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Forex: Dollar Posts Third Four-Day Rally Since Bull Wave Began

Forex: Dollar Posts Third Four-Day Rally Since Bull Wave Began

2013-01-29 05:29:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Posts Third Four-Day Rally Since Bull Wave Began
  • Euro Finding Little Progress Post-1.3400 Break for EURUSD
  • British Pound Tumbles as Incoming BoE Governor Supports Stimulus
  • Japanese Yen Posts Universal but Restrained Gains Monday
  • New Zealand Dollar Posts Abrupt Rebound Punctuated by Trade Data
  • Australian Dollar: Is the High Yield, ‘Reserve’ Currency Losing Interest?
  • Gold Drops Extends First Four-Day Tumble Since Early October

New to FX?Watch thisVideo; For live market updates, visitDailyFX’s Real Time News Feed

Dollar Posts Third Four-Day Rally Since Bull Wave Began

Though its recent gains have been particularly reserved, the Dow Jones FXCM Dollar (ticker = USDollar) managed to fourth consecutive daily advance through Monday’s close. Since the general bull phase began for the benchmark currency, we have seen only two other instances of a climb of this consistency despite the positive bearing. For comparison’s sake, the benchmark hasn’t seen a five-day rally since early May of last year. It will be difficult for the currency to extend its impressive move, however, with the weight of heavy event risk due Wednesday. Though the 4Q GDP figure and Federal Open Market Committee’s (FOMC) rate decision the following day could theoretically offer the currency further support; the risk of further stimulus and stronger growth trends – both detrimental to a safe haven like the dollar – will keep many sidelined.

Looking at the dollar’s performance across its major pairs, we can establish a better picture of the currency’s underlying strength. Aside from standout performances on the greenback’s party against the New Zealand dollar (0.4 percent) and British pound (0.7 percent); the benchmark was virtually unchanged on the day. After establishing through a market-wide comparison that the sterling and kiwi were themselves big movers on the day (more on that below), we can better identify the dollar’s true performance. With risk trends sidelined by a shortfall in conviction and given the gravity of top event risk scheduled for the near future, the market is in a holding pattern unless an unexpected, systemic shock shows.

Euro Finding Little Progress Post-1.3400 Break for EURUSD

Amongst the major’s more reserved pairings was the EURUSD. A tepid 0.06 percent change on the day stands as a stark contrast to the progress that the world’s most liquid currency demonstrated through the final trading session of the past week. Typically, we would expect a remarkable range breakout – like the 1.3400 drive this past Friday – to generate some measure of follow through. The fact that there was no momentum to be found on the other side of the technical boundary speaks to the passing influence of the catalyst that managed to leverage the break itself. The ECB’s report that 278 Euro-area banks would repay €137.2 billion of the first Long-Term Refinancing Operation (LTRO) ahead of schedule carried a bullish connotation. The figure was larger than expected, the reduction was a sign of strengthened financial markets and it would stand as a reduction of the central bank’s balance sheet (a serious contrast from the competitive stimulus efforts of others).

And yet, reduced liquidity needs through this particular vehicle are consistent with the drop in current market lending rates for European financial institutions. Furthermore, shirking support may prove more of a financial detriment moving forward than an booster to investor confidence – as mentioned by both ratings agency Moody’s and the EU Commissioner Olli Rehn. Through the past session, the headlines took more of a skeptical slant on the Euro’s future. Rehn remarked that the Troika could ease the goals set out for Spain should the economic recovery slow – something that looks more than probable and will be substantiated Wednesday with the country’s 3Q GDP report. Another simmering issue that can’t help but catch bulls’ attention is the continued standoff on Cyprus. A spokesman for the German Finance Minister repeated that stimulus for the troubled country would only come if the country proved systemically important to the Euro-area’s stability. It may very well.

British Pound Tumbles as Incoming BoE Governor Supports StimulusThe sterling provided the biggest move on the day Monday with a market-wide drop. The currency suffered a drop of between 0.3 percent versus another weak currency in the New Zealand dollar and 0.7 percent against the Japanese yen. The generally quiet trading conditions helped segregate the weakness of the pound on the day. From the economic docket, there was a round of housing data (Hometrack’s survey for January); and there was certainly some of the negative sentiment from last week’s 4Q GDP contraction spilling over. However, the selling pressure this past session was far more kinetic than these factors. An open-ended concern for FX traders is what future Bank of England (BoE) Governor Mark Carney (coming over from the Bank of Canada in July) will bring to the monetary policy table in the UK. He further concerned bulls and hawks when he stated at Davos that central banks should pursue easing policies until they achieve ‘escape velocity’ from recessions.

Japanese Yen Posts Universal but Restrained Gains Monday

It has been the case over the past few months that a calm market backdrop (where risk trends are not tumultuous or otherwise trend bound) will find the Japanese yen crosses advancing. That is because, in the absence of speculative positioning, the Japanese Government’s and Central Bank’s efforts to devalue the currency will show through. Yet, that wasn’t the case this past session. On the newswires, the country’s Prime Minister projected tax returns that would outpace bond issuance. Also, the 2013 growth forecast was upgraded to 2.5 percent from 1.7 percent.

New Zealand Dollar Posts Abrupt Rebound Punctuated by Trade Data

The New Zealand dollar opened the week under significant pressure. Selling on the currency was consistent across high yield and safe haven alike, pointing to something more specific than a general distaste for yield differentials. A rebound started on this decline later in the New York session that was further amplified by a surprise trade surplus for December; but true trend awaits a bearing in risk appetite.

Australian Dollar: Is the High Yield, ‘Reserve’ Currency Losing Interest?

Risk appetite trends in stimulus-supported markets (like equities) is outright bullish while the same sentiment in the more market-defined areas (like the Risk-Reward Index) are steady. Yet, we have found the Australian dollar maintain its easing cycle. Interest rate expectations are softening, but not materially. This weakness indicates something else – possibly the outflow of ‘reserve’ capital back to areas like the Eurozone.

Gold Drops Extends First Four-Day Tumble Since Early October

Through Monday, gold dropped for a fourth consecutive session. This is the longest series of declines since early October – back when the rejection from $1,800 first instigated the bearish shift. The dollar’s strength no doubt held a considerable influence over this metal’s performance, but its reservation over the next 24 hours will likely also be mirrored. The Fed’s timing for stimulus can have a serious influence over gold.

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

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

0:30

AUD

NAB Business Confidence (DEC)

-9

Has remained below 0 since 09/12

0:30

AUD

NAB Business Conditions (DEC)

-5

Strongly correlated with confidence

5:00

JPY

Small Business Confidence (JAN)

43.8

Declined by 10.06% since 03/12.

7:00

EUR

German Import Price Index (MoM) (DEC)

-0.1%

0.0%

Largely subjected to seasonal changes.

7:00

EUR

German Import Price Index (YoY) (DEC)

0.9%

1.1%

Trending lower since 12/10 high when at 12.

7:00

EUR

German GFK Consumer Confidence Survey (FEB)

5.7

5.6

Generally increasing, even amid euro zone woes.

14:00

USD

S&P/CS 20 City (MoM) s.a. (NOV)

0.7%

0.66%

Notable trough from 06/ 10 to 12/11. Recovery peak on 04/12.

14:00

USD

S&P/Case-Shiller Composite-20 (YoY) (NOV)

5.5%

4.31%

Steadily increasing since 2013 without retracement.

14:00

USD

S&P/Case-Shiller Home Price Index (NOV)

145.94

146.08

Moving within a channel between 130 and 150 for four years.

15:00

USD

Consumer Confidence (JAN)

64

65.1

One year average at 66.90.

21:45

NZD

Building Permits (MoM) (DEC)

6.0%

-5.4%

A second tier indicator unlikely to generate the same level of influence as CPI ahead of the RBNZ

23:50

JPY

Retail Trade (YoY) (DEC)

0.3%

1.2%

Focus has turned to the CPI as a target for stimulus efforts by the BoJ, but this important growth reading will carry similar weight in the financial, economic and monetary health of Japan

23:50

JPY

Large Retailers' Sales (DEC)

-1.0%

0.9%

23:50

JPY

Retail Trade s.a. (MoM) (DEC)

0.4%

-0.1%

GMT

Currency

Upcoming Events & Speeches

08:00

EUR

EUs Barroso Speaks at Conference

08:15

EUR

Rehn Speaks to EU, National Parliament Officials

-:-

USD

FOMC Two-Day Meeting Begins

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

15.5900

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.8300

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.8155

5.7350

5.8200

Spot

12.7475

1.7741

9.0875

7.7578

1.2367

Spot

6.4165

5.5444

5.5352

Support 1

12.5000

1.6500

8.5650

7.7490

1.2000

Support 1

6.0800

5.4440

5.5000

Support 2

11.5200

1.5725

6.5575

7.7450

1.1800

Support 2

5.8085

5.3350

5.3040

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

1.3565

1.5822

92.00

0.9339

1.0124

1.0524

0.8443

124.12

144.64

Resist. 2

1.3538

1.5793

91.73

0.9321

1.0106

1.0503

0.8423

123.67

144.18

Resist. 1

1.3511

1.5764

91.46

0.9302

1.0089

1.0482

0.8403

123.23

143.71

Spot

1.3456

1.5705

90.92

0.9265

1.0054

1.0440

0.8363

122.35

142.79

Support 1

1.3401

1.5646

90.38

0.9228

1.0019

1.0398

0.8323

121.47

141.86

Support 2

1.3374

1.5617

90.11

0.9209

1.0002

1.0377

0.8303

121.03

141.40

Support 3

1.3347

1.5588

89.84

0.9191

0.9984

1.0356

0.8283

120.58

140.94

v

--- Written by: John Kicklighter, Chief 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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