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Dollar Draws Limited Reassurance from CPI Uptick, Fed Surveys

Dollar Draws Limited Reassurance from CPI Uptick, Fed Surveys

2014-11-21 04:49:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Dollar Draws Limited Reassurance from CPI Uptick, Fed Surveys
  • Euro Slips after Weak PMIs But is ECB QE Any Nearer?
  • Yen Jumps after Japan’s Finance Minister Says Drop ‘Too Fast’

Dollar Draws Limited Reassurance from CPI Uptick, Fed Surveys

The outlook for monetary policy normalization is one of the Dollar’s primary fundamental drivers. It is also a theme that the market has vigorously priced in – motivated by counterparts moving more aggressively in the opposite direction (easing). Given this focus, the past session’s consumer inflation data would certainly be considered a high level event risk. For the headline measure (including energy and food), there was no growth over the month but the year-over-year reading policy officials prefer unexpectedly held its 1.7 percent pace through October. Meanwhile, the ‘core’ measure through the same period would unexpectedly tick up to 1.8 percent. That is still below the Fed’s 2-percent target, but keeps the argument for a return of price pressures firmly in place for hawks. Meanwhile, the New York Fed released the survey of Primary Dealers policy expectations. Countering a market that has pushed its first hike projection to September according Eurodollar futures, those banks that must bid on Treasuries believe the first move will still be June. Furthermore, their projected pace is materially faster.

So, tangible inflation figures tick higher and forecasts made by those closer to the central bank itself expect a more hawkish regime than the market itself. Traders that expected this to give the Dollar another push higher would be disappointed however. The Dow Jones FXCM Dollar Index (ticker = USDollar) struggled to gain any traction at all against Euro, Yen or Pound. As skeptical as the markets are, the Greenback already enjoys considerable premium over its counterparts. Further drive on this theme may take deeper conviction. Looking for that certainty in the final 24 hours of this week is unlikely. The docket is light aside from a few Fed speaking engagements ‘Next week’ always brings new opportunities. The data is certainly thick. That said, we will be working against the burden of a well-known liquidity drain. The Thanksgiving Day holiday will take the US markets offline on Thursday, and global markets feel the impact through risk channels.

Euro Slips after Weak PMIs But is ECB QE Any Nearer?

There was little going in the Euro’s favor fundamentally this past session. Top billing were the PMI figures for France, Germany and the Eurozone. These useful proxies to otherwise infrequent government GDP figures showed the extension of an unfavorable pattern. Economic activity in the region continued to cool through the current month with the Eurozone’s Composite measure (combining services and manufacturing) dropping to 51.4 – its lowest level in 16 months and on a troubling trajectory. Further, the region’s consumer confidence report for the same month defied an expected improvement to further the reversal from May. The recession fear this stokes is only as market moving as it influences fears of the global slowdown. On monetary policy, it has to bring the ECB’s QE move closer. It seemed to check neither.

Yen Jumps after Japan’s Finance Minister Says Drop ‘Too Fast’

For two years, Japanese officials (government and central bank) have run on a consistent theme that the Yen was overvalued. Their concern was included in the decision on monetary and fiscal policy decisions to materialize a desire to see the unit lower. Recently, the warnings have cooled. Yet, against the backdrop of a return to recession for Japan in 3Q, a snap election and the upgrade to the QQE program; we wouldn’t expect anyone to step in front of the Yen crosses rally. Therein lies the surprise when Finance Minister Taro Aso this morning commented that the currency’s recent decline has come too quickly. Are rising import costs going to draw offsetting policy to stimulus for the FX rate?

British Pound: Swaps Show Weakest BoE Rate Forecast in 6 Months

Six months ago, the Bank of England was seen as one of the hawkish leaning central banks. Though the MPC would repeatedly say decisions were data dependent, a robust economic recovery and expectations of wage growth led the market to believe the first hike in the new regime would come very early 2015. Now, the first move is seen in 3Q. In fact, overnight swaps see only 22 bps worth of tightening by this time next year – the lowest level in six months. If the Pound further moves to neutral under the Eurozone’s weight, it has a lot of premium yet to lose.

Swiss Franc: EURCHF Slowly Firms after Referendum Bias Shifts

Swiss Franc and gold traders were sent for a loop not long ago when a regional survey showed heavy support for the November 30 Gold Referendum vote which would require the SNB to hold 20 percent of its reserves in the precious metal – rather than its current 8 percent. The risk that the central bank would have to abandon the 1.2000 EURCHF floor it has defended since September 2011 looked less like conspiracy theory. It is debatable that they could still keep its floor vow if the proposal passed or that they could introduce new policy, but that may not be as serious a concern. According to the more recent gfs.bern poll, 47 percent now oppose it, 38 percent are for it and 15 percent are undecided.

Emerging Market: India, Brazil and South Africa 3Q GDP Due Next Week

If there is no sudden shock of volatility to end this week, the MSCI Emerging Market ETF will end with its second smallest weekly range in over a decade. Regional troubles, the Fed’s move to cap stimulus and the hangover of October’s risk slump seem to have faded into the backdrop. Nevertheless, this quiet won’t last. Next week, we have 3Q GDP for India, Brazil and South Africa.

Gold Rebounds after US Inflation Mix, Volatility Drop

The CBOE’s Gold Volatility Index posted one of its biggest drops (11.4 percent) in years this past session. A softer view on inflation from the FOMC minutes and a tip in the scales for the Swiss ‘Save Our Gold’ drive removes some of the pressure. However, lower implied volatility doesn’t necessarily pave the way for bulls. ETF holdings have dropped to fresh 5 year lows and the Dollar is still holding its ground.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

2:00

NZD

Credit Card Spending (MoM) (OCT)

0.20%

New Zealand’s Credit card Spending has been increasing every month on a YoY basis. On a MoM basis, New Zealand’s Credit Card Spending has been increasing on a MoM basis except on April 2014.

2:00

NZD

Credit Card Spending (YoY) (OCT)

4.40%

8:00

CHF

Money Supply M3 (YoY) (OCT)

3.40%

M3 Money supply has been increasing on a YoY basis. However, the rate of growth has been trending lower.

9:30

GBP

Central Government NCR (OCT)

21.7B

Both of these measures can help in measuring the fiscal situation of the UK. Prime Minister David Cameron has constantly stressed the importance of having a balanced debt and budget.

9:30

GBP

PSNB ex Banking Groups (OCT)

7.7B

11.8B

9:30

GBP

Public Finances (PSNCR) (Pounds) (OCT)

17.7B

9:30

GBP

Public Sector Net Borrowing (Pounds) (OCT)

7.0B

11.1B

13:30

CAD

Consumer Price Index (MoM) (OCT)

-0.20%

0.10%

Canada’s inflation rate has been increasing this year. Canada’s inflation rate currently meets the BOC inflation target at 2%. The Citi Inflation Surprise Index has been positive since February 2014; thus, showing that Canada’s inflation rate has mostly been exceeding analysts’ expectations this year. BOC takes account of inflation rate when deciding on monetary policy.

13:30

CAD

Consumer Price Index (YoY) (OCT)

2.10%

2.00%

16:00

USD

Kansas City Fed Manf. Activity (NOV)

6

4

The reading for last month was higher than the value from the beginning of the year. However, this release isn’t likely to be market moving.

GMT

Currency

Upcoming Events & Speeches

0:20

AUD

RBA's Heath Speech at Mining Industry Conference

1:30

USD

San Francisco Fed's Williams speaks at Bank of Korea event

8:00

EUR

ECB President Draghi Speaks in Frankfurt

10:15

EUR

ECB's Nouy Speaks in Frankfurt

11:00

EUR

ECB Announces 3 year LTRO Repayment

15:00

USD

Senate Subcommittee Hearing on NY Fed and "Regulatory Capture"

19:45

GBP

BOE's Miles Speaks at Economics Conference in Bristol

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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