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Dollar Traders Whether FOMC Minutes Will Keep the March Towards Hikes

Dollar Traders Whether FOMC Minutes Will Keep the March Towards Hikes

2014-11-19 02:17:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Dollar Traders Whether FOMC Minutes Will Keep the March Towards Hikes
  • British Pound Fails to Regain Traction after CPI Uptick
  • Yen Crosses Steady after Snap Election Call, Will the BoJ Help Soothe Uncertainty?

Dollar Traders Whether FOMC Minutes Will Keep the March Towards Hikes

The Dollar put in for a mixed session Tuesday despite a stir in risk trends. Perhaps the upcoming FOMC minutes can tap into the currency’s more active fundamental drive: monetary policy. From this past session, EURUSD was the biggest mover amongst the majors (with a 0.7 percent rally). This was certainly not inspired by the S&P 500’s nudge higher – a genuine risk upgrade would have likely leveraged a bigger USDJPY move. Once again, this illustrates how influential a more active counterpart can be in the FX market. For the Euro, better-than-expected investor sentiment survey (more on that below) caught the market off guard. Yet, with that EURUSD charge – the biggest since October 15 – we still wouldn’t turn the benchmark’s pair dominant bear trend. Resilience is still the name of the game for the Dow Jones FXCM Dollar Index (ticker = USDollar) as it remains in a tight holding pattern at five-year highs.

As we head into the new trading session, the question is what it takes to break free of the recent consolidation to transition back into a concerted bull trend. A relative performance – taking advantage of eroding confidence or value in the Euro, Yen, Pound – will offer a few sparks, but their capacity is likely limited. The safe haven appeal in the currency’s tie to the FX Volatility Index is another aspect that is light for known catalysts. That leaves US-central policy forecasts. On that front, we have the minutes from the FOMC’s October 28-29 meeting. That wasn’t one of the quarterly meetings with details and updates on forecasts as well as Chairwoman Yellen’s press conference. In other words, there is plenty of opportunity for clarifying the lines of heavily speculated rate forecasts. Currently, Fed Funds and Eurodollar futures are pricing in a first hike around 3Q 2015 and around 50bps of tightening through December 2015. A sentiment shift from the Fed, can tip this view and the Dollar.

British Pound Fails to Regain Traction after CPI Uptick

Interest rates are a key driver for the British pound, but traders’ expectations are not so sensitive that a modest tick in inflation readings can turn a trend as prominent as the moderation of timing for the Bank of England’s first rate hike. This past session, we were watching the October inflation data closely as an important and tangible benchmark for the central bank’s policy evaluation. After four months of firm depreciation, it is reasonable to suspect some equilibrium in the Fed-vs-BoE rate forecast is being found. If we were very close to that balance, the unexpected uptick in the headline UK CPI figure (1.3 versus 1.2 percent expected) would have rallied GBPUSD. Instead, the market was little moved. This is a modest pickup from a five-year low and still well below the 2 percent-target. Perhaps the upcoming BoE minutes will elicit more.

Yen Crosses Steady after Snap Election Call, Will the BoJ Help Soothe Uncertainty?

The rumor and conjecture was confirmed Tuesday. Japanese Prime Minister Shinzo Abe announced a snap election for December 14. Having come under pressure with news of the 3Q official tip into recession as a fall out to the unpopular sales tax hike, the Prime Minister’s program – Abenomics – has been put into jeopardy. This vote will look to reestablish commitment to this plan and to defer the second sales tax hike another 18 months to April 2017. This creates both uncertainty and hope for more ‘stimulus’ – which weighs yen. Yet, that doesn’t seem to be enough to extend these crosses. Ahead, we have the BoJ rate decision. They are unlikely to offer back to back stimulus upgrades, but stranger things have happened lately. More likely, the focus will turn to what Governor Kuroda and crew’s view of the economic and policy future.

Euro Gains Ground after Investor Sentiment Survey Jumps from Multi-Year Low

The Euro was this past session’s top performing ‘major’. Already on the rise through the morning, the shared currency received a sizable boost from the release of the Eurozone and German investor sentiment surveys from ZEW. For November, confidence in Germany posted its first increase in 11 months and subsequently recovered from the previous month’s negative reading. The region-wide report posted a similar rebound from a hefty tumble. Does this data meaningfully change investors’ view of the region’s investment environment as well as the economy and Euro performance by association? No. If the ECB confirms government bond buys or Thursday PMIs show economic recovery, we may.

Australian and New Zealand Dollars – A Return to Monetary Policy Extremes

The Australian and New Zealand Dollars were remarkably on opposite ends of the monetary policy spectrum earlier this year. On one hand, the RBNZ was on run of four consecutive rate hikes while the RBA was just coming off a spaced series of rate cuts. With a slowdown in global activity (and thereby trade demand), a weakening China, imported disinflation; they may be conforming on the dovish side.

Emerging Market: Russia Tries its Hand at Bond Auctions Again

The MSCI Emerging Market ETF was once again little changed in its tightening congestion pattern as volume dropped to a four-month low. Traders are looking for a clear signal on capital flows for the asset type. One member of this group is making its own progress. The Russian Ruble advanced 0.7 percent this past session amid news the Finance Ministry would try to sell bonds for the first time in five weeks today.

Gold More Inspired by News of Russian Buying, Uncertainty or Stimulus?

What is driving gold? Answering that question better positions us to establish whether there is follow through to be found from the fundamental theme. On the headlines, Russian Central Bank Governor Elviar Nabiullina said in testimony that the central bank has bought 150 metric tons of the precious metal this year – which would suggest a 35 ton purchase since the beginning of October (the most in 16 years). That is material, but not a lasting bid. More staying power comes through updates like Japan’s snap election or the collective shift towards policy easing.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

23:30

AUD

Westpac Leading Index (MoM) (OCT)

-0.10%

This measure isn’t likely to be market moving for the Aussie as this measure hasn’t been volatile this year

0:00

AUD

Skilled Vacancies (MoM) (OCT) (OCT)

0.50%

It has been increasing this year.

1:45

CNY

MNI November Business Indicator

4:30

JPY

All Industry Activity Index (MoM) (SEP)

1.00%

-0.10%

This measure isn’t expected to be market moving after the GDP report on Sunday showed that Japan entered into a recession in the 3Q.

5:30

JPY

JPY Nationwide Department Sales (YOY) (OCT)

-0.70%

Retail sales have been declining since Japan increased the sales tax in April 2014.

5:30

JPY

JPY Japan Nationwide Retail Sales (YOY) (OCT)

-0.70%

9:00

EUR

EUR Euro-Zone Current Account (euros) (SEP)

18.9B

Europe’s current account has been rising in the past five years. In August, Europe’s current account was lower than the value at the beginning of the year. With many countries in Europe like Germany being dependent on exports, this measure might help paint a picture of Europe’s economic situation.

9:00

EUR

EUR Euro-Zone Current Account (euros) (SEP)

15.1B

10:00

CHF

CHF ZEW Survey (Expectations)

-30.7

It has been declining which might show that confidence over business conditions has been declining. Since Switzerland is dependent on the Eurozone for its exports, weakness in the Eurozone might be weighing on confidence in Switzerland.

10:00

EUR

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

1.50%

On a MOM basis, the Eurozone Construction has been rising in all but two months out of the year.

10:00

EUR

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

-0.30%

12:00

USD

USD MBA Mortgage Applications (NOV 14)

-0.90%

A volatile measure

13:30

USD

USD Building Permits (OCT)

1040K

1031K

These measures can help us measure the strength of the housing market.

13:30

USD

USD Housing Starts (OCT)

1025K

1017K

13:30

USD

USD Housing Starts (MoM) (OCT)

0.80%

6.30%

13:30

USD

USD Building Permits (MoM) (OCT)

0.60%

2.80%

21:00

NZD

NZD ANZ Job Advertisements (MoM) (OCT)

2.40%

Not likely to be market moving as the measure is for the month of October.

21:45

NZD

NZD Producer Prices- Inputs (QoQ) (3Q)

-1.00%

Price changes on the Producer side can impact the CPI figure. Inflation has been recently at the bottom of RBNZ inflation target

21:45

NZD

NZD Producer Prices- Outputs (QoQ) (3Q)

-0.50%

GMT

Currency

Upcoming Events & Speeches

9:00

EUR

EUR ECB's Praet Speaks in Frankfurt

9:30

GBP

GBP Bank of England Minutes

14:45

GBP

GBP BOE's Shafik Speaks at Parliament Hearing in London

19:00

USD

USD Fed Releases Minutes from Oct. 28-29 FOMC Meeting

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

14.0100

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

6.1750

7.2900

Resist 1

13.6800

2.3000

11.8750

7.8075

1.3250

Resist 1

7.5000

6.0900

7.0000

Spot

13.5823

2.2315

11.1048

7.7548

1.2974

Spot

7.4186

5.9681

6.7772

Support 1

13.0300

2.0700

10.2500

7.7490

1.2000

Support 1

6.7750

5.8000

6.3145

Support 2

12.8350

1.7500

9.3700

7.7450

1.1800

Support 2

6.0800

5.7300

6.1300

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

1.2573

1.5766

117.89

0.9723

1.1367

0.8812

0.8030

146.88

1214.79

Res 2

1.2548

1.5738

117.55

0.9700

1.1347

0.8790

0.8008

146.50

1207.54

Res 1

1.2523

1.5709

117.21

0.9677

1.1327

0.8769

0.7986

146.12

1200.28

Spot

1.2473

1.5652

116.54

0.9632

1.1286

0.8726

0.7943

145.36

1185.78

Supp 1

1.2423

1.5595

115.87

0.9587

1.1245

0.8683

0.7900

144.60

1171.28

Supp 2

1.2398

1.5566

115.53

0.9564

1.1225

0.8662

0.7878

144.22

1164.02

Supp 3

1.2373

1.5538

115.19

0.9541

1.1205

0.8640

0.7856

143.84

1156.77

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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