News Column

Dollar?s Mixed Session Inches Currency Closer to Bull Trend

May 20, 2014

John Kicklighter





Talking Points:



  • Dollar's Mixed Session Inches Currency Closer to Bull Trend
  • British Pound Generates Limited Rate Speculation from Uptick in Inflation
  • Japanese Yen: A QE Upgrade Requires a Collapse in the Crosses



    Dollar's Mixed Session Inches Currency Closer to Bull Trend



    The Dow Jones FXCM Dollar Index (ticker = USDollar) is inching into breakout territory. However, the push seems to be more an indirect response to more motivated counterparts than a motivated move from the greenback itself. Looking at the performance docket for the day, the currency's performance was mixed and tepid with an exception for the 'commodity bloc'. The dollar advanced 0.3 percent versus the Canadian currency, 0.6 percent against the Kiwi and soared 0.9 percent at the expense of the Aussie dollar. Given the split, this may be another early sign of destabilizing risk appetite trends. These pairings are more familiar carry trades. As it happens, the yen crosses have similarly come under uneven pressure and global equities were on the retreat for the session to tip the scales back towards breakdown risk.



    History - and many false starts - tell us that it isn't good tradecraft to continuously position for the most dramatic scenarios. Yet, should risk deleveraging take, the cumulative impact on the market and trade opportunities will be substantial. The next steps to build momentum behind a flight vs fight response from the market ranks would be an S&P 500 slide below 1,865, a turn in implied volatility measures across multiple asset classes and an intensified bid for absolute safe havens (like the dollar and Treasuries). The quiet will eventually end - whether in an orderly or dramatic fashion. Even NY Fed President Dudley this past session noted concern over low volatility and surmised is may be a sign of complacency. On another central bank channel, the Senate voted to limit debate on Stanley Fischer's nomination.



    British Pound Generates Limited Rate Speculation from Uptick in Inflation



    When a piece of important event risk reinforces the market's expectations and traders are unable to capitalize, there is something amiss. That is the case with the UK inflation suite released this past session. Across the range of consumer, retail, factory and housing figures; the outcome was moderate. Speculators, however, were likely focusing on the CPI as they believe that would be the figure that would oblige the BoE to a more imminent rate hike. On that front, the headline 1.8 percent increase in the pace of price growth and the 2.0 percent core reading were higher than expected. Theoretically, that should shift the time frame forward - but by how much? Apparently not enough to further the sterling's speculative run. That suggests expectations are likely close to being perceived as overdone. That adds weight to the upcoming BoE minutes (otherwise deflated by the Quarterly Inflation report last week) and UK retail sales ahead.



    Japanese Yen: A QE Upgrade Requires a Collapse in the Crosses



    Add AUDJPY and NZDJPY to the list of yen crosses that have taken out significant levels of support. You don't have to be a technical trader to appreciate the circumstances in the transition from the crosses incredible run from the third quarter of 2012, to months of consolidation, to these tentative slips. Without the belief of a prominent intervention hand to drive the yen lower (Yen pairings higher), the market is less confident in its bullish capabilities. While a carry trade appetite will return eventually, these pairs are currently expensive relative to their actual yield and the danger from any risk aversion moves is too obvious for traders not to take seriously.



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    Australian Dollar Breaks Lower as RBA's Debelle Warns of Outflows



    The Australian dollar was the worst performing major this past session. So far this week, it is down between 0.6 (AUDNZD) and 1.6 percent (AUDJPY). A mild correction put the market on edge and made otherwise mundane updates more substantial market movers. The RBA minutes released Tuesday morning reiterated a moderate dovish but neutral stance - seeming more dovish given the circumstances. The same for RBA Dep Governor Debelle's suggestion that capital inflows would likely slow going forward. A bear trend requires something of more substance.



    Euro Trouble Building as Stimulus Seems Certain, Periphery Yields Rising



    Expectations for an accommodative ECB move next month are reach near-certainty levels. And yet, the euro and market rates are slow to adjust. Rather than doubt, this reflects an uncertainty as to what specific combination of tools will be employed. Outright asset purchases, specific lending programs, sterilization adjustments and traditional rate cuts are all options. Some would have greater impact on the currency and others on the economy. Meanwhile, the 'risk' capital inflow into the Eurozone is coming under pressure as periphery bond yields rise.



    Emerging Market Currencies, Capital Market Benchmarks Drop



    Emerging Markets weren't able to escape the vacuum on risk trends this past session. The MSCI EM ETF dropped 0.8 percent on the day and all currencies - with the exception of the tepid 0.1 percent rise for the Russian Rubble - were in the red. Substantial declines for the Chilean Peso, South African Rand, Turkish Lira and Indian Rupiah reflects a broad mix more symbolic of 'risk off'.



    Gold Activity Level Drops to Four-Month Low





    ECONOMIC DATA



    GMT

    Currency

    Release

    Survey

    Previous

    Comments



    JPY

    Bank of Japan Interest Rate Decision

    0.10%

    0.10%

    No changes expected. It is likely that BOJ will defer further stimulus until after this meeting, particularly noting that the first quarter GDP came in stronger-than-expected following the sales tax hike.



    JPY

    Bank of Japan 2014 Monetary Base Target

    ¥270T

    ¥270T

    0:30

    AUD

    Westpac Consumer Confidence Index (MAY)



    99.7

    The retail sentiment figure has declined from a Nov 2013 high of 110.35 to March 2014 low of 99.46. Traders may be more concerned of S&P's rating warning to Australia, and external risks, particularly the slowdown in China.

    0:30

    AUD

    Westpac Consumer Confidence (MAY)



    0.3%

    1:00

    AUD

    Skilled Vacancies (MoM) (APR)



    -0.2%



    1:30

    AUD

    Wage Cost Index (QoQ) (1Q)

    0.7%

    0.7%



    1:30

    AUD

    Wage Cost Index (YoY) (1Q)

    2.6%

    2.6%



    3:00

    NZD

    Credit Card Spending (MoM) (APR)



    1.3%

    This concept measures the outstanding credit used by consumers to finance purchases of goods or services.

    3:00

    NZD

    Credit Card Spending (YoY) (APR)



    8.1%

    5:00

    JPY

    Supermarket Sales (YoY) (APR)



    9.4%



    7:00

    CHF

    Money Supply M3 (YoY) (APR)



    9.0%

    Measures the total amount of money in circulation in a country or group of countries.

    8:00

    EUR

    Euro-Zone Current Account s.a. (euros) (MAR)



    21.9B



    8:00

    EUR

    Euro-Zone Current Account n.s.a. (euros) (MAR)



    13.9B

    8:30

    GBP

    Bank of England Meeting Minutes





    Traders will look through the BoE minutes for information on housing, a recent area of interest for policymakers given the explosive rate of price gains in urban markets. BoE Governor Mark Carney said surging house prices pose the biggest risk to U.K. economy.

    8:30

    GBP

    Retail Sales ex Auto (MoM) (APR)

    0.5%

    -0.4%

    8:30

    GBP

    Retail Sales ex Auto (YoY) (APR)

    5.3%

    4.2%



    8:30

    GBP

    Retail Sales inc Auto (MoM) (APR)

    0.4%

    0.1%



    8:30

    GBP

    Retail Sales inc Auto (YoY) (APR)

    5.1%

    4.2%



    14:00

    EUR

    Euro-Zone Consumer Confidence (MAY A)

    -8.0

    -8.6

    This concept tracks retail sentiment and is expected to report at the highest level in over 5 years. Unlikely to provide meaningful support for EUR.

    14:30

    USD

    DOE U.S. Crude Oil Inventories (MAY 16)



    947K

    The central issue relating to US monetary policy is whether the Fed will continue "tapering" its asset purchases leading to the program ending later this year, and laying the foundation for interest rate hikes.

    14:30

    USD

    DOE U.S. Distillate Inventory (MAY 16)



    -1124K

    14:30

    USD

    DOE U.S. Gasoline Inventories (MAY 16)



    -772K



    18:00

    USD

    Federal Open Market Committee Meeting Minutes







    22:00

    NZD

    ANZ Job Advertisements (MoM) (APR)



    1.1%





    GMT

    Currency

    Upcoming Events & Speeches

    3:00

    JPY

    BoJ Gov Kuroda to Speak at Press Conference

    14:00

    USD

    Fed's William Dudley Speaks on U.S. Economy

    15:30

    USD

    Fed Chair Janet Yellen Speaks on U.S. Economy

    16:50

    USD

    Fed's Esther George Speaks on U.S. Economy

    17:00

    GBP

    BoE's Andy Haldane Speaks on U.K. Economy

    17:30

    USD

    Fed's Narayana Kocherlakota Speaks on Monetary Policy







    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

    13.5800

    2.3800

    12.7000

    7.8165

    1.3650



    Resist 2

    7.5800

    5.8950

    6.5135

    Resist 1

    13.1500

    2.3000

    11.8750

    7.8075

    1.3250



    Resist 1

    6.8155

    5.8475

    6.2660

    Spot

    12.8967

    2.0968

    10.3637

    7.7522

    1.2514



    Spot

    6.5914

    5.4445

    5.9346

    Support 1

    12.8350

    2.0700

    10.2500

    7.7490

    1.2000



    Support 1

    6.0800

    5.3350

    5.7450

    Support 2

    12.6000

    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

    1.3796

    1.6904

    102.26

    0.8983

    1.0936

    0.9377

    0.8689

    140.38

    1312.53

    Res 2

    1.3774

    1.6881

    102.08

    0.8968

    1.0921

    0.9359

    0.8671

    140.09

    1307.71

    Res 1

    1.3753

    1.6858

    101.91

    0.8952

    1.0906

    0.9341

    0.8652

    139.81

    1302.89

    Spot

    1.3711

    1.6812

    101.55

    0.8921

    1.0876

    0.9305

    0.8615

    139.23

    1293.26

    Supp 1

    1.3669

    1.6766

    101.19

    0.8890

    1.0846

    0.9269

    0.8578

    138.65

    1283.63

    Supp 2

    1.3648

    1.6743

    101.02

    0.8874

    1.0831

    0.9251

    0.8559

    138.37

    1278.81

    Supp 3

    1.3626

    1.6720

    100.84

    0.8859

    1.0816

    0.9233

    0.8541

    138.08

    1273.99

    v




















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    Source: DailyFx


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