- Dollar Notably Unmoved Despite Early Risk Aversion Drive
- Euro Steady Despite Hit to Growth, Fresh Regional Financial Concerns
- Australian Dollar Slip Below 1.04 Against USD Draws No Follow Through
- Canadian Dollar Tumbles on Risk Correction, Disappointing Sales Data
- Japanese Yen Rebound Flagging, How Far Will this Trend Run?
- Swiss Franc Unmoved by SNB Member’s Warning of Constant Vigilance
- Gold Shows its True Colors on Simultaneous Drop with Risk Trends
Dollar Notably Unmoved Despite Early Risk Aversion Drive
There was a distinct ‘risk off’ mentality across the markets this past trading day; and yet, the dollar couldn’t capitalize on the move. With the S&P 500 below 1400, US Treasuries up for a third consecutive session and the yen crosses on fire, we would expect that the FX market’s liquidity provider would gain a little ground. Instead, the Dow Jones FXCM Dollar Index (ticker = USDollar) was virtually unchanged for a second day – just below the nicely rounded 10,000-figure. The performance problems of the benchmark currency may not have been a unique trait however. If we look at the performance of the various ‘risk-sensitive’ assets, we find that there was a marked restraint to the deleveraging effort. As would be expected, there was a sliding scale of reaction to the day’s risk aversion depending on how sensitive the asset was to capital flows. The benchmark S&P 500 index was down 0.7 percent though volume was notably restrained. AUDUSD posted a 0.7 percent drop of its own while EURUSD tallied an anemic 0.1 percent – a difference established by the significant yield differential between the two. The best performing risk set: the yen crosses. This is certainly a factor of carry; but more importantly, the yen was primed for a correction after being driven lower.
Heading into the final 24 hours of the week, the threat of a larger deleveraging move is hanging in the air. The right catalyst or concurrent risk-based moves for different assets could jump could leverage a vigilant market. However, we are working with limited volatility resources for the final trading session. The Chinese business sentiment and economic forecast survey generated little of the heat that the HSBC manufacturing activity report stoked Thursday morning. Adding to the scene, St. Louis Fed President Bullard said economic activity had improved markedly since last summer (a bullish factor for capital markets), but he further suggested that the policy authority may be at a “turning point” for its policy – perhaps giving an implicit approval of the market’s recent discount of QE3 expectation which sent the 10-year Treasury yield rallying. He went on to state explicitly that further asset purchases weren’t needed absent a significant economic deterioration and that better data could bring forward the first rate hike (markets moved the forecast to third quarter 2013 recently).
Euro Steady Despite Hit to Growth, Fresh Regional Financial Concerns
The euro was surprisingly stable through this past session given the quality of the event risk that crossed the wires. On the docket, the German and Euro Zone PMI figures for March were concerning. These indicators are good and timely proxies for the quarterly GDP figures. That said, the most notable readings were the 48.1-reading (a measure below 50 denotes contraction) for Germany’s manufacturing sector and 48.7 for the Euro-area’s composite suggest that projected recession won’t be avoided. Off the beaten path, we had more than a few interesting headlines. The IMF brought us back to Greece saying the country could find its next loan disbursement delayed if requirements aren’t met. Ireland reported a 0.2 percent contraction in 4Q growth, while its Finance Minister confirmed they were looking for an extension on their upcoming €3.1 billion bailout payment. The ECB’s Paramo said Portugal wouldn’t find a second bailout like Greece as that was clearly defined as a ‘one off’. And, German Finance Minister Schaeuble rounded us off by saying no firewall could stand a Spanish or Italian crisis.
Australian Dollar Slip Below 1.04 Against USD Draws No Follow Through
For AUDUSD, the 1.0400 level was a glaring level of defense for the Aussie dollar. Technical traders would peg it for a frequented level of support and resistance over the past 12 months as well as the 200-day moving average. Yet, the fundamentally inclined need only recognize it as a monthly low and progress on the bearish developments over the past weeks. To take us lower, the Chinese factory activity survey for March had to print a fifth consecutive contraction for a critical consumer of Australian exports. That said, there was a remarkable lack of follow through on the move (commensurate with the broader markets). This morning’s data would similarly fail to rouse volatility.
Canadian Dollar Tumbles on Risk Correction, Disappointing Sales Data
The Canadian dollar was drug lower by the same force as its Australian and New Zealand counterparts – the natural risk aversion that follows a strong technical break. However, there was a little bit more momentum and consistency to the loonie’s losses than its counterparts. The extra push can be attributed to the disappointing showing from the January retail sales figures. The 0.5 percent drop (excluding autos) was the biggest since April 2010. Coming up, we have inflation data. The headline year-over-year CPI reading is expected to accelerate to 2.7 percent.
Japanese Yen Rebound Flagging, How Far Will this Trend Run?
After six weeks of aggressive selling the yen was overdue for a sharp, bullish correction. That is exactly what we were met with through Thursday’s trading session. All the one-sided market needed to catch a breather was a catalyst, and drop from equities and other risk-sensitive markets was exactly what the doctor ordered. This goes a long way to explain why the yen crosses were the most volatile segment by a wide margin. Now the question is whether this was a deep enough pullback to opening the door for an undisturbed bull trend for the crosses…
Swiss Franc Unmoved by SNB Member’s Warning of Constant Vigilance
Nothing short of action may be capable of driving the Swiss franc – that or we will need to wait a long time for economic and financial improvement in the Euro Zone to draw capital out of the safe haven that is the Swiss banking sector. Yesterday, SNB member Moser warned the central bank was taking a “zero policy” stance and that the 1.20 floor sparked the recent “correction”. Fellow Member Danthine backed his fellow rate setter up by saying the 1.20 floor is “front and center” for policy. If they want a weaker franc, they will need to play offense.
Gold Shows its True Colors on Simultaneous Drop with Risk Trends
Over the past session, we would see risk aversion, a notable hit to growth expectations for China and Europe and renewed concern surrounding the Euro Zone. And yet, gold tumbled to a fresh two-month low during the session. In these otherwise quiet times, we can see what the metal follows for guidance: the dollar. With the Evans suggesting low rates would have to be abandoned if inflation hit 3 percent and Bullard suggesting the Fed may have turned the corner, the dollar gains notable traction against alternative, non-fiat stores of wealth.
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Next 24 Hours
Nationwide Consumer Confidence (FEB)
Confidence seeing turn
MNI Flash Business Sentiment Survey (MAR)
Chinese indices may fall as government targets lower growth
Conf Board China Leading Economic Index (FEB)
French PMI Manufacturing (MAR P)
French indices expected to grow on better economic developments
French PMI Services (MAR P)
BBA Loans for House Purchase (FEB)
House interest still weaker
Canadian inflation expected to rise, putting more pressure on bank to start raising rates in the near future
CPI (YoY) (FEB)
Bank Canada CPI Core (MoM) (FEB)
Bank Canada CPI Core (YoY) (FEB)
CPI Index (FEB)
New Home Sales (FEB)
Expected to follow week’s housing data
New Home Sales (MoM) (FEB)
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— Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com
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