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Dollar Skittish Below 12 Year High Risk, Monetary Policy Themes Heat Up

Dollar Skittish Below 12 Year High Risk, Monetary Policy Themes Heat Up

2015-04-15 04:30:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Dollar Skittish Below 12 Year High Risk, Monetary Policy Themes Heat Up
  • Euro: What Should we Expect from the ECB, Greece Today?
  • Australian Dollar Holds Precarious Floor after Chinese GDP Hits 6-Year Low

Dollar Skittish Below 12 Year High Risk, Monetary Policy Themes Heat Up

With the USDollar testing the 12-year highs established in March, the currency was once again faced with an important question: is there enough conviction to extend the incredible nine-month bull trend? This decision seemed to be more than the data and general conviction of the market were ready to answer as the market chose the path of least resistance – a pullback from the highs. There isn’t room for the Greenback to retreat before the tone of the market turns into concerted selling. This isn’t just true of the Dow Jones FXCM Dollar Index. There isn’t much room for the Dollar to slip with EURUSD, GBPUSD, USDJPY or USDCAD before speculators would consider it a tide shift. That puts the pressure on the market to make a decision. The question is whether we have a fundamental banner to unite speculators’ efforts.

This past session, the US docket offered meaningful updates to the themes that have kept the currency’s reins these past months; but they didn’t seem to hit the timbre necessary to motivate speculators. The surface level event risk was factory level inflation data (PPI), the NFIB small business optimism survey and US earnings. All three carried a tone of disappointment. Wells Fargo, JPMorgan and Intel managed to beat the market expected EPS numbers to retrench the growth and investment backdrop for the US; but earnings forecasts have generally been lowered regularly for some time now and the underlying figures do not look so rosy. An extension of the price figure slowdown generates little surprise and the sentiment report is offset by the general bull trend for the headline and wage projections. For those watching US rates – most USD traders – more interesting was NY Fed’s consumer survey which showed the second highest wage earnings growth report in the series’ history (to June 2013) and a new fourth vote from the Cleveland Fed to hike the discount rate (7-4) according to minutes.

Ahead, there is plenty of scheduled event risk to weigh for the Greenback. Direct listings include the TIC capital flows report for February, the FOMC’s Beige Book and a few Fed speeches. However, for sheer market influence, the Dollar may find stronger winds from counterparts responding to Chinese GDP and the ECB rate decision. If not, the market may wait until Friday’s CPI to stir rate timing.

Euro: What Should we Expect from the ECB, Greece Today?

The European Central Bank (ECB) is scheduled to meet today, but what surprises should we expect to the group considering they only this past month activated their QE program? It is highly unlikely that they will announce any upgrades this early in the effort and no central bank would be so foolish as to shoot themselves in the foot by saying they are dubious by its uptake. Instead, we should look into rhetoric that clarifies where they will continue to purchase assets as sovereign bonds carry limitations. This may also be an opportunity to find an official bank view on Greece. Speaking of the troubled country, a 3-month bill auction will be the market’s opportunity to show its confidence.

Australian Dollar Holds Precarious Floor after Chinese GDP Hits 6-Year Low

Top event risk for this session has already crossed the wires, and many tactical traders were likely disappointed by the lack of volatility to follow in its wake. With AUDUSD and AUDJPY struggling to keep their heads above levels keeping back six-year lows and/or general bear trends, China reported its 1Q GDP data and a range of March figures. After four quarters of persistent 0.1 percentage point beats, GDP printed in-line at a six-year low 7.0 percent pace. The monthly data disappointed across the board. This data will carry weight moving forward.

British Pound Unfazed by Downtick in CPI, Rate Outlook Still Undervalued

The Pound faced key event risk this past session, but the market-moving potential the data posed depended on its outcome. The round of March inflation figures was filtered by rate watchers to concentrate on CPI. Expectations have been set for a softening of price pressures and the BoE has repeated its temporary nature due to volatile components; so an unchanged headline figure and 9-year slow 1.0 percent core reading carry limited weight. Short Sterling futures are not fully pricing in a first rate hike from the BoE until 2Q 2016.

Canadian Dollar Traders Should Be Wary of BoC

In January, the Bank of Canada caught the market off guard with a surprise 25 bp rate cut to 0.75 percent. That is not so long ago that speculators should have forgotten the potential for surprise from this group’s policy decisions. With a BoC meeting ahead, the probability of a follow up cut is low, but it is a distinct possibility. Policy officials have voiced clear concern about the country’s strength and the existence of downside risks to their forecasts. There is still room to cut for Canada and seemingly the will to do it.

Emerging Markets Lead 2015 Cross-Asset ‘Risk’ Performance

Next to Chinese shares, Emerging Markets assets seem to be the best performing of the traditional ‘risk’ assets this year. Year-to-date the MSCI EM ETF is up 9 percent – outpacing US shares, high yield and carry. As the Fed tightening story shifts reserves though, this will be a recovery difficult to maintain. In the FX ranks, the Ruble was the biggest gainer versus USD for a 2.6 percent advance to six-month highs.

Gold Volume Picks Up as Metal Slips to Two-Week Lows

Gold futures volume jumped this past session as the metal slid below $1,200. There isn’t much momentum to this dive just yet, but its struggle after the past week’s speculative buildup in COT figures as well as the adoption of greater stimulus appetite (as with the ECB), it is concerning. At 15 percent, the CBOE’s gold volatility index is just off its most staid levels in seven months.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

00:30

AUD

Westpac Consumer Confidence Index (APR)

99.5

OIS implies a 75% chance of the RBA cutting rates on its next policy meeting on May 5th.

2:00

CNY

GDP SA (QoQ) (1Q)

1.4%

1.5%

This week’s trade data was significantly softer than expected. The IMF has projected China’s GDP growth to slow down in the next 2 years.

2:00

CNY

GDP (YoY)

7.0%

7.3%

4:30

JPY

Industrial Production (MoM) (FEB F)

-3.4%

BOJ has continuously stated that QQE will continue until inflation is at 2%. It expects prices to rise in the next two years.

4:30

JPY

Industrial Production (YoY) (FEB F)

-2.6%

4:30

JPY

Capacity Utilization (MoM) (FEB)

3.6%

6:00

EUR

Germany’s CPI (YoY) (MAR F)

0.3%

0.3%

Inflation has been growing at an anemic pace in 2014 in Germany

6:00

EUR

Germany’s CPI (MoM) (MAR F)

0.5%

0.5%

9:00

EUR

Eurozone Trade Balance SA (FEB)

22.0B

22.8B

Has been rising in 2014 as the Euro has been depreciating against major currencies.

9:00

EUR

Eurozone Trade Balance NSA (FEB)

21.0B

7.9B

11:00

USD

MBA Mortgage Applications (APR 10)

0.4%

The housing market has been underperforming relative to economists’ expectations since the beginning of the year; however, it is starting to beat those expec lately.

11:45

EUR

ECB Main Refinancing Rate (APR 15)

0.05%

0.05%

The ECB is committed to purchasing 60 billion Euros of debt a month. Eurozone economic data has been outperforming expec relative to expectations as indicated by the Citi EU Economic Surprise Index. The IMF has upgraded EU’s 2016 growth forecasts.

13:15

USD

Manufacturing Production (MoM) (MAR)

0.1%

-0.2%

Industrial Production in the US has been underperforming relative to expectations.

13:15

USD

Industrial Production (MoM) (MAR)

-0.3%

0.1%

14:00

CAD

Bank Of Canada Rate Decision

0.75%

0.75%

The BOC cut rates on January 2015 as the oil sector. Canada’s economic data has been increasingly outperform relative to expec.

GMT

Currency

Upcoming Events & Speeches

6:15

JPY

BOJ Kuroda Speaks at Trust Banks’ Association

9:00

EUR

Greece to Sell EUR625 Mln 91-Day Bills

12:30

EUR

ECB to Hold Press Conference after Rate Decision

12:45

USD

World Economic Leaders Meet in Washington

13:00

USD

Fed’s Bullard Speaks on Financial Regulation

14:00

CAD

Bank of Canada Releases Monetary Policy Report

14:40

USD

Fed Chair Fischer Moderates IMF Panel

18:00

USD

US Federal Reserve Releases Beige Book

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

1.4275

Resist 2

9.3300

7.3650

8.5270

Resist 1

16.0000

2.7000

12.6500

7.8075

1.3935

Resist 1

8.7400

7.1000

8.4735

Spot

15.0237

2.5896

11.9490

7.7527

1.3582

Spot

8.6351

6.8761

7.9986

Support 1

14.5000

2.3580

11.3500

7.7490

1.3425

Support 1

8.2675

6.4725

7.8360

Support 2

13.6800

2.2850

10.8500

7.7450

1.3230

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

1.1001

1.5024

120.84

0.9715

1.2692

0.7676

0.7606

131.56

1219.86

Res 2

1.0968

1.4977

120.55

0.9686

1.2659

0.7651

0.7581

131.19

1214.83

Res 1

1.0935

1.4930

120.25

0.9657

1.2626

0.7627

0.7555

130.81

1209.80

Spot

1.0869

1.4836

119.67

0.9599

1.2561

0.7578

0.7504

130.07

1199.75

Supp 1

1.0803

1.4742

119.09

0.9541

1.2496

0.7529

0.7453

129.33

1189.70

Supp 2

1.0770

1.4695

118.79

0.9512

1.2463

0.7505

0.7427

128.95

1184.67

Supp 3

1.0737

1.4648

118.50

0.9483

1.2430

0.7480

0.7402

128.58

1179.64

--- 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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The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. Forex Capital Markets, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. Forex Capital Markets, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. Forex Capital Markets, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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