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Dollar Holds 10,500 and its Bull Trend as Dow Breaks 16-Year Record

Dollar Holds 10,500 and its Bull Trend as Dow Breaks 16-Year Record

2013-03-14 04:35:00
John Kicklighter, Chief Strategist
Share:
  • Dollar Holds 10,500 and its Bull Trend as Dow Breaks 16-Year Record
  • Euro Tumbles on Italian Risk Flare Up, EU Members Meet Thursday
  • New Zealand Dollar Tumbles after RBNZ Hints at Rate Cuts
  • Australia Dollar Soars after Strong Employment Data Report
  • Swiss Franc: Should We Expect Volatility on the SNB?
  • British Pound: BoE Quarterly Bulletin Notes Pound Drop
  • Gold Rebound Cut Short As Dollar Stabilizes, Volume Never Materializes

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Dollar Holds 10,500 and its Bull Trend as Dow Breaks 16-Year Record

It seems the Dow Jones FXCM Dollar (ticker = USDollar) will extend its record for avoiding a three-day consecutive decline beyond the three-month mark. The greenback advanced against most of the majors this past session – despite the persistence of stimulus-supported risk trends in the equity market – and has upheld its impressive aggregate bull trend. However, this advance looks more and more dubious with each day against the backdrop of strong performance in other ‘risky’ asset classes. If investor appetite for yield continues to build, the greenback will eventually fold to its safe haven status (which is still prominent in pairings like EURUSD, NZDUSD, AUDUSD). That said, a market-wide risk aversion move could forestall judgment. With the Dow stock index postings its longest rally in 16 yearson fadingvolume, the risk is palpable.

Euro Tumbles on Italian Risk Flare Up, EU Members Meet Thursday

Of the two dominant and competing fundamental themes for the euro – the ECB’s stimulus reduction and risk of a revived financial crisis – a modest tip in the scales was seen with Italy and Greece this past session. While the weekly LTRO repayments continue to shrink the central bank’s balance sheet and slowly buoy market rates, the risk of a financial rift opening again is more volatile a risk – and it has many fuses. In the headlines this past session, Five Star Movement party leader Beppe Grillo remarked that Italy was already essentially out of the common currency and would be unceremoniously dropped when its debts were repaid. Thought his may be bluster, it reminds us that a coalition government is unlikely in Italy – and the country’s poor bond auction shows that realized risk. Meanwhile, the Greece and Troikameeting on the former’s next aid payment broke without a resolution. It seems the country won’t be paid its support this month. Some encouragement is found in Ireland’s first bond auction since its own rescue and potential Spain’s long-term duration auction today, but keep an eye on the EU summit.

New Zealand Dollar Tumbles after RBNZ Hints at Rate CutsFX traders have grown increasingly sensitive to monetary policy efforts – and well they should as we seem to be the middle of a ‘silent’ currency wary. Most of the focus has fallen on the countries were rates are already at extreme lows and open stimulus programs have had to supplement further easing (Fed, BoJ and BoE). However, the upper end of the yield curve matters just as much as the low end. The global wave of stimulus is aimed at absolving investors’ risk and encourage investment – for the FX that means carry trade – but return still matters in this low implied volatility world. New Zealand’s benchmark rate is already at historical lows, but the latent hope of a hike somewhere in the undefined future kept kiwi bulls on the fence. Well, Reserve Bank of New Zealand (RBNZ) Governor Wheeler snuffed out that hope for higher yields this morning. He stated clearly that he expects rates to be held through 2013, though a high currency left the door open to easing should it be needed.

Australia Dollar Soars after Strong Employment Data Report

While some currencies and pairs have made tentative moves towards reversals or breakouts, the Australian dollar has seen a brash swell in volatility through the opening hours of this new trading session. The catalyst is easy to pin point: a remarkably strong showing in February employment data. The 71,500 jobs added to the economy represents the biggest jump since July 2000 – significant enough to override doubt that may arise from the reality that most of those positions (53,700) were part time. Furthermore, the jobless rate unexpectedly held at 5.4 percent while participation jumped to 65.3 percent. This is a strong economic readings, but we shouldn’t expect it to be a ‘game changer’. This figure – along with the uptick in CPI estimates – will ease rate cut expectations, but those weren’t particularly egregious to begin with.

Swiss Franc: Should We Expect Volatility on the SNB?

The performance for the franc mirrored that of the Euro. The Swiss currency dropped against all counterparts with the exception of the New Zealand dollar. The slow creep of ‘tail risk’ back into the Eurozone infects the European currency, but fundamental correlation between it and the franc means that one continues to lead the other. Should we expect this relationship to diverge or perhaps even temporary bend in the upcoming trading session with the Swiss National Bank (SNB) scheduled to deliberate on monetary policy? It is unlikely we will see a material change in the policy group’s longer-term policy approach (commitment to keep EURCHF above 1.2000 at all costs while targeting inflation and economic activity). Even short-term volatility is likely to be modest in the wake of the event if history is to be any guide. The market has come to expect President Jordan and crew’s volatile remarks regarding the high franc. Outside of that warning, little more has been pursued.

British Pound: BoE Quarterly Bulletin Notes Pound Drop

The sterling was notably higher against all of its major pairings this past session, but momentum was a luxury the currency was unable to find outside of moves that took advantage of weakened counterparts (GBPNZD, EURGBP). The economic docket was light Wednesday with no major releases on hand. Meanwhile, 10-year gilt yields stumbled back below 2.00 percent, while the 12-month interest rate outlook – measured through swaps – offered little relief. The best means for sparking a pound rally is to establish a fundamental drive. Early in Thursday’s trading session, we had the Bank of England’s (BoE) 1Q bulletin. Though relatively light on big ticket items (like rate guidance), the report did note that market sentiment seemed ‘significantly improved’ and made mention of the ‘particularly large’ drop for the currency. The group wrote off the remarkable pace by suggesting other havens had also dropped, and that it could be a factor of the economic outlook and rating downgrade.

Gold Rebound Cut Short As Dollar Stabilizes, Volume Never Materializes

A promising breakout by gold Tuesday fell apart just as quickly as it started this past session. A 0.3 percent correction from the precious metal is a modest shift and fits the general pace of tepid daily changes we have seen since the month began. As for the failed rally, a lack of follow through was a product of fundamentals – or lack thereof. The precious metal has found itself under heavy selling pressure by ETFs (holdings have dropped over 6 percent since the peak in late December) and speculators in the futures market (net long positioning is just off a four year low set last month). We need demand to offset this unwinding by historically committed parties. A serious trend would develop alongside a renewed swell in global stimulus levels – a matter of time as the BoJ steps up – while a ‘cheap’ rally would come from a dollar tumble.

**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

0:00

AUD

Consumer Inflation Expectation

2.2%

Within its target of 2-3%; low inflation may prompt rate cut.

CNY

Actual FDI (YoY)

-4.8%

-7.3%

2Y downtrend; companies stay cautious amid inflationary concern

0:30

AUD

Employment Change

10.0K

10.4K

Unemployment rate returned to 10/12’s level, while full time participation decreased and part time participation increased substantially; Implying disposable income will not rise proportionally.

0:30

AUD

Unemployment Rate

5.5%

5.4%

0:30

AUD

Full Time Employment Change

-9.8K

0:30

AUD

Part Time Employment Change

20.2K

0:30

AUD

Participation Rate

65.0%

65.0%

2:00

NZD

Non Resident Bond Holdings

66.7%

Benefited from Japanese holders who switched from AU. Bonds

4:30

JPY

Industrial Production (MoM)

1.0%

The pace of growth is key factor for BoJ to set its monetary policy.

4:30

JPY

Industrial Production (YoY)

-5.1%

6:00

JPY

Machine Tool Orders (YoY)

Downward trend since 2/11, leading of economic growth/decline

8:30

CHF

Swiss National Bank Rate Decision

0.00%

0.00%

Expected to remain unchanged.

10:00

EUR

Euro-Zone Employment (QoQ)

-0.2%

Unemployment in Spain and Portugal heavily weigh on the index.

10:00

EUR

Euro-Zone Employment (YoY)

-0.7%

12:30

CAD

Capacity Utilization Rate

Actual output constantly exceeded estimate output during recovery

12:30

CAD

New Housing Price Index (MoM)

0.1%

0.2%

New housing prices are not representative for the overall housing price level.

12:30

CAD

New Housing Price Index (YoY)

2.3%

2.3%

12:30

USD

Current Account Balance

-$112.8B

-$107.5B

The budget cuts are likely to scale down the current account deficit.

12:30

USD

Producer Price Index (MoM)

0.7%

0.2%

PPI indicates rate of inflation in the future. The increase in PPI is largely led by the increase in energy cost.

12:30

USD

Producer Price Index Ex Food & Energy (MoM)

0.1%

0.2%

12:30

USD

Producer Price Index (YoY)

1.8%

1.4%

12:30

USD

Producer Price Index Ex Food & Energy (YoY)

1.7%

1.8%

12:30

USD

Initial Jobless Claims

350K

340K

Expected to decline marginally based on the better unemployment rate and nonfarm payroll.

12:30

USD

Continuing Claims

3090K

3094K

21:30

NZD

Business NZ Performance of Manufacturing Index

55.2

Competitive exchange rate against Australia helps manufacturer.

GMT

Currency

Upcoming Events & Speeches

-:-

CNY

China PBoC Gov Zhou Xiaochuan Briefing NPC

-:-

JPY

Japan Diet Votes on BoJ Candidates

00:01

GBP

BoE Releases 2013

05:00

NZD

RBNZ Governor Wheeler to Testify to Parliament

09:30

EUR

Spain to Sell 15, 27, 28-Year Bonds

16:00

EUR

EU Leaders Hold Meeting in Brussels

20:30

USD

Fed Releases Comprehensive Capital Analysis and Review

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

15.0000

2.0000

9.8365

7.8165

1.3650

Resist 2

7.5800

5.8300

6.1150

Resist 1

12.9000

1.9000

9.5500

7.8075

1.3250

Resist 1

6.8155

5.7955

5.8200

Spot

12.4492

1.8121

9.2439

7.7580

1.2481

Spot

6.4248

5.7540

5.7456

Support 1

12.2385

1.6500

8.7750

7.7490

1.2000

Support 1

6.0800

5.6075

5.5000

Support 2

11.5200

1.5725

8.5650

7.7450

1.1800

Support 2

5.8085

5.4440

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

1.3071

1.5078

97.01

0.9602

1.0337

1.0449

0.8261

125.88

144.89

Resist. 2

1.3044

1.5045

96.71

0.9582

1.0320

1.0430

0.8241

125.45

144.46

Resist. 1

1.3016

1.5012

96.40

0.9562

1.0304

1.0410

0.8221

125.02

144.04

Spot

1.2960

1.4947

95.80

0.9522

1.0270

1.0371

0.8181

124.15

143.18

Support 1

1.2904

1.4882

95.20

0.9482

1.0236

1.0332

0.8141

123.28

142.33

Support 2

1.2876

1.4849

94.89

0.9462

1.0220

1.0312

0.8121

122.85

141.90

Support 3

1.2849

1.4816

94.59

0.9442

1.0203

1.0293

0.8101

122.42

141.47

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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