DailyFX

Dollar Advances a Third Day as S&P 500 Returns to Critical Level

John Kicklighter

  • Dollar Advances a Third Day as S&P 500 Returns to Critical Level

  • Euro: It’s Core Versus Periphery Eurozone Once Again

  • Japanese Yen: Market Weighs BoJ Success in Dense Round of Data

  • New Zealand Dollar: Does the RBNZ’s Announcing Intervention Help?

  • British Pound Drops Against Most of the Majors after GDP Revision

  • Swiss Franc: EURCHF Resolves Congestion, Swiss Companies Concerned

  • Gold Struggling around $1,200 Just Before the Quarter End

Dollar Advances a Third Day as S&P 500 Returns to Critical Level

Has the market already fully discounted the impact of the Fed ‘Taper’? With the S&P 500 charging higher on its strongest three-day rally in five months, it seems that investors have accounted for – or simply forgotten – the detriment of a smaller stimulus backstop. In the past weeks and months, there has clearly been a positioning shift in recognition that the world’s largest central bank would eventually wean the market of its dependency on supranatural support. The most dramatic adjustments were seen in those assets that were most distinctively exposed either as particular Fed assets or simply via excessive exposure / leverage. The iShares-Barclay’s mortgage-backed securities (MBS) bond fund has retraced half of its gains since 2009 and the 10-year Treasury yield has risen 65 percent in eight weeks. Those are assets the Fed is directly buying. A peak-to-trough 7.5 percent retracement in the S&P 500, 3.2 percent EURUSD drop and average 6.7 percent correction from yen crosses (carry trade) is comparatively tame. Adeeper risk aversion move is highly likely, but the Taper catalyst may have been used up.

Euro: It’s Core Versus Periphery Eurozone Once Again

It has been said many times before that there is a two-speed recovery in the Eurozone. That split is more obvious now than ever – and that should concern investors. This past session was chock-full of event risk to update us on the region’s health. On the positive side, the region’s largest economy – Germany – reported an unexpected 12,000-position drop in unemployment that set the jobless rate at 6.8 percent in June – near the lowest rate Unification. Furthermore, the broader region’s economic confidence survey for the current month would also rise to the highest level in 13 months. Unfortunately, crises arise from the weakest links - not the strongest. Ireland – expected to soon exit the comfort of its bailout program – reported 1Q GDP with a hefty 0.6 percent economic contraction alongside a sizable downward revisions to the previous period’s reading. News is circulating that the Greece government is at risk of seeing its second largest privatization deal falling through and delaying necessary aid. And, Cyprus was approved for its €1 billion debt swap – while central bank data showed massive deposit outflows.

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