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Dollar Finds No Traction on Yellen’s Support for Hawkish Shift

Dollar Finds No Traction on Yellen’s Support for Hawkish Shift

John Kicklighter, Chief Strategist

Talking Points:

  • Dollar Finds No Traction on Yellen’s Support for Hawkish Shift
  • Euro Tuned into Greece Reform Review, Fear Fading Fast
  • Australian Dollar Jerked Higher By Chinese Manufacturing Report

Dollar Finds No Traction on Yellen’s Support for Hawkish Shift

Fed Chairwoman Janet Yellen delivered her testimony before the Senate Banking Committee Tuesday and the content of her remarks seemed to reinforce a position the market has been acclimating to: that a rate hike is soon at hand. Despite Yellen’s and her colleagues’ efforts to acclimate the market to an impending tightening of monetary policy however, we have seen the market’s response moderate as the probability rises (and the time frame shortens). On the one hand, we could consider this evidence that the market has already fully priced in the eventual shift in policy regime after a seven-month USDollar rally (a record-breaking move). Yet, that doesn’t fully pan out when we consider speculators’ response – or lack thereof – in capital markets as well as instruments designed to price and hedge interest rate movement. More likely, we are likely seeing an asymmetrical response to rate bearings across different markets. The Greenback has priced more fully a first move by mid-year from the Fed because its peers (Euro, Yen, Aussie, etc) are facing a heavily contrasting dovish regime. Other markets have a threshold that needs to be overcome before they properly respond: complacency in moral hazard. That may not come until closer to launch date.

Looking out over the coming trading sessions, the Fed Chair will run the gauntlet of questions in her second day of the Humphrey-Hawkins testimony before the House. The quality of the questions and her answers are unlikely to change much from the cautious preparation she has tried to weave. Perhaps a more capable and clear-cut catalyst for leveraging rate speculation for market drive will be Thursday’s January CPI reading. The market’s favored inflation reading (though not the Fed’s), a big deviation here could stoke the fires – bullish or bearish.

Euro Tuned into Greece Reform Review, Fear Fading Fast

After a tense few weeks, Greek and Troika officials hailed progress in a deal to extend support for the Eurozone’s most troubled country this past week. Yet, in the agreement struck, there was still a demand for details on reforms. According to Eurogroup President Dijsselbloem, that list was received Tuesday morning and EU ‘instructions’ were reviewing it – though he said they were “quite positive”. This could have been a source of strength for the Euro – moving closer to a more permanent period of stability – had the market priced greater risk into the crisis phase. However, Euro cross implied volatility showed little fear even before last Friday. Currently, 1-month EURUSD implied volatility is at a 2015 low.

Australian Dollar Jerked Higher By Chinese Manufacturing Report

There was Aussie data crossing the wires this morning and Chinese data. The latter would end up motivating the Australian currency. From the AUD docket, top listing was the 4Q wage price index – an upstream inflation measures for a currency that experienced a rate cut at the previous RBA meeting. The 2.5 percent pace was in-line with expectations but the weakest reading in the over a decade. This did little to ramp rate cut fears or stymie the Aussie. That said, the Chinese manufacturing PMI for February helped push AUDUSD above 0.7850.

Chinese Renminbi Drops Despite Strong PMI Reading

Where the Aussie Dollar may have benefit China’s factory activity report – despite the new export orders measure swinging to a contractionary reading – the country’s own currency didn’t fare as well. USDCNH was up 0.2 percent to 6.2719. A manufacturing PMI read of 50.1 denotes growth (anything above 50), but the reading is not particularly robust especially in a holiday period. Meanwhile, the MNI consumer sentiment survey continues to flounder near its series’ low with a 112 reading for the February update.

British Pound as Indecisive as Dollar On Monetary Policy View

While the Bank of England may not be crafting a time-dependent a market forecast as the Fed (ironic as both claim not to precommit), we continue to see the MPC warn that a hike may still be in the works this year. At testimony in Parliament, Governor Carney reiterated a focus on underlying inflation trends. Despite their efforts Short Sterling futures are still not fully pricing a full hike until 2016. Room to converge.

Emerging Markets: South African Rand Rallies on GDP, Russian Ruble Steady after Downgrade

The MSCI Emerging Market ETF finally cleared over a week worth of congestion by rallying 1.4 percent to its highest position in a month. With volume behind this month nearly doubling the past week’s average turnover, the drive carries heft. That said, further progress requires a confidence in general sentiment that may beyond the market’s current capacity for sentiment. On the FX side, the EM currencies have done well[ this past session. Amongst the top performers are the South African Rand which rallied 1.4 percent versus the USD after 4Q GDPbeat expectations and the Russian Ruble whose 1.3 percent swell is more appropriately a stabilizing move following the slide suffered following a weekend announcement of Moody’s downgrade for the country. Now two rating agencies have labeled Russia debt as ‘Junk’.

Gold Tempting a Rebound Against Questionable Speculative Support

Gold is currently attempting to forge its biggest rally since the January 30 surge. Though still moderate at 0.8 percent this morning, the precious metal’s move stands out against the series of four consecutive declines and the many failed attempts at intraday rallies through that period. In the fundamental backdrop, this drive may struggle to maintain its early swell without additional support. From a fiat-degradation perspective, the Fed Chair took a stance that furthers the possibility of a rate hike a quarter out and Greece moved a step closer to compromise to withdrawal an impending financial crisis. That said, the Dollar was not heartened by the central banker’s comments and continues to trade heavy. If USDollar finally does drop, it could give gold a serious boost. Meanwhile, speculative appetite needs to be closely monitored. Where ETF holdings of the precious metal continue slowly rise off multi-year lows, COT figures showed the biggest two-week drop in spec interest in over a decade.

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ECONOMIC DATA

GMTCurrencyReleaseSurveyPreviousComments
00:30AUDWage Cost Index (QoQ) (4Q)0.6%0.6%The growth rate in wage growth has been trending lower for five years. The figure came in at 2.5% y/y, the weakest since 1998
00:30AUDWage Cost Index (YoY) (4Q)2.5%2.6%
1:45CNYHSBC China Manufacturing PMI (FEB P)49.549.7It has been lower since Oct’ 14. China’s economic data has been underperforming relative to expectations recently.
1:45CNYWestpac-MNI Consumer Sentiment (FEB)112.1Has been trending lower in 2014.
7:00CHFUBS Consumption Indicator (JAN)1.42Measure has been trending lower in 2014. Swiss Economic data has been outperforming relative to expectations lately
9:30GBPLoans for House Purchase (JAN)3600035667Has been declining in 2014.
12:00USDMBA Mortgage Applications (FEB 20)-13.2%A volatile measure that will measure future housing demand
21:45NZDTrade Balance (JAN) ($NZD)-158M-159MNew Zealand’s trade deficit from Nov 2014 has been shrinking.
23:50JPYJapan Buying Foreign Bonds (Feb 20)¥435.2BJapan has been a net-buyer of foreign stocks in 2015.
23:50JPYJapan Buying Foreign Stocks (Feb 20)¥155.9B
23:50JPYForeign Buying Japan Bonds (Feb 20)¥714.7B
23:50JPYForeign Buying Japan Stocks (Feb 20)¥113.9B
GMTCurrencyUpcoming Events & Speeches
10:00GBPBOE’s Carney, Deputy Governors Speak at Research Conference
10:10EURECB Long term Refinancing Operation
15:00USDFed Chair Yellen Testifies to Financial Service Committee
16:30EURECB’s Draghi Testifies to European Parliament in Brussels
18:00USDUS to Sell $35Bln 5 Year Notes

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 GMTSCANDIES CURRENCIES 18:00 GMT
CurrencyUSD/MXNUSD/TRYUSD/ZARUSD/HKDUSD/SGDCurrencyUSD/SEKUSD/DKKUSD/NOK
Resist 215.59002.600012.70007.81651.3800Resist 28.74007.10008.4735
Resist 115.00002.500011.87507.80751.3650Resist 18.40006.85007.8360
Spot14.91822.461311.48517.75561.3568Spot8.39246.57877.5880
Support 114.38002.390010.25007.74901.3200Support 17.52005.91007.2945
Support 213.68002.19009.37007.74501.2000Support 27.32855.77756.7280

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCYEUR/USDGBP/USDUSD/JPYUSD/CHFUSD/CADAUD/USDNZD/USDEUR/JPYGold
Res 31.14551.5624119.810.96011.25890.79650.7618136.101232.94
Res 21.14271.5585119.530.95771.25580.79430.7595135.721227.00
Res 11.13991.5546119.240.95531.25270.79200.7572135.351221.06
Spot1.13431.5469118.660.95051.24640.78750.7527134.601209.18
Supp 11.12871.5392118.080.94571.24010.78300.7482133.851197.30
Supp 21.12591.5353117.790.94331.23700.78070.7459133.481191.36
Supp 31.12311.5314117.510.94091.23390.77850.7436133.101185.42

--- 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

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