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Dollar Gains Versus Euro, Dow Slips Market Awaits Sequester

Dollar Gains Versus Euro, Dow Slips Market Awaits Sequester

2013-03-01 06:33:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Gains Versus Euro, Dow Slips Market Awaits Sequester
  • Euro: CPI, Unemployment and LTRO Repayment Define ECB’s Decision
  • Japanese Yen Unresponsive to BoJ Candidates, What Next?
  • Canadian Dollar Tumbles Ahead of GDP Release
  • Swiss Franc: The Fundamental Issues with a Technical USDCHF Breakout
  • British Pound Traders Price in Probability of Stimulus Next Week
  • Gold Drops a Second Day on Rising Volume as ETF Interest Extends Drop

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Dollar Gains Versus Euro, Dow Slips Market Awaits Sequester

While the greenback moved higher against the crowd this past session, it lacked the momentum in which we measure conviction. The focus for both currency and risk trends moving into the final trading day of the week is the sequester. Any hope that a last minute deal would be hammered out was crushed when Congress shot down two deficit-reduction strategies and called an end to the week. Congressional leaders will meet with the President at the White House Friday in a last ditch effort to avert the estimated $85 billion of automatic spending cuts, but the prognosis isn’t encouraging. Allowing the wave of cuts to hit was a scenario that the IMF suggested would lead to its lowering the US’ 2013 GDP outlook by 0.5 percentage points. This would be ‘risk’ negative, but thereby potentially dollar positive. We may not have a read on market impact until after the weekend however if the outcome of the meeting (good or bad) isn’t know before Friday’s close.

Euro: CPI, Unemployment and LTRO Repayment Define ECB’s Decision

The euro was under some pressure this past session, but the absence of key updates on the risk of an Italian-borne Euro-area crisis meant the stress was bearable for the currency. Italian President Napolitanoresponded to international cries for action to resolve the uncertainty in his country’s political situation by saying the process could not be rushed. An election cannot be called for weeks, so the third largest economy is in a holding pattern (because a grand coalition seems highly unlikely given Five Star Movement leader Beppe Grillo’s adamant position against dealing with the austerity-minded). This new cloud will no doubt also cast a shadow over the ECB next week. In past weeks we have seen downgrades in growth and suggestions of a high currency. Friday’s inflation, employment and stimulus repayment updates may further add.

Japanese Yen Unresponsive to BoJ Candidates, What Next?Stimulus. That is what is on the mind of every yen trader. It is already well known the Bank of Japan (BoJ) is going to further leverage its easing efforts to fight deflation, and inadvertently (so they say) drive the currency lower. The variable that currency speculators should be focusing on is how much the stimulus effort will be amplified (take this course to learn how a Currency War affects your FX trading). Over the past two months, there were definable milestones that drove confidence of a one-sided market to feed a bull trend. Such steps included the election of Prime Minister Abe, the adoption of a 2 percent inflation target for the BoJ and commitment to a 13 trillion-yen-per-month program starting in January 2014. The last definable reaction to headlines came with BoJ Governor Shirawaka’s announcement that he would resign early (March 19). Yesterday, the market was finally given Abe’s pick for the replacement monetary policy officials – but there was no response… Perhaps the market needs something more material to act upon. If that is the case, we will have to monitor for any comments that suggest the new regime plans on moving up or increasing stimulus plans. In the meantime, a strong risk aversion wind can still topple these overbought pairs.

Canadian Dollar Tumbles Ahead of GDP Release

The fourth quarter current account report from Canada is certainly an important economic indicator for the country, but the indicator’s print certainly didn’t fuel the selling pressure the loonie suffered the past session. The currency dropped against all but the Swiss franc the past session – suggesting a committed unwinding. Where the economic calendar was lacking for sway this past session, it will certainly be loaded for potentially heavy seas in the final trading day of the week. On deck, wehave the GDP reports for December and the fourth quarter. A 0.2 percent contract in the final month of 2012 is expected which is seen as leveling out the quarter at a repeat 0.6 percent growth. There is an abundance of room for surprise in these figures, and short-term volatility can do plenty of damage to the loonie-crosses.

Swiss Franc: The Fundamental Issues with a Technical USDCHF Breakout

Technical traders were honing in on a very significant USDCHF breakout Thursday. The day’s 0.8 percent rally cleanly drove the pair from a descending trend channel that has contained the market since late August. Yet, it is in the follow through that we find the real trade potential; and momentum is most often times the responsibility of fundamentals. Through the morning, a better than expected 4Q GDP reading (0.2 percent growth versus expected stagnation) and tepid inflation report didn’t offer the mix we would expect to supply this break. Instead, the franc’s connection to the euro (their economic and financial connections bind the two tightly) is likely the motivation for this move. If the correlation indeed stems from the euro’s drop, an extended USDCHF rally may require heavier euro selling – which is a serious difficulty.

British Pound Traders Price in Probability of Stimulus Next Week

The UK economic docket was light this past session – but unless data touches upon the sterling’s exposed fundamental nerve, the market wouldn’t have offered much reaction even if a notable report were on deck. That is because British pound traders are interpreting every headline and data release for its influence on the Bank of England’s next next policy meeting. A timely Reuters survey released this past session revealed that a pool of economists set the probability of a 25 billion pound increase in the central bank’s bond purchase program at 40 percent. Looking to overnight index swaps, the market is showing a similar – though more modest – projection of easing. Over the longer term, economists expected at least one increase in the stimulus effort by 2013 and swaps reflect the greatest expectation of further easing since September. All of this has been priced in, however, so a stimulus move that happens later rather than sooner could spark short covering.

Gold Drops a Second Day on Rising Volume as ETF Interest Extends Drop

The headlines related to stimulus and monetary policy manipulation have receded through the second half of the week. For the market’s preferred ‘alternative store of wealth,’ this meant that the most prominent fundamental support for gold bulls was disengaged. In practical terms, the metal returned to its prevailing six-month bear trend. A second day of selling for gold has tallied a 2.1 percent drop from Tuesday’s peak is building volume along the way. Looking to the final 24 hours of the trading week, the sequester is floating risk; but its ill-defined time frame may mean that it acts more like a break on price action that an accelerator if the ultimate outcome comes after the close. Meanwhile, investor deleveraging continues. Total ETF holdings of the metal have dropped for a 41st consecutive day – a record. COT figures are due tomorrow.

**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

JPY

Official Reserve Assets

$1267.3B

Downtrend beginning following all time high of $1306B on 1/12

1:00

CNY

Manufacturing PMI

50.5

50.4

Volatile, downward 3Y trend;

avg: 51.8; low: 49; high: 55.7

7:00

EUR

German Retail Sales (YoY)

-1.70%

-4.70%

Volatile data set; YoY negative growth 5 of 6 last months

7:00

EUR

German Retail Sales (MoM)

0.90%

-1.70%

7:00

GBP

Nationwide House Prices s.a. (MoM)

0.20%

0.50%

MoM volatile; YoY shows stagnate growth since 1/11

7:00

GBP

Nationwide House Prices n.s.a. (YoY)

-0.20%

0.00%

8:30

CHF

SVME-Purchasing Managers Index

52.1

52.5

4-month upturn since 3Y low (9/12)

8:45

EUR

Italian Purchasing Manager Index Manufacturing

47.6

47.8

Remained below 50 (contraction) since level of 50.1 on 7/11

9:00

EUR

Euro-Zone Purchasing Manager Index Manufacturing

47.8

47.8

Upward trend since 2Y low of 44 on 7/12; Below 50 since 7/11

9:30

GBP

Purchasing Manager Index Manufacturing

51

50.8

Downward trend since 5Y high of 61.5 on 1/11

9:00

EUR

Italian Unemployment Rate s.a. (Jan P)

10.60%

Strong upward trend (4Q) starting on 6/11; previous month 13Y high

9:00

EUR

Italian Unemployment Rate s.a. (4Q)

11.20%

9:30

GBP

Net Consumer Credit

0.2B

0.6B

Volatile since major drop off from all time high of 10B on 9/07

9:30

GBP

Net Lending Sec. on Dwellings

0.8B

1.0B

9:30

GBP

Mortgage Approvals

56.5K

55.8K

Strong upward trend since 7/12

10:00

EUR

Euro-Zone Consumer Price Index Estimate (YoY)

1.90%

2.00%

Downward trend from 3% on 9/11

10:00

EUR

Euro-Zone Unemployment Rate

11.80%

11.70%

Wave of increases starting on 03/08; Previous month all time high

11:00

EUR

Italian Annual Gross Domestic Product

-2.20%

0.40%

All time low of -5.5% on Q4 of 2009

13:30

CAD

Quarterly Gross Domestic Product Annualized

0.70%

0.60%

4M downward trend since 10Y high of 5.81% on 9/11

13:30

CAD

Gross Domestic Product (MoM)

-0.10%

0.30%

Volatile; below 5% growth since 12/11

13:30

CAD

Gross Domestic Product (YoY)

1.30%

Downward wave trend since 4.2% growth on 12/10

13:30

USD

Personal Income

-2.00%

2.60%

The compliment to employment in measuring growth / stimulus

13:30

USD

Personal Spending

0.20%

0.20%

14:55

USD

U. of Michigan Confidence (FEB F)

76.3

76.3

Remained above 70 since 12/11; 2Y avg: 71.9; low: 55.7; high:82.7

15:00

USD

Construction Spending (MoM)

0.50%

0.90%

Large swings in data set

15:00

USD

ISM Manufacturing

52.5

53.1

Downward trend since 59.4 on 4/11

GMT

Currency

Upcoming Events & Speeches

-:-

USD

Deadline for US Sequester (Auto Spending Cuts)

1:00

USD

Fed's Evans Speaks in Des Moines

11:00

EUR

ECB Reports Weekly LTRO Repayment at MRO

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

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

12.7532

1.7974

9.0234

7.7550

1.2374

Spot

6.4532

5.7038

5.7257

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

1.3195

1.5304

93.82

0.9445

1.0373

1.0317

0.8353

123.09

142.39

Resist. 2

1.3165

1.5270

93.53

0.9425

1.0354

1.0296

0.8332

122.61

141.94

Resist. 1

1.3135

1.5237

93.25

0.9404

1.0335

1.0275

0.8310

122.12

141.48

Spot

1.3075

1.5169

92.67

0.9363

1.0297

1.0232

0.8268

121.16

140.57

Support 1

1.3015

1.5101

92.09

0.9322

1.0259

1.0189

0.8226

120.20

139.66

Support 2

1.2985

1.5068

91.81

0.9301

1.0240

1.0168

0.8204

119.71

139.20

Support 3

1.2955

1.5034

91.52

0.9281

1.0221

1.0147

0.8183

119.23

138.74

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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