News Column

Forex: Dollar Finds Little Impetus from Fed Taper, 4Q GDP Ahead

January 29, 2014

John Kicklighter

Talking Points: Dollar Finds Little Impetus from Fed Taper, 4Q GDP Ahead Euro Heads into Event Risk: Spain GDP, German Employment New Zealand Dollar Drops after Expected RBNZ Hold Dollar Finds Little Impetus from Fed Taper, 4Q GDP Ahead As expected, the Federal Open Market Committee (FOMC) decided to cut its immense QE3 stimulus program by another $10 billion . Yet, as sensitive as risk trends have been this past week, the news didn't spark a broader unwind of exposure. The S&P 500 - as a measure of investor appetite - retreated in the wake of the news, but key levels of implicit support (like the confluence at 1,775) remained standing through the media wave. In turn, the greenback would fail to gain the safe haven bid that could have complimented the building appeal related to the United States' improved position in the 'stimulus wars'. What does this mean for the financial markets and the dollar? From the central bank decision this past session, we learned that the open-ended stimulus program was reduced a second time to $65 billion in purchases of Treasuries and MBS per month. As this was heavily expected amongst economists and market participants, its 'surprise quotient' wasn't very high. In other words, there were few investors that would be caught off guard and thereby have to adjust after the update. Yet, the move certainly carries serious implications for the investment landscape moving forward. A unanimous vote by the group indicates that there is a strong belief in the pace of a steady unwinding moving forward and under the new leadership of Janet Yellen . This sets a rather clear view for timing the end of QE (December if the bank continues at its $10 billion pace) and further shapes speculation for the eventual shift to interest rates as a tool (first half 2015). For the FX market, that kind of clarity is a boon for rate expectations - a key valuation element for currencies. The untapped potential though is the implications that the Fed's absence holds for moral hazard that has fueled leverage, risk exposure and the S&P 500 to record highs. When will the complacency break down? In summation, the FOMC decision has failed to live up to the requirements of a catalyst, but still shifts the sentiment balance nonetheless. Perhaps upcoming event risk will carry more influence. The first reading of 4Q US GDP is due at 13:30 GMT , and the consensus is for a softer 3.2 percent annualized pace. At this point, a disappointment would likely revert to a capital market drop. Taper faith has been set. Euro Heads into Event Risk: Spain GDP, German Employment For those traders keeping tabs, the Euro-area docket offered yet another overlooked but disconcerting fundamental update. The Eurozone money supply growth through December cooled to 1.0 percent - the slowest pace since September 2010.This is further fuel to add to the deflation risk argument that is gaining traction amongst doves. And, with the three-month Euribor showing steady funding pressure for the region's financial sector, the case for a preemptive ECB move to fortify the market with stimulus is growing. In the meantime, definable fundamental catalysts are still the best source of volatility. With the upcoming session, we have two particularly important pieces of data to watch out for. Germany's January labor statistics are known for generating volatility with notable 'surprises'. As for Spain's 4Q GDP reading, there is greater scope for regional stability questions - but that is only significant if the market is focused on EZ stability fears. New Zealand Dollar Drops after Expected RBNZ Hold A hold by the RBNZ this morning was expected by 12 of the 15 economists that submitted their forecasts to Bloomberg and 65 percent of the market (according to swaps before the release). Therefore, when the central bank did hold its 2.50 percent benchmark, there was a segment of the market that was unprepared for the outcome. The bullish rate speculators eased back their positions and pulled the kiwi down against its benchmark counterparts. Yet, the start of a new hawkish regime is nearly at hand. Governor Wheeler remarked in the statement that the first hike will be "soon". And, once that first move is realized, his forecast for 225 bps of hikes through 1Q 2016 will be taken more seriously. Yen Crosses: BoJ Versus Market Uncertainty Though we have yet to jump start a longer-term trend (bullish or bearish) for the yen crosses, the volatility readings on these pairs is still vibrating. In fact, the one-week realized (historical) volatility measure for USDJPY is 11.6 percent - the highest since August 12 . Escalation risk is exceptionally high for this currency as it is particularly sensitive to risk trends. And while the market is still weighing the eventual probability of a BoJ upgrade to its open-ended stimulus program, that distant bullish driver for the crosses would do little against carry unwind... British Pound Bulls Disregard BoE Gov Carney's Reassurances Bank of England (BoE) Governor Mark Carney is using every speaking engagement he attends to reiterate the policy group's commitment to keep rates exceptional low. He did so again this past session. The market recognizes either rates or his credibility in forward guidance have to give. And, the market is still betting on the former. Without a data collapse, this situation won't be resolved until the Quarterly Inflation report. Australian Dollar Selling Pressure Returns as Yields Sink to Three-Month Lows The Australian dollar's rebound wasn't very long lived. The currency has stumbled this morning in wake of the disappointing Chinese Manufacturing activity report from Markit. Beyond the stodgy trade relationships, yield potential is also dropping quickly. Two-year Australian sovereign bond yields have dropped back to 2.65 percent while the 10-year has dropped to a near three-year low 4.00 percent. Emerging Markets: South Africa Surprise Rate Hike Quickly Reversed Emerging market policy officials have put in an incredible and somewhat coordinated effort to curb outflows from the categorically risky economies that fit the designation. Volatility has certainly steadied, but the outflows have not been staunched. This past session, a surprise South African central bank rate hike (50 bps) rallied the Rand for mere minutes before it went on to drop 3.2 percent. Gold Unsettled between Taper and Emerging Market Trouble On the one hand, we have the Fed Tapering its incredible stimulus program that in turn diminishes gold's appeal as a fiat-alternative. On the other, Emerging Market outflows generate the kind of panicked interest that drive capital to a safe haven like gold. The problem is that both themes have steadied. This past session gold volume jumped to its highest level since year-end liquidation. ECONOMIC DATA GMT Currency Release Survey Previous Comments 0:00 AUD HIA New Home Sales MoM (DEC) 7.5% The gauge came in at -0.4% 0:30 AUD Export price index QoQ (4Q) -0.2% 4.2% The expectation of Import Price Index had been on the rise since 3Q 2012 0:30 AUD Import price index QoQ (4Q) 2.0% 6.1% 1:45 CNY HSBC /Markit Manufacturing PMI (JAN) 49.6 50.5 The PMI came in at 49.5 below expectation of 49.6 8:00 CHF KOF Leading Indicator (JAN) 2 1.95 The prior print was the best since Sept 2011 8:00 EUR Span GDP (YoY) (4Q P) -0.1% -1.1% A forecasted 0.3% quarterly print would be a 1Q'08 high 8:55 EUR Germany Unemployment Change (000's) (JAN) -5K -15K Germany Unemployment Rate has been on the decline Sept 2009 8:55 EUR Germany Unemployment Rate (JAN) 6.90% 9:30 GBP Net Consumer Credit (DEC) 0.7B 0.6B The Net Lending Sec. on Dwellings Print has not been negative since Nov 2012 9:30 GBP Net Lending Sec. on Dwellings (DEC) 1.2B 0.9B 9:30 GBP Mortgage Approvals (DEC) 72.9K 70.8K Print has been continuously rising since Feb 2013 10:00 EUR EC Business Climate Indicator (JAN) 0.35 0.27 We're at the highest levels since the June of 2011. 10:00 EUR EC Economic Confidence (JAN) 101 100 10:00 EUR EC Consumer Confidence (JAN F) -11.7 -11.7 13:00 EUR Germany CPI MoM (JAN P) -0.4% 0.4% The recent print of Germany YoY CPI has been fairly close to expectations 13:00 EUR Germany CPI YoY (JAN P) 1.5% 1.4% 13:00 EUR Germany CPI EU Harmonized YoY (JAN P) 1.3% 1.2% 13:30 USD GDP Annualized QoQ (4Q A) 3.2% 4.1% The Expectation of Personal Consumption Print is at the highest since Dec 2010 13:30 USD Personal Consumption (4Q A) 3.7% 2.0% 13:30 USD GDP Price Index (4Q A) 1.2% 2.0% 13:30 USD Core PCE QoQ (4Q A) 1.1% 1.4% 13:30 USD Initial Jobless Claims ( Jan 25 ) 330K 326K The Prior Print of Continuing Claim has been highest since Sept 2013 13:30 USD Continuing Claims ( Jan 18 ) 3010K 3056K 15:00 USD Pending Home Sales MoM (DEC) -0.3% 0.2% The MoM Print has not been positive since May 2013 15:00 USD Pending Home Sales YoY (DEC) -0.3% -4.0% 21:45 NZD Trade Balance (DEC) 500M 183M The NOV Trade Balance is the first positive print since June 2013 21:45 NZD Trade Balance 12 Mth YTD (DEC) -383M -248M 23:15 JPN Markit/JMMA Manufacturing PMI (JAN) 55.2 The DEC Print was a record high since July 2006 23:30 JPN Overall Household Spending YoY (DEC) 1.1% 0.2% Has been on the positive side for 3 Month 23:30 JPN Jobless Rate (DEC) 3.9% 4.0% Jobless Rate has been on the decline since July 2009 23:30 JPN Job-To-Applicant Ratio (DEC) 1.01 1.00 23:30 JPN Natl CPI YoY (DEC) 1.5% 1.5% The NOV CPI YoY was another record high since Oct 2008 23:30 JPN Natl CPI Ex Fresh Food YoY (DEC) 1.2% 1.2% 23:30 JPN Natl CPI Ex Food, Energy YoY (DEC) 0.7% 0.6% 23:30 JPN Tokyo CPI YoY (JAN) 0.8% 0.9% Another record high since NOV 2008 last month. 23:30 JPN Tokyo CPI Ex Food, Energy YoY (JAN) 0.4% 0.3% 23:50 JPN Industrial Production MoM (DEC P) 1.3% -0.1% The NOV YoY Print was the highest in 18 months 23:50 JPN Industrial Production YoY (DEC P) 7.3% 4.8% GMT Currency Upcoming Events & Speeches 2:00 NZD RBNZ Publishes Monthly Assessment of Currency Flows 12:00 EUR EU's Rehn Speaks in Helsinki on Sustainable Economic Policies 23:00 NZD RBNZ Governor Wheeler Speaks in Christchurch 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 13.4800 2.3800 11.8750 7.8165 1.3650 Resist 2 7.5800 5.8950 6.5135 Resist 1 13.3300 2.3000 11.0000 7.8075 1.3250 Resist 1 6.8155 5.8475 6.2660 Spot 13.2758 2.2520 10.8441 7.7572 1.2783 Spot 6.4818 5.4997 6.1694 Support 1 12.6000 2.1000 10.2500 7.7490 1.2000 Support 1 6.0800 5.3350 5.7450 Support 2 12.4200 1.7500 9.3700 7.7450 1.1800 Support 2 5.8085 5.2715 5.5655 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 1.3665 1.6594 105.36 0.9179 1.1059 0.8941 0.8396 143.12 1262.71 Res 2 1.3641 1.6565 105.11 0.9160 1.1037 0.8919 0.8374 142.75 1257.52 Res 1 1.3617 1.6535 104.87 0.9140 1.1016 0.8897 0.8352 142.39 1252.33 Spot 1.3569 1.6477 104.39 0.9101 1.0973 0.8853 0.8308 141.65 1241.95 Supp 1 1.3521 1.6419 103.91 0.9062 1.0930 0.8809 0.8264 140.91 1231.57 Supp 2 1.3497 1.6389 103.67 0.9042 1.0909 0.8787 0.8242 140.55 1226.38 Supp 3 1.3473 1.6360 103.42 0.9023 1.0887 0.8765 0.8220 140.18 1221.19 v 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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Source: DailyFx

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