Dollar and Rate Outlook Offered Little Help from CPI
A tumble from the S&P 500 marked another abrupt decline in ever-fickle risk trends. However, Dollar traders have grown too familiar with the flippant views of risk trends and were too engrossed with interest rates to try and ride a bullish response from the benchmark currency. Marking the contrast, the benchmark equity index tumbled 1.0 percent while the Dow Jones FXCM Dollar Index (ticker = USDollar) ended an otherwise volatile day unchanged. This is not to mean that the greenback's position as a safe haven is forever broken. Rather, traders and investors have grown wary of short-lived sentiment shifts that seem manufactured simply for deriving the next quick rebound. With each day that passes, it becomes increasingly clear that the markets will only revive genuine momentum with a cleansing risk aversion move.
In the meantime, the harder fought gain for the dollar through its relative interest rate bearing is losing steam. Treasury yields extended their slump this past session with rate on the benchmark 10-year note dropping below 2.50 percent and returning to levels last seen during the government shutdown. Given the Fed's optimistic outlook, the rebound in data from the weak 1Q reports and this past session's upgrade in the CPI reading (the 2.0 percent headline reading is at the Fed's target), the baseline of a mid-2015 first hike seems well supported. That said, Fed Funds rates confirm the timid outlook. Looking at the broader market, this yield compression seems a universal development; which has maintained a relative buoyancy for the dollar against the more aggressive slump amongst its counterparts.
Euro: Expectations for Builds on Weak GDP Release
Having suffered a painful tumble this past week, the euro looked like it was trying to catch its balance this past session. With its fundamental backdrop, though, a breather is not likely to evolve into a meaningful rebound. Taking the temperature of fundamentals this past session, the support for additional stimulus from the ECB has only grown. The most prominent listings on the docket were the Euro-area GDP figures for 1Q. The region missed forecasts with a 0.2 percent pace of growth through the period that was half of the consensus. Meanwhile, the different country listings showed the two-speed economy was slowly turning into a one-speed moderation with
Japanese Yen Crosses Starting to Push Against Risk
Conviction eludes risk trends whether it be bullish or bearish. That is a meaningful anchor for those assets that are highly correlated to the underlying theme. USDJPY and the other yen crosses have certainly taken advantage of the situation. If there were a complacency and comfort driving investors for yield wherever it may be, these pairs would have certainly retraced a significant portion of their gains into and after the BoJ introduced its open-ended stimulus program last April. Yet, that faux optimism can't sustain markets forever. Eventually, real returns will need to compensate for risk. And the risk that yen carry is overvalued may find this group as a first mover in a bigger shift.
British Pound Holds Fast Despite a Sustained Drop in Rate Speculation
Looking at swaps and Gilt yields, interest rates in the
Chinese Yuan Unfazed by Risk Aversion, Important Events Next Week
Another risk measure that was seemingly left out of the 'risk off' move this past session was the Chinese currency. The US dollar - Chinese Offshore Renminbi (USDCNH) rose slightly Thursday to break off two days of retreat. This looks more like an ill-fated congestion between a medium-term depreciation effort on the Renminbi's part and a temporary distraction by traditional risk.
Emerging Market Equities and Bonds Diverge, Russia Economy Cools in 1Q
There seems to be a preference in flavor when it comes to risk. Nowhere was that better illustrated than with the Emerging Markets. While the MSCI EM ETF tumbled 0.9 percent Thursday (the most in three weeks), the groups' sovereign debt index inched closer to reaching a record high. In a general search for yield amongst the world's debt offerings, there is both yield and discount in the EM thanks to geopolitical flare-ups. Further interest will be marked by the approach of the Ukrainian elections - and
Gold Reverses Sharp Gains, Speculative Interest Close to Flipping
JPY Industrial Production (YoY)
Price action in JPY continues to remain in the context of developments in the US equity and bond market.
JPY Industrial Production (MoM)
JPY Capacity Utilization (MoM)
With the Euro continuing to fall in the month of May, any negative data here provides further fuel to the selling fire.
EUR French Non-Farm Payrolls (QoQ)
EUR French Wages (QoQ)
EUR Euro-Zone Trade Balance (euros)
EUR Euro-Zone Trade Balance s.a. (euros)
CAD International Securities Transactions (C$)
USD Housing Starts (MoM)
With mixed data, concerns are building in regards to the US housing market in the context of the Federal Reserve pulling back. Housing data will remain important this summer as economists judge to what degree the market is pulling off as the Fed seeks to end MBS purchases in 2014.
USD Housing Starts
USD Building Permits
USD Building Permits (MoM)
USD U. of Michigan Confidence
Upcoming Events & Speeches
Indian Election Results Expected (Emerging Markets)
Moody's to Publish Ireland Sovereign Debt Rating
ECB to Announce 3-Year LTRO Repayment
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CLASSIC SUPPORT AND RESISTANCE
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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.