Talking Points:

  • Dollar Staves Off Another Reversal Risk
  • Euro Focus Turning from QE Back to Greece
  • British Pound Stumbles After Inflation Stalls for the First Time

Dollar Staves Off Another Reversal Risk

The Dollar took another stab at turning its eight-month bull trend this past session. However, this time around, there wasn’t a FOMC rate decision to focus the move. With the USDollar leaning heavily on the floor of its advancing channel (translating to 1.1000 for EURUSD and 1.5000 for GBPUSD), the bears lost conviction and control. We know that turning a speculative darling that has worked well for the buy-and-hold FX crowd will be difficult to muster – even if it has moved excessively and in such a short amount of time. And, the February inflation report simply wouldn’t provide the necessary impetus to substantiate such a tumble.

On the back of last week’s FOMC meeting, the market is treating its interest rate expectations as a day-to-day reevaluation. Each significant indicator or remark that clarifies the timing of the first rate hike and the pace thereafter can carry more weight in this sensitive market. That said, the consumer inflation figures from this past session didn’t deviate far enough from establish consensus to further the dovish view the market took last week after the Fed downgraded its growth and interest rate forecasts. The headline CPI figure posted no change on an annual basis (0.0 percent) – a slight and unexpected uptick from January’s pace. Meanwhile, the core reading for the same tenor met expectations of a rise to a 1.7 percent clip. If volatile commodity prices – which have leveled out recently – were to start rising again, it is likely that price pressures could return to and overtake the Fed’s target (2.0 percent) in the medium-term (two years out).

As we monitor the Fed mandate that is still running afoul of its objective, central bankers seem to be sticking to their effort to prepare the economy and financial system for the inevitable normalization. San Francisco Fed President Williams this past session remarked that the strong dollar has weighed on his growth forecast, but that it would be appropriate to discuss hikes by mid-year. St. Louis Fed President James Bullard was more direct when he said the zero interest rate was no longer appropriate and that he would prefer to see market and Fed forecasts more aligned – to avoid destructive adjustments. Moving forward, we should watch for comments on this disparity and market ‘bubbles’.

Euro Focus Turning from QE Back to Greece

When we compare the pace of the Euro’s depreciation before and after the introduction of its QE program, it looks a lot like the Yen’s performance around the adoption of its own QQE program on April 4,2013 – a long decline for the currency in anticipation of its activation and relatively modest follow through after the fact. This reads like the consummate ‘buy the rumor, sell the news’ scenario, except we sell the currency on QE and level off rather than reverse. A growing balance sheet will keep the Euro under pressure, but to see it make that drive to parity, a new spark is likely needed. Greece may be a more imminent threat than many appreciate as its banking system liquidity dries up.

British Pound Stumbles After Inflation Stalls for the First Time

The Sterling was down across its major pairings Tuesday in the wake of a drop in the United Kingdom’s February CPI release. The headline reading stalled – 0.0 percent growth – for the first time in the current series’ history. Given the Pound’s aggressive tumble these past months on the back of downgraded interest rate forecasts, the banner price indicator reinforces the fundamental view already in place. However, like the US reading, core UK inflation – though a six year low – is still holding at 1.2 percent. The market has likely overshot BoE rate forecasts.

Australian Dollar: RBA Comments on QE-Derived Carry Risks

The RBA’s Financial Stability Report this morning offered a unique pointed assessment of the risks that come from a world of QE – whether they intended to or not. In the review, the central bank stated that a world awash in accommodative monetary policy was fueling access to cheap funds and a subsequent appetite for return on that capital. A side effect, they believe is Australian real estate (especially commercial). They warned that the market – domestic and foreign speculative alike – were exposing themselves to large repricing.

Chinese Yuan Rally Stalls after PMI Data Furthers Economic Slowdown Fears

After an aggressive, five-day rally; the Chinese Renminbi has stalled. USDCNH posted a modest advance this past session without committing to a true reversal. Fundamentally, the unexpectedly sharp drop in the HSBC’s Chinese manufacturing PMI reading for March to negative territory (anything below 50.0 reflects contraction in the sector) is a problem for the bread-and-butter of Chinese growth for the past two decades. Yet, big swings in the currency will likely be decided by PBoC policy. There is growing speculation of Chinese QE and possibly a band widening.

Emerging Markets Rally Cools As IMF and Moody’s Warn

The MSCI Emerging Market ETF has risen six of the last seven trading days and most EM currencies are up against the US Dollar over the past week (the Ruble is up 7.7 percent and the South African Rand 5.1 percent). Yet, traders should rein in the optimism. Both the IMF and Moody’s have issued warnings that this segments connections to the US and its policies could set it up for a major capital flow reversal.

Gold Completes First Five-Day Rally in 13 Months

Through Tuesday’s close, gold was up another 0.3 percent to round out its first five-day rally since February 14. This steady climb from the most recent swing low – a four month trough – comes on the back of an indecisive US Dollar (its primary pricing agent) and the rise of QE outside of the US. If everything remains status quo, this rebound can continue, slowly. But, if the Greenback catches traction, it will fall apart.

**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

21:45

NZD

Trade Balance ($NZ Dollars) (YTD) (FEB)

-1850M

-1409M

Trade balance has been improving since September 2014. New Zealand data has been so far underperforming economists’ expectations

21:45

NZD

Trade Balance ($NZ Dollars) (FEB)

350M

56M

23:50

JPY

Corporate Service Price (YoY) (FEB)

3.3%

3.4%

The BOJ has continuously stated that it will maintain QQE until “inflation is at 2% stable.” The BOJ has stated that the “price trend” is continuing to make progress towards the inflation goal as the price expectations are rising.

00:00

AUD

Skilled Vacancies (MoM) (FEB)

0.7%

The country’s unemployment rate continues to rise in the past 3 years. RBA is hoping a lower Aussie helps out with growth.

1:45

CNY

Westpac-MNI Consumer Sentiment (MAR)

112

PBOC has continued to lower reserve requirements for banks and lowered interest rates so far in 2014 and 2015 as growth has been slowing.

7:00

CHF

UBS Indicator (FEB)

1.24

Has been trending lower in 2014.

9:00

EUR

German IFO –Business Climate (MAR)

107.3

106.8

All three measures have been rising since bottoming in Oct 2014. Eurozone economic data has been outperforming economist’ expectation lately as indicated by the Citi economic surprise index.

9:00

EUR

German IFO-Current Assessment (MAR)

112.0

111.3

9:00

EUR

German IFO-Expectations

103.0

102.5

9:30

GBP

BBA Loans for House Purchase (FEB)

36650

36394

Has been trending lower in 2014.

11:00

USD

MBA Mortgage Applications (MAR 20)

-3.9%

US housing data has been underperforming economists’ expectations lately.

12:30

USD

Durable Goods Orders (FEB)

0.2%

2.8%

US consumption data has been underperforming expectations lately. Fed has downgraded its GDP forecasts for 2015. However, the OIS shows that the market expects the Fed to hike rates by 50bps in the foreseeable future and Fed fund futures show a rate hike by the end of 2015.

GMT

Currency

Upcoming Events & Speeches

AUD

00:30

RBA’s Financial Stability Review

EUR

10:10

ECB Long-term Refinancing Operation Result

USD

10:30

Fed’s Evans Speaks on Economy, Monetary Policy in London

EUR

16:00

Germany’s Merkel to Make Speech on Economic Policy

USD

17:00

US to sell USD35 Bln 5-Year Notes

CAD

19:30

BOC deputy Lane Gives Presentation in Kelowna

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

16.5000

2.7500

13.8500

7.8165

1.4505

Resist 2

9.3300

7.3650

8.5270

Resist 1

16.0000

2.7000

12.6500

7.8075

1.4275

Resist 1

8.7400

7.1000

8.4735

Spot

15.6082

2.6376

12.3559

7.7605

1.3849

Spot

8.5536

6.9589

8.0919

Support 1

14.5000

2.3580

11.3500

7.7490

1.3635

Support 1

8.2675

6.4725

7.8360

Support 2

13.6800

2.2850

10.8500

7.7450

1.3425

Support 2

7.8150

6.3325

7.2945

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

1.0834

1.5249

122.56

1.0095

1.2809

0.7735

0.7379

131.42

1187.82

Res 2

1.0802

1.5208

122.25

1.0065

1.2777

0.7711

0.7355

131.04

1182.04

Res 1

1.0771

1.5167

121.93

1.0035

1.2744

0.7688

0.7331

130.66

1176.25

Spot

1.0708

1.5084

121.31

0.9976

1.2679

0.7641

0.7283

129.89

1164.69

Supp 1

1.0645

1.5001

120.69

0.9917

1.2614

0.7594

0.7235

129.12

1153.13

Supp 2

1.0614

1.4960

120.37

0.9887

1.2581

0.7571

0.7211

128.74

1147.34

Supp 3

1.0582

1.4919

120.06

0.9857

1.2549

0.7547

0.7187

128.36

1141.56

--- 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.