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Dollar: Will Traders Translate Heavy Data into Volatility?

Dollar: Will Traders Translate Heavy Data into Volatility?

2014-05-27 02:25:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • Dollar: Will Traders Translate Heavy Data into Volatility?
  • Euro Jumps to Start the Week After EU Vote
  • Yen Crosses Trailing Equities In Uneven Risk Bid

Dollar: Will Traders Translate Heavy Data into Volatility?

A curb on liquidity has hurt the greenback as the market has taken the opportunity of holiday trading conditions to bid risk assets and to ease up on the long-dollar positions built up over the past few weeks. Of particular consternation to bulls Monday was the strong performance from the Euro – its primary counterpart. Yet, despite the follow through into early Tuesday trade, this pair has quite a ways to go before it definitively reverses the trend instigated earlier this month. Traders will be keeping close taps on risk trends with the return of liquidity weighing conviction following Friday’s record high close and on the coattails of a remarkable open for European capital markets Monday. In the upcoming session’s data, interest rate expectations will be of greater concern…and there is a lot of data.

Euro Jumps to Start the Week After EU Vote

European markets were surprisingly active Monday. Despite the absence of London and New York traders, the capital markets charged forward following fresh comments by ECB President Draghi suggesting policy accommodation was on the way and results that showed Euro-supportive politicians are still in control of the EU parliament (though a reported 31 percent of the region’s vote went to so-called fringe parties). From Draghi, remarked that the central bank is not resigned to allowing a ‘too low for too long’ inflation situation. Gauging the capital markets, the MSCI Europe Index surged 0.6 percent to its highest level since January 2008 – with noteworthy contributions by the DAX’s 1.3 percent swell and Italian FTSE MIB’s colossal 3.6 percent surge. Will the capital inflow thwart the implicit effort to ease the Euro back?

Yen Crosses Trailing Equities In Uneven Risk Bid

While most ‘risk’ sensitive asset classes were carrying a positive sentiment lean through Monday’s quiet session, the yen crosses were notable laggards. The extent of the pair’s gains was a tepid 0.1 percent advance for EURJPY, and three other crosses were actually red on the day. This performance does not bode well for the medium-to-long-term bulls in the market. A risk support for carry is founded on circumspect ground, so there is still a dependency on the BoJ’s presence in the market to revive this floundered run. From the BoJ minutes released Monday, it was reported that member Sato was outvoted for adding that risks to not reaching the inflation target was tilted to the downside with the majority optimistic on prices and growth. Without a stimulus upgrade, Yen crosses are likely to drop…which then would instigate the BoJ to act.

British Pound Will Look to Pick Back Up Rate Run, Carney On Tap

Like its US counterpart the United Kingdom’s capital markets were offline Monday for holiday – the Late May holiday. In turn, this non-risk sensitive currency was steadily moored to recent ranges with a variance of gains or losses of less than 0.1 percent versus its major counterparts. As liquidity fills out and the speculative drive is rekindled, the market will once again focus on rate forecasts for the pound. Last week, Gilt yields rose (2 year climbing 2.3 percent to 0.694 and 10-year advancing 2.8 percent to 2.635) while the 1-year-2-year forward swap advanced 1.6 percent. Despite these gains, rate speculation is still well off its cycle high. In the upcoming session, data is limited to the overheating housing market via the April BBA loans figures; but a speech from BoE Governor Carney will likely generate more discussion.

Chinese Yuan: A Retreat in Volatility Reassuring or Concerning?

Last week, the financial health of the Chinese markets improved measurably – short-duration repurchasing rates and swap rates slid – as Premier Li suggested pressures on the economy may necessitate a response and the PBoC filled out its scheduled of liquidity auctions. In turn, the Shanghai Composite picked up on the optimism with a Monday start of a 0.3 percent advance to 2,041 – adding to the iShares China Large Cap ETF two week run through Friday. For the currency, however, the chicken-and-egg situation with exchange rate responding to policy or vice versa doesn’t seem to be in full effect. The USDCNH exchange rate is little changed yet again with volatility levels at 3-month lows.

Emerging Markets Surprisingly Weak on a Quiet, ‘Risk On’ Session

While other risk benchmarks were drifting higher through the quiet Monday session, the Emerging Markets group seemed to struggle. The MSCI Emerging Market Index fell modestly through the trading day – though still very close to the seven-month high the measure won last week. A similar caveat performance was noted in the EM sovereign debt market following the record high the Bloomberg index of the asset grouping set this past Friday. On the FX front, the majority of the currencies lost ground against the US Dollar. Of note, the Ukranian Hryvnia was little changed after a weekend election that announced Petro Poroshenko had had won the presidency. His vow to secure the eastern regions of the country from separatists is leaving some uneasy. The Russian Ruble eased a mild 0.1 percent on the day. The biggest movers in the EM group were the South African Rand (down 0.6 percent) and Indian Rupee (0.4 percent lower). Ahead, 1Q South Africa GDP is top event risk.

Gold Trading Range Tightens but Weekly Volume Building

Virtually all measures of activity behind gold reflect a market that is settling – or coiling. The CBOE Gold Volatility Index is holding near 14 vols – the lowest levels in 13 months and the average daily true range (ATR) for the past month has plunged to its lowest level since October 2010. Alone, this information doesn’t tell us whether this is a trend of naturally deflating activity or a breakout scenario in the making. However, another element is presenting gold with a unique situation compared to it capital market counterparts. Where equities are seeing new progress on diminished volume, this commodity is seeing the opposite. Weekly volume levels behind gold futures have risen for the past five weeks. This is a much more prominent breakout threat.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

5:00

JPY

Small Business Confidence (MAY)

45.4

Business confidence fell sharply to 45.4 in April, markedly down from 53.5 in March.

6:00

CHF

Trade Balance (Swiss franc) (APR)

2.10B

2.05B

6:00

CHF

Exports (MoM) (APR)

-1.2%

6:00

CHF

Imports (MoM) (APR)

-4.5%

6:45

EUR

French Consumer Confidence (MAY)

85

85

These gauges of retail confidence are unlikely to spark a meaningful move in the Euro as the single-currency is largely weighed down by speculation on ECB action in June.

8:00

EUR

Italian Consumer Confidence Index s.a. (MAY)

104.9

105.4

8:30

GBP

BBA Loans for House Purchase (APR)

45100

45933

This concept tracks the value of existing mortgages and is currently near the highest level in over 5 years.

9:30

ZAR

South Africa GDP (1Q) (Emerging Markets)

12:30

USD

Durable Goods Orders (APR)

-0.6%

2.6%

This concept measures the new industrial and manufacturing orders received. The gauge is expected to show a marked decline in new orders boding ill for factory sector activity, and may marginally weigh on the U.S. Dollar.

12:30

USD

Durables ex Transportation (APR)

-0.1%

2.0%

12:30

USD

Non-Defense Capital Goods Orders ex Aircrafts (APR)

-0.3%

2.2%

12:30

USD

Non-Defense Capital Goods Shipments ex Aircrafts (APR)

-0.1%

1.0%

13:00

USD

House Price Index (MoM) (MAR)

0.5%

0.6%

Home prices are a strong indicator of economic health. The S&P/Case Shiller index is supposed to show house prices eased lower in March, though the decline is marginal and may have an insignificant affect on the US Dollar.

13:00

USD

House Price Purchase Index (QoQ) (1Q)

1.2%

13:00

USD

S&P/Case-Shiller Composite-20 s.a. (MoM) (MAR)

0.70%

0.76%

13:00

USD

S&P/Case-Shiller Composite-20 (YoY) (MAR)

11.75%

12.86%

13:00

USD

S&P/Case-Shiller Home Price Index (MAR)

165.35

13:00

USD

S&P/Case-Shiller US Home Price Index (1Q)

150.39

13:00

USD

S&P/Case-Shiller US Home Price Index (YoY) (1Q)

11.30%

13:45

USD

Markit Purchasing Manager Index Services (MAY P)

54.5

55.0

Service Sector activity is to slow down to the lowest level in 3-months.

13:45

USD

Markit PMI Composite (MAY P)

55.6

14:00

USD

Consumer Confidence (MAY)

83.0

82.3

14:00

USD

Richmond Fed Manufacturing Index (MAY)

5

7

Factory-sector activity is a great gauge of economic health. Factory-sector activity is expected to slow-down in May. The US Dollar may come under slight pressure if manufacturing-activity misses estimates.

14:00

USD

Dallas Fed Manufacturing Activity (MAY)

9.1

11.7

GMT

Currency

Upcoming Events & Speeches

3:45

JPY

Japan to Sell 40-Year BOnds

9:00

EUR

Italy to Sell €1 Bln in 4-Year Inflation | 2-Year Zero Bonds

9:15

EUR

ECB Announces Allotment in 7-Day Main Refi

9:15

EUR

ECB's Ewald Nowotny Speaks on Euro Economy

18:00

GBP

BoE Gov Carney to Speak

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

13.5800

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.1500

2.3000

11.8750

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

12.8722

2.0841

10.3517

7.7535

1.2532

Spot

6.6218

5.4699

5.9586

Support 1

12.8350

2.0700

10.2500

7.7490

1.2000

Support 1

6.0800

5.3350

5.7450

Support 2

12.6000

1.7500

9.3700

7.7450

1.1800

Support 2

5.8085

5.2715

5.5655

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

1.3733

1.6938

102.62

0.9010

1.0921

0.9313

0.8624

140.19

1312.56

Res 2

1.3711

1.6914

102.45

0.8994

1.0906

0.9295

0.8605

139.91

1307.65

Res 1

1.3690

1.6890

102.28

0.8978

1.0891

0.9277

0.8587

139.64

1302.74

Spot

1.3646

1.6843

101.93

0.8946

1.0860

0.9241

0.8550

139.09

1292.91

Supp 1

1.3602

1.6796

101.58

0.8914

1.0829

0.9205

0.8513

138.54

1283.08

Supp 2

1.3581

1.6772

101.41

0.8898

1.0814

0.9187

0.8495

138.27

1278.17

Supp 3

1.3559

1.6748

101.24

0.8882

1.0799

0.9169

0.8476

137.99

1273.26

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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