-cyclical spending.

GMT

Currency

Upcoming Events & Speeches

14:00

USD

American Petroleum Institute Monthly Report

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 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

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

13.1813

1.8298

7.9516

7.7618

1.2719

Spot

6.7826

5.7501

5.9324

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

1.3096

1.5727

77.65

0.9464

1.0227

1.0620

0.8168

100.92

121.26

Resist. 2

1.3055

1.5689

77.49

0.9434

1.0203

1.0586

0.8142

100.59

120.94

Resist. 1

1.3014

1.5652

77.33

0.9405

1.0179

1.0552

0.8116

100.27

120.61

Spot

1.2931

1.5576

77.01

0.9345

1.0132

1.0484

0.8063

99.62

119.97

Support 1

1.2848

1.5500

76.69

0.9285

1.0085

1.0416

0.8010

98.97

119.32

Support 2

1.2807

1.5463

76.53

0.9256

1.0061

1.0382

0.7984

98.65

119.00

Support 3

1.2766

1.5425

76.37

0.9226

1.0037

1.0348

0.7958

98.32

118.67

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

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