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Dollar At Multi-Month Highs Across Market, Still Not a Secure Trend

by DailyFX - Forex Market News on May 9, 2012

in Forex, Technical Analysis

  • Dollar At Multi-Month Highs Across Market, Still Not a Secure Trend
  • Euro Posts its First Close Under 1.3000 Against Dollar in Nearly Four Months
  • British Pound: Should We Put Any Stock into the BoE Rate Decision?
  • New Zealand Dollar Suffers First 8-Day Decline Versus Dollar in Over a Decade
  • Australian Dollar Within Stone’s Throw of Parity with AUDUSD
  • Japanese Yen: Another High Reminds us of the Importance of Risk Trends
  • Gold Extends its Stumble Despite Safe Haven Appeal

Dollar At Multi-Month Highs Across Market, Still Not a Secure Trend

The Dow Jones FXCM Dollar Index tested the even 10,000 level and subsequently set a four-week high. That said, the benchmark is still well below the threshold of a new and meaningful bull trend. This reticence is absolutely reasonable as we find other gauges of sentiment holding back from making the larger transition to outright and potentially panicked deleveraging. Notable, the S&P 500 and Dow Jones Industrial Average sit threatening at the bottom of congestion (1350 and 12750 respectively). These are ideal gauges for the greenback itself because they represent the direct efforts of stimulus. If the market’s confidence (hope?) in intervention falters, that would be true risk aversion.

Euro Posts its First Close Under 1.3000 Against Dollar in Nearly Four Months

The fundamentals have deteriorated even further for the euro this past session, and the currency suffered for it. With the exception of the Australian dollar (which countered with its own anti-risk sell off), the number two reserve currency posted a uniform decline across the board. For fundamental traders, the most remarkable move on the session came from EURUSD which finally closed below 1.3000 for the first time since January 20. Finally clearing months of indecision, we could treat this as the catalyzing move for a meaningful bear trend like the one the Aussie dollar has found itself in. That said, the important eighth day of consecutive decline likely comes from inherent Euro-area troubles. That is not in and of itself a non-starter for the bear trend argument, but it deviates from underlying risk trends that are still holding the line. Further, the immediate euro bearish catalysts may have been put on ice. Though Greece is likely to stumble through its government issues for weeks, the EFSF has agreed to pay out its next €5.2 billion tranche. In the meantime, in Spain, troubled Bankia-BFA has been nationalized. Buying time…

British Pound: Should We Put Any Stock into the BoE Rate Decision?

The sterling was a mixed bag this past 24 hours. Against the fundamentally troubled euro and the high-risk / high-yield comm bloc, the pound showed modest gains. Then again, when set against the safe haven dollar and funding-prevalent yen; the currency was racking up losses. What does that tell us about the sterling – it is essentially in the middle of the risk spectrum and performs as well as its counterpart is performing. We may be able to change that tune in the upcoming session though with the release of a notable round of fundamental event risk. The March industrial production numbers and later-released NIESR GDP estimate figure for April will tap into the growth discussion. In that capacity, it could stir the market modestly depending on how great the surprise. The potential ‘fat tail’ event is the BoE rate decision. The probability is low that a boost to the asset purchase program will be announced, but Posen’s neutral turn came before news of the double dip recession.

New Zealand Dollar Suffers First 8-Day Decline Versus Dollar in Over a Decade

For weeks the New Zealand dollar was falling well behind the Aussie currencies bearish curve. That said, the kiwi has caught up in a very short period of time. With Wednesday’s close, NZDUSD has officially rounded out its eighth consecutive decline – that is the most consistent bear trend for the pair in over a decade. Looking at the progress made on unwinding risky positioning, the general bearing comes as no surprise; but why did the kiwi hold off until just recently? Rate expectations. Where the Aussie dollar maintained its sell off when risk trends were otherwise balanced thanks to the expectations of regular cuts from the RBA, the kiwi held up against risk selling pressure due to its modest hawkish bearing. As of this morning, there is a 57 percent probability of an RBNZ rate cut next month and 30 bps worth of cuts over 12 months.

Australian Dollar Within Stone’s Throw of Parity with AUDUSD

With capital markets on the lam and the Aussie interest rate landscape virtually guaranteeing another 100 basis points of easing over the coming year, the Aussie dollar easily succumbed to another drop against its US counterpart. For those keeping tab, that is seven bearish days in the past eight trading sessions. My interest, however, is hard levels (which is unusual). With Wednesday’s drop, AUDUSD has come with 20 pips of touching parity. You don’t have to be a technical trader to understand the prominence and magnetism of a 1.0000 exchange rate; but just in case you are of the technical sort, it is worth noting that parity also happens to be where a prominent rising trendline from April 2009 currently sits. Yet, a return to that round figure may take a little longer than some had expected following the reaction to April employment figures. The headline 15,500 increase beat the 5,000 contraction expected, but it was the drop in the jobless rate to 4.9 percent the really matters. Follow through on the other hand is not in the hands of this indicator. It belongs to risk trends. If deleveraging continues, this bounce will fade quickly.

Japanese Yen: Another High Reminds us of the Importance of Risk Trends

Another day and another multi-month high for the Japanese yen against many of its most liquid counterparts. For USDJPY, Wednesday’s trading session ended 79.61 to officially obliterate the short-term support of the past two weeks. As has been the case since this benchmark pair toped after its aggressive rally in early March, we shouldn’t be jumping in on longs until the fundamental support aligns to the technical. And, with the yen crosses that translates into a stabilization and recovery in risk appetite that supports carry trade interest. Recently, rumors have started to circulate that the Bank of Japan will make a move to intervene with USDJPY sliding back below 80 and the Nikkei 225 testing 9000. Yet, we should look beyond the possibility of intervention and gauge its effectiveness. Recall that the additional 10 trillion yen boost to the asset purchase program just recently leveraged little reaction from the currency. Direct intervention could prove just as ineffective.

Gold Extends its Stumble Despite Safe Haven Appeal

For those that are still looking for the simple fundamental connection on gold, the metal is simply not following its expected fundamental line. The precious metal’s role as a safe haven and alternative store of wealth is still the go to understanding for many. And, while those are still functions that the unique asset will follow; we must remember that when trading fundamentals, the market always follows the most market-moving driver. In gold’s case, the top catalyst is the dollar. As the most liquid currency – the greenback is the litmus test in the need for an alternative to traditional currencies. Furthermore, when risk aversion really heats up, concerns over liquidity undermine gold’s traditional safe haven appeal and inversely leverage the dollar higher. If the US equity benchmarks take out support, the previous metal will likely be another victim.

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ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

-:-

EUR

Greece Unemployment Rate (FEB)

21.8%

At the forefront of austerity, important read from Greece

1:30

AUD

Employment Change (APR)

-5.0K

44.0K

A weak print, coming after Tuesday’s surplus budget announcement, to further fuel expectations of continued RBA rate cuts

1:30

AUD

Unemployment Rate (APR)

5.3%

5.2%

1:30

AUD

Full Time Employment Change (APR)

15.8K

5:00

JPY

Eco Watchers Survey: Current (APR)

51.8

Japanese economic outlook remains uncertain with resurgent Yen

5:00

JPY

Eco Watchers Survey: Outlook (APR)

49.7

6:45

EUR

French Industrial Production (YoY) (MAR)

-1.3%

-1.9%

Manufacturing and industrial-sector figures expected to be in line with previous week’s PMI figures showing deepening contraction

6:45

EUR

French Central Govt. Balance (Euros) (MAR)

-24.2B

6:45

EUR

French Manufacturing Production (YoY) (MAR)

-2.8%

-3.7%

8:00

EUR

ECB Publishes May Monthly Report

8:00

EUR

Italian Industrial Production wda (YoY) (MAR)

-6.2%

-6.8%

8:30

GBP

Industrial Production (MoM) (MAR)

-0.3%

0.4%

Most recent UK manufacturing PMI worse than expected, showing UK industry on verge of contraction

8:30

GBP

Industrial Production (YoY) (MAR)

-2.6%

-2.3%

8:30

GBP

Manufacturing Production (MoM) (MAR)

0.5%

-1.0%

8:30

GBP

Manufacturing Production (YoY) (MAR)

-1.3%

-1.4%

11:00

GBP

BOE Asset Purchase Target (MAY)

325B

325B

Focus to be on degree of support within MPC for expanding Asset Purchase Facility

11:00

GBP

BOE Rate Decision (MAY 10)

0.50%

0.50%

12:30

CAD

New Housing Price Index MoM (MAR)

0.2%

0.3%

Real-estate bubble concerns contributing to BoC rate-hike expectations

12:30

CAD

New Housing Price Index YoY (MAR)

2.4%

2.3%

12:30

CAD

Int’l Merchandise Trade (MAR)

0.50B

0.29B

12:30

USD

Import Price Index (MoM) (APR)

-0.2%

1.3%

US trade deficit expected to widen

12:30

USD

Import Price Index (YoY) (APR)

0.8%

3.4%

12:30

USD

Trade Balance (MAR)

-$50.0B

-$46.0B

12:30

USD

Initial Jobless Claims (MAY 5)

369K

365K

US employment growth at slowest in 6 months

12:30

USD

Continuing Claims (APR 28)

3275K

3276K

14:00

GBP

NIESR GDP Estimate (APR)

0.1%

UK in first double-dip recession since 1970s

18:00

USD

Monthly Budget Statement (APR)

$30.0B

-$40.4B

22:45

NZD

NZ Card Spending – Retail MoM (APR)

0.5%

0.3%

NZ inflation remains benign while stronger currency in April has dampened economic activity

22:45

NZD

NZ Card Spending – Total MoM (APR)

0.5%

-0.2%

22:45

NZD

Food Prices (MoM) (APR)

-1.0%

23:01

GBP

Nationwide Consumer Confidence (APR)

53

Steadily improving since end of 2011, but UK consumer sentiment could take turn for worse with economy in recession

GMT

Currency

Upcoming Events & Speeches

13:30

USD

Fed Chairman Bernanke Speaks on Bank Capital in Chicago

17:20

USD

Fed’s Kocherlakota Speaks on Monetary Policy ion Minneapolis

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

16.5000

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

14.3200

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

13.5369

1.7942

8.0085

7.7632

1.2522

Spot

6.8833

5.7444

5.8316

Support 1

12.5000

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.4295

7.7450

1.1800

Support 2

5.8085

4.9115

4.9410

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist. 3

1.3089

1.6276

80.44

0.9392

1.0105

1.0189

0.7957

104.55

130.22

Resist. 2

1.3052

1.6241

80.25

0.9364

1.0082

1.0157

0.7931

104.18

129.81

Resist. 1

1.3015

1.6207

80.05

0.9336

1.0060

1.0126

0.7906

103.82

129.40

Spot

1.2941

1.6138

79.67

0.9281

1.0015

1.0063

0.7854

103.10

128.57

Support 1

1.2867

1.6069

79.29

0.9226

0.9970

1.0000

0.7802

102.38

127.74

Support 2

1.2830

1.6035

79.09

0.9198

0.9948

0.9969

0.7777

102.02

127.33

Support 3

1.2793

1.6000

78.90

0.9170

0.9925

0.9937

0.7751

101.65

126.92

v

Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com.

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