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Gold Stabilizes But Doesn't Reverse as Volume, ETF Outflow Still High

Gold Stabilizes But Doesn't Reverse as Volume, ETF Outflow Still High

2013-04-17 02:23:00
John Kicklighter, Chief Strategist
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  • Dollar Retreats, USD/JPY Advances as Risk Aversion Move Cools
  • British Pound Still Detached from Policy Speculation, BoE Minutes Ahead
  • Japanese Yen Corrects After Biggest Rally in Years as G20 Concerns Ease
  • Euro Offers Up Market-Wide Advance Despite IMF Forecast, Weak ZEW
  • Canadian Dollar Traders Look for that Rate Hike Hope in BoC Rate Decision
  • New Zealand Dollar Puts in for a Short Lived Rally After 1Q CPI Data
  • Gold Stabilizes but Doesn’t Reverse as Volume, ETF Outflow Still High

Range Trade Strategies work best in quiet market conditions - such as the Asia trading session

Dollar Retreats, USD/JPY Advances as Risk Aversion Move Cools

There was fundamental data flow for dollar traders to absorb Monday, but the more distant and nuanced aspects of speculating on the QE3 downshift were drowned out by risk trends on the day. Following the steepest decline from the S&P 500 and Dow Jones Industrial Average Monday – a move that stoked demand for a safe haven like the greenback – a commensurate rebound would put out the benchmark currency’s primary fundamental spark. Important to establishing the dollar’s sensitivity to sentiment in the capital flows is to assess the ‘depth’ of a risk-based market movement. Though it may not have been an outright jump to chase higher yields while disregarding future risks to the system; a uniform advance in equities, yen crosses, commodities and Treasury yields spoke to a clear theme.

Given the temperate advance from the ‘risky’ side of the market, the shift we had this session looks more like a temporary correction. As is always the burden, we need a strong catalyst to truly commit overpriced and under-yielding risk assets to a consistent trend. In the meantime, the IMF’s growth outlook (issued before the group meets for its annual gathering) lowered the 2013, global GDP forecast from 3.5 to 3.3 percent. A means to cut fiscal deficits rather than supporting young growth was deemed a factor alongside weakening emerging market strength, a deeper Eurozone contract and US sequester. Risk aversion still carries the best potential for reviving the Dow Jones FXCM Dollar’s (ticker = USDollar) to 10,600; but in its absence, we will also keep an eye to the longer-term interest in currency wars. A concert of Fed doves this past session offered a material shift to ‘neutral’ – suggesting we are closer to QE3 tapering. We’ll look to see if the Beige Book confirms tomorrow.

British Pound Still Detached from Policy Speculation, BoE Minutes Ahead

It seems that UK monetary policy officials are deadest in fending off speculation that the Bank of England (BoE) will follow in the footsteps of its US, Japanese and European counterparts with a significant upgrade to its stimulus effort. This past session, BoE Governor King spoke at an IMF panel; and his rhetoric was far from the dovish cut that has become so prevalent amongst his international peers. According to King, monetary policy was already in ‘uncharted territory’, there are limitations to UK stimulus, and the costs of not delivering price stability can be significant. The contrast to outspoken doves (like BoJ Governor Kuroda) couldn’t be any more blatant.

With the CPI report this past session printing above the central bank’s 2.0 percent target (2.8 percent in March) for a 40th consecutive month, the sterling is looking fundamentally buoyant. However, the market seems to have held on to its dovish / bearish expectations. That balance may change abruptly in the upcoming session. Coming up, we have the March labor stats, which are good for volatility. However, the focus should be on the BoE minutes. Is the central bank warming to stimulus? If not, why is the pound still under pressure?

Japanese Yen Corrects After Biggest Rally in Years as G20 Concerns Ease

After three days yen rally (a drop from yen crosses), the currency finally broke from its strength Tuesday. The funding currency – low yield component for carry trade – put in for a universal advance through the session. It seems that the concern stoked last week with the US Treasury’s annual currency report that stated issue with Japan’s policy efforts targeting unfair devaluation of the yen has moderated. This issue is far from resolved, but until the G20 convenes on Thursday, we are unlikely to see it as a major driver. Furthermore, it is unlikely he debate is as heated as it was in February. Meanwhile, we watch risk trends. If volatility picks up, yen-based carry is just off record lows

Euro Offers Up Market-Wide Advance Despite IMF Forecast, Weak ZEWThe best performing, liquid currency on the day was the Euro. Given the strong performance for risk-trends, the shared currency’s ability to close in the green against the higher yielding New Zealand and Australian dollars stands as testament to its performance. Where did this strength come from? The docket was less than flattering. March CPI was below the ECB’s 2.0 target, the ZEW investor sentiment survey dropped and the IMF downgrade 2013 Eurozone GDP to a 0.3 percent contraction. Markets can run askew of fundamentals, but not for long…

Canadian Dollar Traders Look for that Rate Hike Hope in BoC Rate Decision

Through the past session, the Canadian economic docket disappointed. While factory activity improved through February, the surprise C$6.3 billion trade deficit (the second biggest shortfall in over five years) hit the economy where it truly hurts. Yet, as we saw with USDCAD and CADJPY, risk trends helped smooth over the disappointment. If we want to see an individual Canadian dollar move, we should watch take note of the upcoming Bank of Canada (BoC) rate decision and monetary policy report. Hope of a near-term hike keeps the currency anchored.

New Zealand Dollar Puts in for a Short Lived Rally After 1Q CPI Data

Over the past few quarters, the release of New Zealand’s quarterly CPI (Consumer Price Index) report has generated significant volatility from the nation’s currency. Well below the target zone of 2 to 3 percent, there is more scope for the RBNZ to cut rates more readily than even the RBA. However, the central bank’s stoicism has curbed fear of rate cuts. And the 1Q CPI reading in line with expectations killed volatility.

Gold Stabilizes but Doesn’t Reverse as Volume, ETF Outflow Still High

Volatility begets volatility. After the record-breaking (notional) drop from gold Monday, a fittingly volatile correction was warranted. The 1.5 percent jump from the precious metal this past session was the second biggest daily advance in five months, but it seems hardly convincing that bulls are back in charge. A $20 move hardly erases the over $200 plunge in the previous two trading days. There are still clear signs of hesitation to feed a stronger speculative correction. The CBOE’s Gold Volatility Index has hardly budged from its record surge to 18-month highs Monday and volume was still elevated in the futures market. A further moderation in activity levels is likely, but a deeper retracement in price will not be as easy to come by. Meanwhile, ETF outflow continues and debate over the end of the Fed’s QE3 program is building girth.

**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

Westpac Leading Index (MoM)

0.30%

Uptrend showed signs of slowing.

5:00

JPY

Consumer Confidence

44.3

Surged due to Abe and Kuroda’s joint effort to battle deflation through dovish comments.

6:00

EUR

EU 25 New Car Registrations

-10.50%

1Y -8.8; High -2.0; Low -16.3.

8:30

GBP

Bank of England Minutes

Markets look for possibility of rate cut or more stimuli.

8:30

GBP

Average Weekly Earnings 3M/YoY

1.40%

1.20%

5M downtrend signals mild inflationary pressure from jobs with bonus.

8:30

GBP

Weekly Earnings exBonus 3M/YoY

1.10%

1.20%

8:30

GBP

Claimant Count Rate

4.70%

4.70%

Subject to seasonal changes; 1Y Avg. -5.65; High 6.9; Low -15.80.

8:30

GBP

Jobless Claims Change

0.0K

-1.5K

8:30

GBP

ILO Unemployment Rate (3M)

7.80%

7.80%

Hovering around 7.7 and 7.8 for 6M; labor market may need to more easing policies to improve.

8:30

GBP

Employment Change (3M/3M)

80K

131K

9:00

CHF

ZEW Survey (Expectations)

2.3

As PMI of peripheral countries like France, Italy and Spain point to weak productivity growth; It fueled bets for more stimuli by ECB as it hurts export and unemployment in the Eurozone.

9:00

EUR

Euro-Zone Construction Output s.a. (MoM)

-1.40%

9:00

EUR

EUR Euro-Zone Construction Output w.d.a. (YoY)

-9.10%

11:00

USD

MBA Mortgage Applications

4.50%

Indicative of housing demand.

13:00

CAD

Teranet/National Bank HPI (YoY)

2.20%

2.70%

Measure of home prices in six metropolitan cities; Monthly changes typically peak in June; 1.5Y downtrend (YoY) suggests slow pace of recovery.

13:00

CAD

Teranet/National Bank HPI (MoM)

-0.30%

-0.20%

13:00

CAD

Teranet/National Bank HP Index

152.72

14:00

CAD

Bank of Canada Rate Decision

1.00%

1.00%

Expected to hold rate steady.

22:00

NZD

ANZ NZ Job Ads (MoM)

1.00%

1Y Avg. -0.2; High 3.0; Low -2.5

23:50

JPY

Merchandise Trade Balance Total (Yen)

-¥522.2B

-¥779.5B

Trade deficit has narrowed, yet it is likely to be a result of seasonal changes; Territorial dispute with China remains a hurdle to Japan’s export growth.

23:50

JPY

Merchandise Trade Imports (YoY)

6.3

11.9

23:50

JPY

Adjusted Merchandise Trade Balance (Yen)

-¥934.5B

-¥1086.6B

23:50

JPY

Merchandise Trade Exports (YoY)

0.2

-2.9

23:50

JPY

Japan Buying Foreign Bonds (Yen)

-¥1144.9B

Yields on JGB have been on the rise; Since Kuroda announced the aggressive asset purchase program, 30Y yield rose from 1.279% to 1.584%; 10Y yield rose from 0.442% to 0.623%.

23:50

JPY

Japan Buying Foreign Stocks (Yen)

¥6.3B

23:50

JPY

Foreign Buying Japan Bonds (Yen)

¥463.6B

23:50

JPY

Foreign Buying Japan Stocks (Yen)

¥868.6B

GMT

Currency

Upcoming Events & Speeches

13:30

USD

Fed's Bullard Speaks in New York

16:00

USD

Fed's Rosengren Speaks in New York

18:00

USD

U.S. Federal Reserve Releases Beige Book

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

5.8950

6.1150

Resist 1

12.9000

1.9000

9.5500

7.8075

1.3250

Resist 1

6.8155

5.8300

5.8620

Spot

12.1752

1.7929

9.0974

7.7651

1.2401

Spot

6.4509

5.7383

5.7299

Support 1

12.0470

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

1.3101

1.5448

98.87

0.9419

1.0242

1.0460

0.8510

128.69

151.42

Resist. 2

1.3074

1.5420

98.54

0.9400

1.0226

1.0441

0.8490

128.21

150.95

Resist. 1

1.3046

1.5392

98.22

0.9382

1.0209

1.0422

0.8471

127.74

150.48

Spot

1.2991

1.5336

97.57

0.9344

1.0176

1.0383

0.8432

126.79

149.55

Support 1

1.2936

1.5280

96.92

0.9306

1.0143

1.0344

0.8393

125.84

148.61

Support 2

1.2908

1.5252

96.60

0.9288

1.0126

1.0325

0.8374

125.37

148.15

Support 3

1.2881

1.5224

96.27

0.9269

1.0110

1.0306

0.8354

124.89

147.68

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

Sign up for John’s email distribution list, here.

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