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Dollar Suffers Mild Retreat on Volumeless Dow Advance, Fed Remarks

Dollar Suffers Mild Retreat on Volumeless Dow Advance, Fed Remarks

John Kicklighter, Chief Strategist
  • Dollar Suffers Mild Retreat on Volumeless Dow Advance, Fed Remarks
  • Japanese Yen Ignores BoJ Designate Kuroda’s Vow to Ramp Stimulus
  • Australian Dollar: RBA Holds Rates after AUDUSD False Breakdown
  • Euro Ignores Placating Finance Minister Comments, ECB Decision Distracting
  • British Pound Suffers Uniform Drop Monday, A Lot of Bearishness Before BoE…
  • Swiss Franc Curbs its Drop as Euro-Area Financial Trouble Builds
  • Gold: Another Four-Day Run from the Precious Metal Despite Currency War Headlines

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Dollar Suffers Mild Retreat on Volumeless Dow Advance, Fed Remarks

The markets had their first opportunity to react to ‘the sequester’ that was implemented this past Friday evening…and its influence was far more restrained than the surge in confidence following the Fiscal Cliff deal at the beginning of the year. It is natural to draw a comparison to the US government’s latest standoff to the fracas at the beginning of the year as both tap into key fundamental drivers for the greenback: risk trends and the credit worthiness of US debt. The disastrous outcome that so many had feared at the beginning of the year was realized over the weekend when the automatic spending cuts were signed into law. Yet, how did the markets react? Speculative trends went unmolested.

When we learned that the Fiscal Cliff had been avoided – preventing a round of automatic spending hikes and tax hikes – the Dow Jones Industrial Average rallied abruptly and extended its run to the encompass the current bull phase to five-year highs while the dollar took off on a steady climb of its own. The sequester outcome is exactly the opposite as the Fiscal Cliff resolution because the growth-dampening scenario was realized. Yet, the fervor with which the market embraced the crisis evasion was not replicated in the concern that accompanies this shift. The Dow Index climbed on the day to its highest close in five years – though it did so on exceptionally thin volume – and carried risk trends along with it. Alternatively, with risk trends unfettered and a US downgrade a marginally greater threat, the dollar finds itself under pressure. The Dow Jones FXCM Dollar Index (ticker = USDollar) retreated from a failed move on 10,500 and is extending its retreat through Tuesday trade.

Ultimately, the sequester doesn’t carry nearly as much weight in the US fiscal crisis discussion because it can be reversed whenever Congress agrees on a more palatable program; and the economic pain will come on slowly. Perhaps the stop gap budget required by March 27 to avert a government shutdown will carry the market’s attention better. Meanwhile, risk appetite still lacks for the participation and potential return that can secure trends. Yet, the longer it takes for a sentiment correction to take; the greater the risk that the USDollar reverses its strong advance to two-and-a-half year high. Fed officials are certainly doing their part to hobble the currency. This past session, Fed Reserve Vice Chairman Janet Yellen remarked that the limited risks of more stimulus should keep the QE effort in place.

Japanese Yen Ignores BoJ Designate Kuroda’s Vow to Ramp Stimulus

In the past five months, the Japanese yen has dropped more than 20 percent against the US dollar (and most of its other pairs) without the adoption of a serious policy shift. Of course, officials have threatened and ‘jawboned’ the currency – prompting the G7 and G20 to release statements promising that policy would not target exchange rates – but the big threats were never realized. In effect, the yen has dropped on the belief that something serious would be implemented in the not-so-distant future; and speculators wanted to price it in before it actually occurred. This is what we often refer to as ‘buy the rumor, sell the news’. However, that policy of upgrading threats to draw a reaction from the FX market seems to be losing its potency. Bank of Japan Governor nominee Kuroda escalated the stimulus risk when he said he thought ending deflation was the top issue, that he would consider a broader segment of asset purchases and longer maturity JGBs, and that he could move up the time of implementing the open ended stimulus program originally slated for January 2013. The yen hardly moved after this commentary. It seems the market is wants definitive action rather than saber-rattling vows if they are to continue feeding the yen’s tumble without a correction.

Australian Dollar: RBA Holds Rates after AUDUSD False BreakdownAussie dollar traders were tuning into the RBA rate decision this morning, as the FX market’s favorite high-yielding major was facing the threat of another dovish move by the policy authority. The probability of a cut was low according to both traders’ and economists’ expectations, but the impact such a scenario would entail if fulfilled was too significant for such a key carry currency to ignore. Ahead of the actual event, jitters took over and AUDUSD temporarily spiked down to an 8-month low. A retracement was in respect to the event risk, and it could have continued the bear wave if the central bank cut rates or escalated. Yet, the RBA did neither, and now the Aussie dollar is up across the board.

Euro Ignores Placating Finance Minister Comments, ECB Decision Distracting

There was a notable round of event risk for the euro through the opening trading day of the week, but the currency market tempered its reaction to its influence. For data, the Sentix investor sentiment survey dropped back unexpectedly from a July 2011 high and the number of unemployed in Spain grew at a slower pace than expected. What really counts though is the reemergence of a financial crisis in the region. The Eurozone Finance Ministers meeting ended with no hard time frame for a Cyprus bailout and apparently no discussion of Italy’s predicament.

British Pound Suffers Uniform Drop Monday, A Lot of Bearishness Before BoE…

The sterling dropped across the board this past session as the region’s construction activity indicator dropped to a more-than-three-year low and a report on the Funds for Lending Scheme suggested the BoE’s open-ended stimulus effort was coming up very short of its objective. Both developments leverage expectations of a news stimulus from the central bank come Thursday. If it isn’t realized…

Swiss Franc Curbs its Drop as Euro-Area Financial Trouble Builds

There are questions surrounding Cyprus’ long-debated rescue, Portugal and Ireland’s stimulus terms, Italy’s ability to maintain an austerity track and a number of other issues in the Eurozone. In general, the region’s financial health has once again been called into question. Naturally, that is a boon to Europeans’ favorite safe haven – the Swiss banking system. That said, the panic has not crested; and so neither has the franc.

Gold: Another Four-Day Run from the Precious Metal Despite Currency War Headlines

Through Monday’s close, we have seen gold run another four-day trend – this one bearish. That said, progress in the current the current bear wave has eased as we near the 8-month swing low established two weeks ago. A catalyst is needed to sustain a direction at this point –and talk of a currency war taking place through stimulus is the right kind of fuel to generate interest in 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

0:01

GBP

BRC Sales Like-For-Like YoY

1.00%

1.90%

Large swings in data set; 1Y avg.: 0.4; low: -3.3; high: 1.9.

0:30

AUD

Current Account Balance (Australian Dollar)

-15300M

-14900M

In a trade deficit since 2012, gap continue to widen in last 3Q in 2012

0:30

AUD

Australia Net Exports of GDP

0.5

0.1

Downtrend since 2Q of 2012 amid concern on a slower China recovery

0:30

AUD

Retail Sales s.a. (MoM)

0.40%

-0.20%

1Y avg.: 0.2; low: -0.8; high: 1.1.

1:30

JPY

Labor Cash Earnings (YoY)

-1.70%

Has fallen to a 3Y low.

1:45

CNY

Services PMI (FEB)

54

Could point to a slower recovery following several disappointing PMI

3:30

AUD

Reserve Bank of Australia Rate Decision

3.00%

3.00%

As of 03/04, market has priced in a 14% probability for a rate cut.

8:45

EUR

Italian Purchasing Manager Index Services (FEB)

43.5

43.9

Further decline may heighten anti-austerity sentiment and election risk

8:50

EUR

French Purchasing Manager Index Services (FEB)

42.7

42.7

Steadily declining below the 50 mark for 7 months.

8:55

EUR

German Purchasing Manager Index Services (FEB)

54.1

54.1

The latest upbeat manufacturing PMI signals a stronger service sector.

9:00

EUR

Euro-Zone PMI Services (FEB F)

47.3

47.3

The austerity measures have continued to weight on domestic demand.

9:00

EUR

Euro-Zone PMI Composite (FEB F)

47.3

47.3

9:30

GBP

Purchasing Manager Index Services (FEB)

51

51.5

BOE may pursue more easing unless a strong rebound from 2012.

9:30

GBP

Official Reserves (Changes)

$565M

Large swings in data set.

10:00

EUR

Euro-Zone Retail Sales (MoM)

0.30%

-0.90%

Large swings in data set.

10:00

EUR

Euro-Zone Retail Sales (YoY)

-2.90%

-3.60%

3Y downtrend; 1Y avg.: -1.7; low: -3.6; high: 0.2.

15:00

USD

ISM Non-Manufacturing Composite (FEB)

55

55.2

A gauge of business confidence in the wake of the sequester budget cuts, indicative of sentiment.

15:00

USD

IBD/TIPP Economic Optimism

47.2

47.3

21:45

NZD

Value of All Buildings SA

3.00%

9.60%

2Y uptrend; higher prices may contribute to higher inflation.

GMT

Currency

Upcoming Events & Speeches

-:-

CNY

China Finance Ministry Releases Budget Forecast

-:-

EUR

Troika Technical Staff to Start Talks with Cyprus Government

8:00

EUR

European Union Finance Ministers Meet

12:00

EUR

Portugal Parliament Meets Troika Officials for 7th Review

19:00

USD

Fed’s Lacker Speaks 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

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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