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Dollar Suffers Little Risk, Euro-Demand Post Greek Election

Dollar Suffers Little Risk, Euro-Demand Post Greek Election

2012-06-19 03:58:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Suffers Little Risk, Euro-Demand Post Greek Election
  • Euro: New Democracy Receives Top Vote, Now What?
  • British Pound Finds Little Relief in Crisis Spread Fear
  • Swiss Franc Doesn’t Budge from 1.2000 EURCHF Floor
  • Japanese Yen Slide Uneven, Unconvincing
  • New Zealand Dollar Extends its Rally, Trade Data to Precede GDP
  • Gold Recovers Footing after Early Morning Tumble

Dollar Suffers Little Risk, Euro-Demand Post Greek Election

Risk appetite was up on the day and the Euro-area dodged an immediate financial crisis with the Greek vote; and yet, the dollar closed higher Monday. As a safe haven that is particularly sensitive to the level of panic in the system, we would expect the relief to translate into immediate selling pressure. The hesitance from the greenbackto give up hard-won ground is a reflection of a few things: the questionable state of sentiment after the weekend’s headline risk; expectations for the next big-ticket item on our docket and perhaps a more deep-seated belief that the strategy of short-term fixes to answer long-term problems is finally losing its effectiveness.

Though momentum has shifted for the Dow Jones FXCM Dollar Index after it retraced more than a third of the May to June rally, there is still a prevailing fundamental current that helps curbs unfavorable corrections while simultaneously feeding the need to deleverage risk positioning. This is the underlying sentiment that has smothered a response of irrational exuberance that would have previously driven speculators to bid euro and all ‘high return’ assets after it became clear that a pro-bailout coalition would likely take the helm in Greece (more on that below). Rather than being swept up in a short-term yield run that would carry the most afflicted assets higher (and leave the dollar ravaged), market participants are deferring to a medium-term reality where there is no genuine improvement – perhaps a sign of diminished speculative interest.

Another important aspect of the dollar and capital markets’ restraint this past trading session is a further distraction in forthcoming event risk: the Fed rate decision. On Wednesday, the central bank will finally signal to the market whether it will relent to or hold out against calls for further stimulus. The belief that another program of support has been building, but the Greek vote takes some of the edge off and there are serious questions as to the effectiveness of further stimulus – in both encouraging growth as well as fostering risk appetite. More on scenarios tomorrow.

Euro: New Democracy Receives Top Vote, Now What?

We can look to the headlines for the outcome of the Greek vote and what it means for the markets, but it is perhaps better to begin our evaluation with the performance of the euro itself. The shared currency was down against all but one counterpart (the unflappable Swiss franc) through Monday’s close – not the performance of a promising fundamental turn. For the numbers, pro-bailout New Democracy picked up nearly 30 percent of the vote (and the additional 50 seats in parliament that comes with it) while Syriza won approximately 27 percent. This is still not resolved as a coalition is needed for a majority and Pasok is initially holding out for a deal with ND with a hope that a four-party coalition can be formed. That would be ideal, but won’t likely happen. We will likely see two or three party alliance formed in the upcoming session. And that puts us right back at square one: Greece in recession, trying to implement harsh austerity. Moving forward, euro traders will be tapped in to any meaningful developments from the G20 (commentary won’t do) and we have Spanish, Greek and EFSF bond auctions on deck.

British Pound Finds Little Relief in Crisis Spread Fear

From a fundamental standpoint, one of the best-positioned currencies for the otherwise lackluster Greek vote outcome is the sterling. As the most at-risk currency to a spread of the Euro Zone’s financial troubles, even short-term reprieve from immediate crisis fears spells an immediate improvement in the pound’s outlook. That said, the currency didn’t take to the encouraging tack. Avoiding a Greek-led Euro identity crisis doesn’t translate into immediate recovery. In the meantime, we will follow up on the announcement of new stimulus last week with CPI data today.

Swiss Franc Doesn’t Budge from 1.2000 EURCHF Floor

Though it has proven the most resistant pair to change, the EURCHF should show euro progress if the fundamental situation behind the region’s financial situation genuinely improved. That was clearly not the case Monday as the pair held cemented to 1.2000. That is a statement unto itself as to how investors and those protecting funds see the weekend’s developments. It also signals to the SNB, there may be no natural rebound.

Japanese Yen Slide Uneven, Unconvincing

With the fundamental wave that was rising into this week, it came as little surprise that Japanese officials decided to leave its current policy bearings unchanged last Friday. The Greek election removes some of the need to take unnatural steps to curb the yen’s fundamental appeal. Now we will see if the G20 meet and Fed decision provide a little more progress on this front. That is unlikely, and hence the yen’s mixed performance Monday. In other news the BoJ’s monthly report complicates matters with an upgrade export and production assessment.

New Zealand Dollar Extends its Rally, Trade Data to Precede GDP

Though the kiwi dollar wouldn’t outpace its Australian counterpart this past trading session – difficult to do when a mere moderation of the RBA rate forecast feeds a sizable relief rally – the currency has topped performance amongst the majors over the past week. Over the past week, the kiwi is up 2.9 percent against the dollar, 2.5 percent versus the yen and 2.2 percent higher matched up with the Canadian, Swiss and British currencies. This performance no doubt owes much of its momentum to an improvement in underlying risk investor sentiment, but outpacing fellow high-yield counterparts requires an additional factor. The rate advantage on the 10-year government bond yield (3.39 percent – 39 bps higher than Australia’s) and forward rate forecast present a tangible advantage even in questionable ‘risk on’ market phases.

Gold Recovers Footing after Early Morning Tumble

Given the implications of this past weekend’s Greek vote, one would expect that the alternative to traditional currencies and government bonds – gold – would see exceptional volatility and potentially a jump start on a new trend. Volatility indeed reared its head on the session with a strong, $22 reversal from an early bearish drive. Then again, the subsequent tail didn’t even measure up to the turn from June 9. Equally unusual was the lack of volume behind this widest swing in four trading days. With the Fed rate decision ahead, hesitation in trading the primary alternative to currencies is to be expected. Though avoiding an immediate financial crisis in the Euro Zone should perhaps carry a little more influence…

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ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

5:00

JPY

Leading Index (APR F)

95.1

5:00

JPY

Coincident Index (APR F)

96.5

6:45

EUR

French Own-Company Production Outlook (JUN)

-4

Indicators approaching lowest point in two years. Confidence may continue to be shocked as the state of affairs in Europe continues to deteriorate.

6:45

EUR

French Production Outlook Indicator (JUN)

-29

6:45

EUR

French Business Confidence Indicator (JUN)

92

93

8:30

GBP

DCLG UK House Prices (YoY) (APR)

-0.4%

8:30

GBP

Consumer Price Index (MoM) (MAY)

0.1%

0.6%

The new “funding for Lending” program could inject about 80 Billion pounds into the British economy. The cash is to encourage growth from businesses, but will contribute to higher inflation.

8:30

GBP

Consumer Price Index (YoY) (MAY)

3.0%

3.0%

8:30

GBP

Core Consumer Price Index (YoY) (MAY)

2.3%

2.1%

8:30

GBP

Retail Price Index (MAY)

243.0

242.5

8:30

GBP

Retail Price Index (MoM) (MAY)

0.2%

0.7%

8:30

GBP

Retail Price Index (YoY) (MAY)

3.3%

3.5%

8:30

GBP

Retail Price Index Ex Mort Int.Payments (YoY) (MAY)

3.3%

3.5%

9:00

EUR

Euro-Zone Construction Output s.a. (MoM) (APR)

12.4%

9:00

EUR

Euro-Zone Construction Output w.d.a. (YoY) (APR)

-3.8%

9:00

EUR

German ZEW Survey (Current Situation) (JUN)

39.0

44.1

Recent downgrades will influence expert opinions in the months to come.

9:00

EUR

German ZEW Survey (Economic Sentiment) (JUN)

2.3

10.8

9:00

EUR

Euro-Zone ZEW Survey (Economic Sentiment) (JUN)

-2.4

12:30

CAD

Wholesale Sales (MoM) (APR)

0.2%

0.4%

12:30

USD

Housing Starts (MAY)

720K

717K

16th month up trend from the 2010 decline. NAHB housing market index rose 4 point for May, Signally continued improvement in the housing sector.

12:30

USD

Housing Starts (MoM) (MAY)

0.4%

2.6%

12:30

USD

Building Permits (MAY)

730K

723K

12:30

USD

Building Permits (MoM) (MAY)

1.0%

-7.0%

GMT

Currency

Upcoming Events & Speeches

ALL

G20 Summit in Mexico

1:30

AUD

Reserve Bank of Australia Meeting Minutes

8:30

EUR

Spain to Sell 12-month and 18-month Bills

9:00

EUR

Greek to Sell €1 Bln in 91-Day Bills

10:00

EUR

EFSF to Sell €1.5 Bln in 182-day Bills

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visitTechnical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit ourPivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USDMXN

USDTRY

USDZAR

USDHKD

USDSGD

Currency

USDSEK

USDDKK

USDNOK

Resist 2

15.5900

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

15.0000

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

13.8273

1.8094

8.3037

7.7590

1.2683

Spot

7.0195

5.8973

5.9796

Support 1

12.5000

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

1.2759

1.5839

79.74

0.9652

1.0327

1.0252

0.8034

101.03

125.54

Resist. 2

1.2720

1.5801

79.55

0.9621

1.0303

1.0220

0.8008

100.66

125.13

Resist. 1

1.2680

1.5764

79.36

0.9591

1.0279

1.0188

0.7982

100.28

124.73

Spot

1.2602

1.5688

78.99

0.9530

1.0231

1.0124

0.7929

99.54

123.91

Support 1

1.2524

1.5612

78.62

0.9469

1.0183

1.0060

0.7876

98.80

123.09

Support 2

1.2484

1.5575

78.43

0.9439

1.0159

1.0028

0.7850

98.42

122.68

Support 3

1.2445

1.5537

78.24

0.9408

1.0135

0.9996

0.7824

98.05

122.27

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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