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Dollar Ready for Rebound after its Longest Slump in 18 Months?

Dollar Ready for Rebound after its Longest Slump in 18 Months?

2013-08-09 03:23:00
John Kicklighter, Chief Strategist
  • Dollar Ready for Rebound after its Longest Slump in 18 Months?
  • Japanese Yen Crosses Bounce after Four Day Tumble as Equities Firm
  • Euro Extends its Climb, Can EURUSD Win 6 Months Highs?
  • Canadian Dollar Faces Volatility Surge to End the Week with Jobs Data
  • Australian Dollar Focuses on Chinese Data, Ignores Jobs Figures to Rally
  • New Zealand Dollar: RBNZ Buys Currency, Conflicts with Easing Call
  • Gold Posts Best Day in Two Weeks

Dollar Ready for Rebound after its Longest Slump in 18 Months?

A rebound for the S&P 500 after a three-day slump added a sentiment burden to the already-troubled, safe haven dollar. With Thursday’s close, the Dow Jones FXCM Dollar Index (ticker = USDollar) has dropped five consecutive trading days. That matches the worst slump for the greenback since late January 2012. The ‘traditional’ academic assessment of a reserve currency falling out of favor as appetite for yield rises doesn’t hold given the meandering performance of global equities and other sensitive asset classes. At the same time, the bearish ride lacks for justification from fears of a delayed Taper from the Fed. Both central banker commentary and data this week have proven largely supportive of an opening move to the wind-down in September. Dallas Fed President Fisher reiterated the hawkish line when he said he expected the Taper to start in September unless conditions deteriorate materially. Yet, even if the moderation of external support is within sight, the actual move is still six weeks away. A lot can change until then. The greatest potential for a committed trend still rests with an appreciable risk move.

Japanese Yen Crosses Bounce after Four Day Tumble as Equities Firm

The Bank of Japan (BoJ) weighed in on monetary policy Thursday morning, and the outcome was what global investors had expected. Given the exceptional scope of the program announced back in April, the central bank saw fit to simply keep a steady hand on the plan to increase the money base by ¥60-70 trillion. For yen traders, this is mildly bullish for the currency (bearish for yen crosses) as the constant escalation of stimulus carried serious weight in its expected devaluation. The fear of a potentially limitless QE program was the impetus to the incredible rally from the crosses between September of last year through mid-year 2013. Though, now with limitations in sight, the concern ebbs. Moving forward, we have carry trade pairs that yield record low carry alongside a central bank that is shifting to a ‘hands off’ approach. This is the basis for driving the yen back to the whiles of risk appetite – with a greater sensitivity to risk aversion due to the spot-value imbalance.

Euro Extends its Climb, Can EURUSD Win 6 Months Highs?

There was little to be impressed with in the Euro’s fundamentals this past session. On the docket, the positive highlight was Germany’s June trade balance which posted a larger than expected surplus of €16.9 billion. Yet, projecting the growing divergence in health between the core and periphery, Greece reported yet another increase in its unemployment rate. In May, the razed economy suffered a staggering 27.6 percent jobless level – a record. It is difficult to imagine this economy simply recovering from its slump under the considerable debt burden it faces; but that doesn’t seem to dissuade investors willing to take advantage of near-term, higher yields. We have seen demand for higher yielding sovereign debt from Greece, Portugal and Spain amongst other rise despite ongoing fundamental concerns. Meanwhile, the ECB updated its survey forecasts. Eurozone 2013 GDP is expected to contract 0.6 percent versus 0.4 percent projected previously.

Canadian Dollar Faces Volatility Surge to End the Week with Jobs DataThe Canadian dollar is standing at critical trend-defining levels in pairings like USDCAD, CADJPY and AUDCAD. Standing in such proximity to closely monitored technical levels naturally increases the market’s sensitivity to event risk as potential triggers for a positioning shift. For the ‘loonie’, the calendar offers up a serious warning sign in the form of the July labour statistics. The forecast for the headline jobs number calls for a 10,000-position net increase, but this report has a serious propensity for deviating from expectations. In fact, the average ‘surprise factor’ (the actual release’s deviation from the consensus survey) is 26,000. We have seen in the past that it takes far less than that to generate a volatility response from the currency. Currently, the loonie is leaning positive; so a strong positive outcome could carry the biggest influence.

Australian Dollar Focuses on Chinese Data, Ignores Jobs Figures to Rally

The economic docket has done few favors for the Aussie dollar. This past session, the pain continued as the nation’s statistical body reported that the economy had shed 10,200 jobs unexpectedly while the jobless rate held at 5.7 percent – just off a four-year high. The poor print was worth a 50-pip dive for AUDUSD, but the fire was quickly put out. The Chinese trade data for July (which does not typically have a standard time for release) printed a sharp drop in its running surplus. The $17.8 billion positive gap was significantly smaller than the $26.9 billion expected, which could be construed as a negative for the Aussie currency as it seems to threatens foreign demand. However, this adjustment evolved from a 10.1 percent increase in imports and an 18.7 percent jump from Australia specifically. Adding some strength to the tentative shift from the Aussie dollar this morning, the RBA Quarterly Monetary Policy statement reinforced the interpreted neutral shift for the central bank with steady growth forecasts. The 12-month RBA rate forecast is now calling for only 21 bps versus 55 bps on July 31.

New Zealand Dollar: RBNZ Buys Currency, Conflicts with Easing Call

Major central banks engage in normal market operations; but for the RBNZ, market scrutiny provides different expectations. Back on June 13th, central bank Governor Graeme Wheeler said the policy authority was prepared to intervene when there was an opportunity to ‘take the tops off’ of peaks in exchange rates. That warning was accompanied by an announced NZ$256 million sale by the group – small in FX terms, but the market stumbled on the news. Today, we learned they actually bought a net NZ$61 billion in June. The RBNZ must not be concerned.

Gold Posts Best Day in Two Weeks

Wednesday’s slow turn evolved into meaningful bullish momentum for gold this past session. The precious metal rallied 2.0 percent (nearly $26) through Wednesday for the biggest single day advance since July 22 – when the metal first broke back above $1,300. Having crossed this easily recognizable threshold four times since that first move, the weight of $1,300 as a barrier has likely been materially reduced. Offering considerable backing to the move, the USDollar’s fifth consecutive daily decline projected distrust in the benchmark currency as it slides despite the slump in risk trends. That said, with the September Taper forecast seeming to solidify; the anti-fiat appeal will be limited. Those looking for its inflation-hedge role to pick up the slack may have some interest next week with US and Europe CPI figures, but this morning’s China number adds little to the argument. The most effective spark would be a purely speculative ramp – which necessitates low volatility conditions.

**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

Consumer Price Index (YoY) (JUL)

2.80%

2.70%

By far the most important data point from China on Friday, volatility may reverberate in Aussi crosses following the print.

1:30

CNY

Producer Price Index (YoY) (JUL)

-2.10%

-2.70%

5:00

JPY

Consumer Confidence Index (JUL)

45

44.3

The index has been on the rise since the spring of 2011.

5:30

CNY

Industrial Production (YTD) (YoY) (JUL)

9.20%

9.30%

Surveys have been revised downwards following a lower trade balance print on Thursday. As with earlier data, any surprises will stir volatility in the Aussi after a strong Thursday.

5:30

CNY

Industrial Production (YoY) (JUL)

8.90%

8.90%

5:30

CNY

Fixed Assets ex Rural (YTD) (YoY) (JUL)

20.00%

20.10%

5:30

CNY

Retail Sales (YTD) (YoY) (JUL)

12.80%

12.70%

5:30

CNY

Retail Sales (YoY) (JUL)

13.50%

13.30%

6:45

EUR

French Central Government Balance (euros) (JUN)

-72.6B

Year over year industrial production finally moved into positive territory after being negative since the winter of 2011. Market participants may be looking for more positive data in order to justify holding the Euro at its current, relatively high price to the greenback.

6:45

EUR

French Industrial Production (MoM) (JUN)

0.30%

-0.40%

6:45

EUR

French Industrial Production (YoY) (JUN)

1.50%

0.40%

6:45

EUR

French Manufacturing Production (MoM) (JUN)

0.50%

-1.10%

6:45

EUR

French Manufacturing Production (YoY) (JUN)

0.30%

-0.80%

8:00

EUR

Italian Trade Balance (Total) (euros) (JUN)

3895M

Like France, Italy has shown some improved data points, but still lags compared with data from 2011.

8:00

EUR

Italian Trade Balance Eu (euros) (JUN)

890M

8:30

GBP

Visible Trade Balance (Pounds) (JUN)

-8.350B

-8.491B

A trade balance moving closer to 0 from its current negative territory will be seen as beneficial for the U.K.’s economy.

8:30

GBP

Trade Balance Non EU (Pounds) (JUN)

-3.800B

-4.093B

8:30

GBP

Total Trade Balance (Pounds) (JUN)

-2.200B

-2.435B

8:30

CAD

Construction Output s.a. (MoM) (JUN)

-1.90%

0.00%

Weak construction data could weigh negatively on the CAD ahead of unemployment data at 12:30GMT.

8:30

CAD

Construction Output s.a. (YoY) (JUN)

0.20%

-4.80%

9:00

EUR

Italian Consumer Price Index - FOI Index ex Tobacco (JUL F)

107.1

CPI has moved sharply lower since 2012 when it hovered close to 4% for much of the year.

9:00

EUR

Italian Consumer Price Index - EU Harmonized (YoY) (JUL F)

1.20%

1.20%

12:15

CAD

Housing Starts (JUL)

190.0K

199.6K

The last major event risk of the week, these data points could cause volatility in the CAD if employment data comes up short after being nearly flat in June. Housing starts are hovering below the 200K mark and a reading above that may boost sentiment.

12:30

CAD

Unemployment Rate (JUL)

7.10%

7.10%

12:30

CAD

Net Change in Employment (JUL)

10.0K

-0.4K

12:30

CAD

Full Time Employment Change (JUL)

-32.4

12:30

CAD

Part Time Employment Change (JUL)

32.2

12:30

CAD

Participation Rate (JUL)

66.7

66.7

14:00

USD

Wholesale Inventories (JUN)

0.40%

-0.50%

After last month’s disappointing inventories print, market participants will be looking towards a positive reading. A survey in wholesale inventories has not been negative since the winter of 2009.

14:00

USD

Wholesale Trade Sales (MoM) (JUN)

0.7%

1.6%

GMT

Currency

Upcoming Events & Speeches

3:00

NZD

RBNZ Publishes Assessment of Currency Flows

5:00

JPY

Bank of Japan Economic Report

10:00

EUR

ECB Announces 3-Year LTRO Repayment

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

13.4800

2.0000

10.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.2000

1.9500

10.2500

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.5926

1.9225

9.8425

7.7561

1.2599

Spot

6.4894

5.5731

5.9076

Support 1

12.6000

1.9100

9.3700

7.7490

1.2000

Support 1

6.0800

5.6000

5.8700

Support 2

12.0000

1.6500

8.9500

7.7450

1.1800

Support 2

5.8085

5.4440

5.7400

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.3490

1.5664

97.87

0.9286

1.0403

0.9210

0.8088

130.86

1344.99

Res 2

1.3463

1.5633

97.56

0.9264

1.0383

0.9184

0.8064

130.47

1337.52

Res 1

1.3436

1.5602

97.25

0.9243

1.0364

0.9158

0.8041

130.08

1330.04

Spot

1.3382

1.5539

96.63

0.9199

1.0326

0.9106

0.7994

129.31

1315.10

Supp 1

1.3328

1.5476

96.01

0.9155

1.0288

0.9054

0.7947

128.54

1300.16

Supp 2

1.3301

1.5445

95.70

0.9134

1.0269

0.9028

0.7924

128.15

1337.52

Supp 3

1.3274

1.5414

95.39

0.9112

1.0249

0.9002

0.7900

127.76

1344.99

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.

http://www.dailyfx.com/calendar

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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