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Euro Traders Watch More than Risk as LTRO2 Repayment Approaches

Euro Traders Watch More than Risk as LTRO2 Repayment Approaches

John Kicklighter, Chief Strategist
  • Dollar Rally Tapers after EURUSD Break, Dow Faces Next Floor
  • Euro Traders Watch More than Risk as LTRO2 Repayment Approaches
  • British Pound: Oversold Sterling Leverages Risk Relief
  • Japanese Yen Ready to Rally as Officials’ Language Softens
  • Australian Dollar Rallies after RBA’s Stevens Speech
  • Canadian Dollar Volatility to Peak on CPI, Retail Sales
  • Gold Finds First Bullish Close in 7 Days

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

Dollar Rally Tapers after EURUSD Break, Dow Faces Next Floor

One thing that has become blindingly clear these past months and years is that risk trends are not easily turned off of their bullish path. It is that stubbornness in sentiment - supported by stimulus - that tempered the slide in equity indexes, carry trade and climb for the greenback this past session. The Dow Jones FXCM Dollar Index (ticker = USDollar) managed to carve out a marginal gain on the day to lift us to yet another two-plus-year high – and notably leave us with a 10,400 close. That said, momentum is the name of the game when it comes to unnerving sentiment and leveraging fear over the complacency of ‘more stimulus’. With the S&P 500 still above 1,500, the market is weighing how much concern there is in the recent FOMC Minute’s revelation that the debate for QE abatement actually has a time frame on it. There isn’t a particular spark to carry risk trends (except a mild possibility for the ECB’s stimulus report), so this may have to be a market-defined risk move.

Euro Traders Watch More than Risk as LTRO2 Repayment Approaches

The euro was firming up in the later hours of Thursday and into the early morning hours today, but effort pales in comparison to the suffering in yesterday’s European – New York crossover. EURUSD’s bullish trend channel dating back to the July reversal was breached at 1.3250 and EURJPY led the yen-crosses back with a stroll below 124.00. The fundamental ground is still very unsteady for the euro since certain European equity indexes started to suffer serious heaves and the ECB made mention of the currency level. This past session, the docket was relatively light , but it hit in most sensitive of areas – recession pain. The Eurozone PMI measure of activity unexpectedly contracted this month.

Heading into the final session of this trading week, the euro is without doubt the most active volatility threat in the currency market. The docket is loaded. Averting our troubled gaze from the weekend’s Cyprus and Italian elections, there is plenty to be concerned about right in front of us. Data will not carry the day. Rather, notable ‘events’ will. The European Commission’s assessment of Spain’s growth and debt forecasts and Winter GDP forecasts are big ticket items on both the financial stability and recession front. But, traders’ should be watching the ECB’s announcement for the first repayment of the LTRO2 program. European banks’ early repayment of their nearly €1 trillion in liquidity loans was what has truly carried the euro higher over the past few months. If this second program is small or large, prepare for volatility.

British Pound: Oversold Sterling Leverages Risk ReliefAside from the coasting risk aversion move that bolstered the Japanese yen, the British pound was the best performer on the day through Thursday. What particularly improved in the fundamental backdrop? An 11.4 billion pound budget surplus was a modest bump for the austerity-bound nation, and the biggest jump for the 10-year gilt this year spoke to a modest return of UK-centric safe haven appetite. Though, the real driver for the pound was the pound itself. Over the past two weeks, the sterling’s best performance has been a 1.6 percent drop against the Canadian dollar just up to a 3.6 percent collapse versus the Japanese yen. A move of that pace is prone to reprieve. Corrections are so named because they are temporary. The building stimulus outlook may taper for the sterling, but risk appetite could easily pick up the charge.

Japanese Yen Ready to Rally as Officials’ Language Softens

A month ago, government officials and central bankers in Japan were practically telling what level the yen should be trading at. Since the G20 meeting, however, their tone has certainly softened – cowed no doubt by global trade partners’ concerns that they have gone overboard. This morning, Finance Minister Aso declined to comment on the level of the currency and instead focused on the BoJ Governor replacement. The same was true from Economy Minister Amari. From a market-moving perspective, finding out who will replace Shirakawa and his two deputies isn’t itself particularly market moving. If the new leaders start to remark on how they plan on moving up stimulus actions or expand upon those that have yet to even be implemented – that would be a difference story. Yet, we aren’t there yet.

Australian Dollar Rallies after RBA’s Stevens Speech

Reserve Bank of Australia Governor Stevens semi-annual testimony was something of a mixed bag, but the market took it as a clear sign that the group was easing back on the rate cutting throttle. Hopeful hawks could allay fears of further cuts in comments such as rates are at an ‘appropriate level now’ and there is a ‘good deal’ of stimulus already. Realistically, though, these are non-committal and in line with previous statements. What was notably overlooked was the repeated concern that the currency is high and that the group would only intervene on behalf of the Aussie if it was indeed deemed overbought – so much for not talking about competitive devaluation.

Canadian Dollar Volatility to Peak on CPI, Retail Sales

Key data is always good as a possible spark of volatility for the Canadian dollar. Therefore, it is worth keeping an eye on the economic docket as we have simultaneous releases for December retail sales and January Consumer Price Index (CPI) data scheduled for 8:30 local time. The consumption indicator is the easier read for fundamental trackers – and a good lead in to next week’s GDP release. However, the inflation figure carries far greater weight for this currency. Ever since the Bank of Canada (BoC) shifted its monetary policy weight off its hawkish footing, the loonie has found itself in a vulnerable position. Headline, annual CPI (the benchmark for policy) is not far from a record low at 1.1 percent…

Gold Finds First Bullish Close in 7 Days

After six consecutive days of declines – the longest bearish run since 2009 – gold finally put in for a bullish close Thursday. Of course, the 0.8 percent advance hardly makes up for the 2.5 percent dive the previous day much less the larger decline over time. The stabilization in risk trends and curb on the dollar’s climb proved a boom for the precious metal. Moving the focus away from abandoning lower liquidity assets and placing it back on those assets that are manipulated by monetary policy is a ready-made booster for the commodity. However, there is no telling how long this positive wind holds. The CBOE Gold Volatility Index dropped from its five-month highs and futures volume held relatively buoyant – though a notable easing from Wednesday’s hard selloff. It will be interesting to see what COT figures show for positioning Friday afternoon.

**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

1:30

CNY

China January Property Prices

January home prices worst in at least a year, lower in 47 cities

2:00

NZD

Credit Card Spending s.a. (MoM)

1.0%

Large swings in data set; 5Y avg. 0.2%; High: 3%; Low: -4.2%

2:00

NZD

Credit Card Spending (YoY)

4.6%

Only one month of negative growth since 10/31/2009

7:00

EUR

German Gross Domestic Product n.s.a. (YoY)

0.1%

0.1%

Steady decline since 5Y high of 5.2% on 3/11

7:00

EUR

German Gross Domestic Product w.d.a. (YoY)

0.4%

0.4%

Downward trend since 5Y high of 4.8% on 3/11

7:00

EUR

German Domestic Demand

-0.1%

0.0%

Volatile data set at 0% or lower over last 4 months

7:00

EUR

German Private Consumption

0.1%

0.3%

Volatile data set, range between 1.3% and -0.7% over last 5Y

7:00

EUR

German Exports

-2.0%

1.4%

3Y high of 7%, avg. of 2.1% and low of -0.5%

7:00

EUR

German Capital Investment

-1.3%

0.2%

Large swings in data set

7:00

EUR

German Gross Domestic Product s.a. (QoQ)

-0.6%

-0.6%

3Y downward trend, avg. of 0.5%, high of 2.2%, low of -0.6%

9:00

EUR

German IFO - Business Climate

104.9

104.2

Downward trend since 5Y high of 115.1, Recent 3M uptrend

9:00

EUR

German IFO - Expectations

101.4

100.5

Between 90 and 111 since 5/09

9:00

EUR

German IFO - Current Assessment

108.5

108

Downward trend since 5Y of 123.2 on 6/11

13:30

CAD

Consumer Price Index (YoY)

0.7%

0.8%

Downward trend since 5Y high of 3.7% on 5/11, Positive since 9/09

13:30

CAD

Bank Canada Consumer Price Index Core (YoY)

1.1%

1.1%

Strong downward trend since 2% on 6/12

13:30

CAD

Retail Sales Less Autos (MoM)

0.1%

-0.3%

Positive growth 6 of the last 8 months

13:30

CAD

Retail Sales (MoM)

-0.4%

0.2%

Volatile data, downward trend sine 3Y high of 2.7% on 3/10

GMT

Currency

Upcoming Events & Speeches

22:30

USD

RBA Gov Stevens Semi-Annual Testimony

9:00

EUR

EU Commission Assess Spain Deficit, GDP Forecasts

10:00

EUR

European Commission Releases Growth Forecasts

11:00

EUR

Initial Announcement of LTRO 2 Early Repayment

15:15

USD

Fed’s Powell and Rosengren Speak on Monetary Policy

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

Click Here to Learn 3 Basic Forex Trading Strategies: http://www.youtube.com/watch?v=880UGOQyK40

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

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

12.7458

1.7931

8.8911

7.7561

1.2383

Spot

6.4148

5.6472

5.6684

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

1.3329

1.5430

94.40

0.9375

1.0243

1.0396

0.8464

125.08

144.46

Resist. 2

1.3300

1.5394

94.11

0.9354

1.0224

1.0375

0.8442

124.60

143.98

Resist. 1

1.3270

1.5359

93.82

0.9334

1.0206

1.0353

0.8420

124.13

143.51

Spot

1.3210

1.5288

93.24

0.9292

1.0169

1.0310

0.8377

123.17

142.56

Support 1

1.3150

1.5217

92.66

0.9250

1.0132

1.0267

0.8334

122.21

141.61

Support 2

1.3120

1.5182

92.37

0.9230

1.0114

1.0245

0.8312

121.74

141.13

Support 3

1.3091

1.5146

92.08

0.9209

1.0095

1.0224

0.8290

121.26

140.65

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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