News Column

Dollar Advances to 6 Week High, On Verge of Critical EURUSD Break

May 22, 2014

John Kicklighter

Talking Points:



  • Dollar Advances to 6 Week High, On Verge of Critical EURUSD Break
  • Euro: Economic Activity Readings Push ECB Further Towards Stimulus
  • Japanese Yen Crosses Rebound - How Long Does It Last?



    Dollar Advances to 6 Week High, On Verge of Critical EURUSD Break



    It's happening again. The S&P 500 is parked just below a record high at the same time the Dow Jones FXCM Dollar Index (ticker = USDollar) is tentatively turning a bear trend having closed a six-week high. Has the position of the currency as a 'safe haven of last resort' changed to one of a carry currency? No. This is a reflection of the quality of sentiment we are dealing with. Rather than look at the relationship between benchmark 'risk' gauge and 'safe haven', we can also refer to activity measures on the high-flying equity measure. Volatility already flat-lined recently below 12 percent - a rare occurrence over the past seven years - and this past session's push above 1,890 was forged on one of the lowest readings of volume outside of holidays on record. This has the characteristics of a zombie bull market where complacency and habit dictate progress rather than committed positioning. With Monday's market holiday, a struggle to rekindle momentum behind either a bullish break or bearish reversal should be expected. In the meantime, that may not prevent the dollar from edging out more serious technical levels. The trouble for the Euro, pullback from AUDUSD and GBPUSD, and the risk move on USDJPY may inadvertently forge a bull trend.



    Euro: Economic Activity Readings Push ECB Further Towards Stimulus



    The Euro's troubles don't end with EURUSD. Against the Japanese Yen, the world's second most liquid currency has turned a reversal despite a positive risk move; while a monetary policy contrast is pushing EURGBP to two-and-a-half year lows. The looming upgrade to the Eurozone stimulus program in two weeks is keeping the currency on a steady trajectory - with a slow leak in rate premium favoring momentum. In this past session, the regional PMI figures added another facet of certainty for the bear. While the figures didn't collapse, they certainly aren't compensating for shortfalls in other areas of the market and economy. Moving forward, a stimulus upgrade will slowly weigh on the Euro. To add a sense of haste to that move, a clear move to a QE-level move or a reversal of capital from the periphery could provide amplitude.



    Japanese Yen Crosses Rebound - How Long Does It Last?



    The yen crosses are amongst the more sensitive FX pairs to the ebb and flow in general risk trends. Therefore, a rebound for the group as global equities rallied is not necessarily a surprise. Yet, just as there is doubt over the waves of investor interest that will come as the S&P 500 and Nikkei 225 cross upper thresholds, expectations for carry interest at exceptionally low yields and against an abstinent BoJ are founded on circumspect beliefs. Looking ahead to next week, the Japanese docket is loaded. Consumer, business and trade figures will gauge economic health; jobs and spending the consumer; and CPI for monetary policy metrics. But if we are looking for that spark, it is with risk.



    British Pound Conviction Wilts as 1.7000 Comes Into View



    On the week, the British Pound is up against all of the majors. The rebound in interest rate expectations is sound - it just hasn't developed all at once. Following up on the better CPI readings and the BoE's lean towards a more timely tightening schedule in their minutes, the past session provided the details of the 1Q GDP reading - with notable improvements in private spending. However, like everything else off the docket, the reports breakdown has its misses: like the cooling in investment and the drop in exports. Through yields and forward swaps the UK rate forecast is still holding a substantial advantage; but that lead isn't building.



    Canadian Dollar Rallying Ahead of Inflation Data



    The Canadian dollar was the best performing major on the day despite a disappointing showing on the economic docket - retail sales unexpectedly contracted in March. Where was the currency finding its strength? Monetary policy. The bearings for the Bank of Canada haven't necessarily changed, but the market's perceptions are easing up on the dovish fears that the loonie had come under. If the yield outlook is indeed a key driving for the currency, the upcoming event risk may carry serious weight. TheApril CPI figures are due, and the consensus is for the headline reading to jump back to a 2.0 percent annual clip. That would pull it up to a two-year high and change carry talk.



    Emerging Market Index Jumps to 7 Month High, Currency Set Mixed



    Though the swell in risk appetite of late is founded on dubious levels of conviction, that doubt didn't dissuade the highly sensitive emerging market benchmarks from taking advantage. The MSCI Emerging Market ETF jumped a second consecutive day - by 0.7 percent - to top a level last seen in October. Yet, here too, volume seemed to be absent. Amongst the currencies within the class, the performance was notably mixed. The best performer on the day was the Turkey Lira run of 0.7 despite the central bank's decision to cut the benchmark lending rate and the Indian Rupee running 0.6 percent in the aftermath of the election. At the opposite end of the spectrum, the Brazilian Real dropped 0.4 percent despite a drop in the official jobless rate and a modest 0.3 percent slip for the Thai Baht as a military coup unfolded.



    Gold and Silver Flagging While Commodities Advance





    ECONOMIC DATA



    GMT

    Currency

    Release

    Survey

    Previous

    Comments

    2:00

    CNY

    Conference Board Leading Economic Index (APR)





    The Tiger economy continues to face an economic slowdown and an upbeat outcome may support AUD, NZD.

    6:00

    EUR

    German Gross Domestic Product s.a. (QoQ) (1Q F)

    0.8%

    0.8%

    Final estimates of first quarter German GDP are to show QoQ at highest level since 1Q 2012. These figures are final estimates and may do little to prop the Euro.

    6:00

    EUR

    German Gross Domestic Product w.d.a. (YoY) (1Q F)

    2.3%

    2.3%

    6:00

    EUR

    German Gross Domestic Product n.s.a. (YoY) (1Q F)

    2.5%

    2.5%



    6:00

    EUR

    German Private Consumption (1Q)

    0.7%

    -0.1%

    These indicators are useful for traders to assess the output growth and economic health. With GDP figures on tap it is likely traders will focus on the headline figures for directional cues, but an upbeat outcome may do little to discourage

    6:00

    EUR

    German Government Spending (1Q)

    0.3%

    0.0%

    6:00

    EUR

    German Capital Investment (1Q)



    1.4%



    6:00

    EUR

    German Construction Investment (1Q)



    1.4%



    6:00

    EUR

    German Domestic Demand (1Q)



    -0.7%



    6:00

    EUR

    German Exports (1Q)

    0.7%

    2.6%



    6:00

    EUR

    German Imports (1Q)

    1.1%

    0.6%

    8:00

    EUR

    German IFO - Business Climate (MAY)

    111.0

    111.2

    German business climate and expectations index are near the highest levels since 2011.

    8:00

    EUR

    German IFO - Current Assessment (MAY)

    115.3

    115.3

    8:00

    EUR

    German IFO - Expectations (MAY)

    106.7

    107.3



    12:30

    CAD

    Consumer Price Index (MoM) (APR)

    0.3%

    0.6%

    Key headline inflation rate is important in contact of BoC monetary policy, but inflation might lack the necessary punch this time around as Canadian dollar traders are seemingly more focused on housing market for a broader outlook regarding the single-currency.

    12:30

    CAD

    Consumer Price Index (YoY) (APR)

    2.0%

    1.5%

    12:30

    CAD

    Canada Consumer Price Index Core (MoM) (APR)

    0.2%

    0.3%



    12:30

    CAD

    Canada Consumer Price Index Core (YoY) (APR)

    1.4%

    1.3%



    14:00

    USD

    Releases New Home Sales Revisions







    14:00

    USD

    New Home Sales (APR)

    425K

    384K

    14:00

    USD

    New Home Sales (MoM) (APR)

    10.7%

    -14.5%





    GMT

    Currency

    Upcoming Events & Speeches

    7:30

    EUR

    ECB's Luis Linde Speaks on Euro Economy

    7:30

    EUR

    ECB's Sabine Lautenschlager Speaks on Euro Economy

    10:00

    EUR

    ECB Publishes 3-Year LTRO Repayment









    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

















    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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