Dollar Extends Longest Rally Since Before 2000, Can Risk Extend it?
Dollar Extends Longest Rally Since Before 2000, Can Risk Extend it?
Euro Already Showing Market Fear of an ECB Stimulus Shift
British Pound Takes Recession Fear Hit Friday, BoE Up Next Week
Japanese Yen Easing Losses Much of Week’s Gains on BoJ Expectations
Australian Dollar Faces Heavy Event Risk and a Tight Range
Canadian Dollar Shudders after GDP Data, Market Watches Slow BoC
Gold Sets Lowest Weekly Week in 8 Months, ETF Holds Drop 2.4 Percent
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Dollar Extends Longest Rally Since Before 2000, Can Risk Extend it?
It is finally upon us. Friday night, after failing to come to a last-minute agreement, US President Obama issued an order putting the automated spending cuts (‘sequester’) into action. The question moving forward is whether the market will respond to the negative economic implications of this action with a sharp change in speculative confidence that finally undermines equities’ bullish commitment or simply overlooks this development to focus on something more savory – like stimulus. The natural reference is to the speculation and reaction surrounding the Fiscal Cliff at the beginning of the year. After the 11th hour deal to forestall the round of automatic tax hikes and budget cuts, both the S&P 500 and dollar rallied – due to a relief from risk aversion and downgrade potential respectively. The sequester would seem to be the realization of the negative outcome to the Fiscal Cliff that never happened.
We will find out just how ruinous this is for sentiment when the markets open Monday, but the lead-in to the event suggests the wholesale deleveraging threat that has long incubated in the market’s psyche will not be triggered on this news alone. The fact that US equities advanced through Friday despite the high probability of these spending cuts being passed suggests the masses are far more economical in their evaluation of how this change will measure up to stimulus and an otherwise steady pace of growth. Forecasts by the CBO project cuts of approximately $1.2 trillion through the coming 9 years if fully realized. Yet, the first year is expected to suffer $85 billion through October 1; and the effort can be halted at any time by Congress as long as they have a deal to supplant the automatic program.
Risk appetite retains my attention heading into the new trading week, and it is increasingly important for the greenback winning further gains. Many believe that the benchmark currency is still inherently ‘oversold’, but the Dow Jones FXCM Dollar Index’s (ticker = USDollar) performance would refute that assumption. With Friday’s close, the index has advanced for five consecutive weeks – that’s the longest series of gains since historical price action is available going back to 1999. A currency that has run such an impressive drive while its central bank continues to pump more dollars into the market necessitates a meaningful catalyst. And, while a relative depreciation of its primary counterparts is a possible driver; it is risk aversion that carries the greatest hope. If we have to hold out through to NFPs for a sentiment stir, the opportunity will likely be lost.
Euro Already Showing Market Fear of an ECB Stimulus Shift
EURUSD dropped for a fourth consecutive week through Friday’s close – and that has more to do with euro losses than dollar gains. The currency’s fundamental health took a serious turn for the worst this past week after the outcome of the Italian election. As one of the ‘core’ members of the Eurozone, Italy is integral to the assumed strength of the entire region – especially when it comes to keeping with the commitment of reducing deficits at the expense of growth. Through Friday, DP party leader Bersani has stated that there will be no grand coalition with Berlusconi; while Five Star Movement party leader Grillo has said refused an alliance that conflicts with his anti-austerity platform. Trouble in Italy adds to a general negative sentiment that is never too far away from reviving financial crisis fears. With the Eurozone jobless rate hitting a fresh record high this past week, will the ECB be encouraged to action to offer relief at its upcoming meeting?
British Pound Takes Recession Fear Hit Friday, BoE Up Next Week
It doesn’t take much to remind investors of the threat of a triple dip recession in the United Kingdom – so the unexpected drop in the region’s February manufacturing survey was an effective catalyst. Nevertheless, the 150-pip drop from GBPUSD still seemed excessive. There is something more to this reaction than just a fear of economic contraction. Pound traders likely interpreted this data as a clear signal for the Bank of England (BoE) to add stimulus in its meeting this coming week. Yet, even if realized, does 25 billion pounds validate a 1300 pip plunge?
Japanese Yen Easing Losses Much of Week’s Gains on BoJ Expectations
The yen crosses advanced further through the end of the past week to recover lost ground and balance fears that the yen is in the midst of a significant rebound. Stubborn risk trends are the enabler of the end-of-week rebound – measuring 280 pips for USDJPY from its lows on the week. Yet, actual depreciation of the yen through its own momentum is going to struggle to provide an active bullish drive on the yen crosses. The next BoJ meeting with the dovish upgrade isn’t until April. The market will watch closely to see if nominee Kuroda talks policy Monday.
Australian Dollar Faces Heavy Event Risk and a Tight Range
AUDUSD is trading in a 100-pip range at this point and we are heading into one of the heaviest fundamental weeks for the Australian dollar in recent history. We may not need risk trends to complete a break for this pair. Without doubt, top event risk for the high-yield currency is the RBA rate decision. The swaps market is only pricing in a 17 percent probability of a 25bp cutat this meeting, but the group has remained consistently bearish and recently issued a report suggesting the currency was possibly overvalued. If that doesn’t get things moving, 4Q GDP might.
Canadian Dollar Shudders after GDP Data, Market Watches Slow BoC
Growth data printed close to the consensus forecasts offered up by economists Friday. The 0.2 percent contraction in GDP through December met expectations, as did the annualized 4Q print of 0.6 percent growth. The loonie was temporarily jolted by the data, but didn’t take to trend. The week ahead is loaded with a BoC rate decision, trade report, manufacturing survey and jobs data.
Gold Sets Lowest Weekly Week in 8 Months, ETF Holds Drop 2.4 Percent
Having lost much of its recovered ground, gold closed out this past week in the red – extending its short-term bearish performance to a four-week decline. The close for the higher time frame was the worst in 8 months and keeps that threat of a true reversal through a break of $1,525 dangerously close. Though less significant than the Fiscal Cliff, the sequester presents a possible credit and sentiment risk for the US; so there may be some anti-dollar interest to be found. Yet, the weekly 2.4 percent drop in gold holdings by ETFs – biggest in 18-months – is serious.
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
GMT | Currency | Release | Survey | Previous | Comments |
GBP | BoE/GfK Inflation Next 12 Mths | 3.5% | 5Q downtrend in inflation expectations show low economic growth forecasts | ||
0:00 | NZD | ANZ Commodity Price | 0.3% | Higher commodity prices could hurt trade balance | |
0:01 | GBP | Lloyds Business Barometer | 15 | Business sentiment had been on upturn prior to last month’s fall | |
0:01 | GBP | Hometrack Housing Survey (MoM) | 0.0% | Steady incline in home prices (YoY) beginning mid-2000 appears to have tapered off | |
0:01 | GBP | Hometrack Housing Survey (YoY) | -0.3% | ||
0:30 | AUD | Building Approvals (MoM) | 2.8% | -4.4% | Building approvals leading indicator or GDP growth, previous month (YoY) highest level in 2Y |
0:30 | AUD | Building Approvals (YoY) | 8.1% | 9.3% | |
0:30 | AUD | Company Operating Profit (QoQ) | -2.9% | Indicative of economic growth, 2Y avg. growth of 1.1% | |
0:30 | AUD | Inventories | -1.0% | 1.1% | Unpredictable indicator of recent due to high volatility |
0:30 | AUD | ANZ Job Advertisements (MoM) | 0.6% | -0.9% | Negative growth over last 11M, indicative of weakening job market |
8:00 | EUR | Spain Unemployment Change (FEB) | With Italy under pressure, negative sentiment may revive targeted fears of revived crisis from Spain | ||
9:30 | EUR | Euro-Zone Sentix Investor Confidence | -4.3 | -3.9 | Strong growth trend in 8/12, implying greater confidence in EU growth |
9:30 | GBP | Purchasing Manager Index Construction | 49 | 48.7 | Swings above and below 50, showing stagnation in UK construction |
10:00 | EUR | Euro-Zone Producer Price Index (MoM) | 0.5% | -0.2% | YoY and MoM multi-month downtrend in prices indicative of weak growth |
10:00 | EUR | Euro-Zone Producer Price Index (YoY) | 1.9% | 2.1% | |
14:45 | USD | ISM New York | 56.7 | NY PMI expansionary 6 of last 7 months, strong regional growth | |
22:30 | AUD | AiG Performance of Service Index | 45.3 | 12M straight of bust in AU service sector, may mean slowing overall economy |
GMT | Currency | Upcoming Events & Speeches |
(S) 8:00 | EUR | Greece Finance Minister Meets Troika Delegation |
00:30 | JPY | Confirmation Hearing for BoJ Gov Nominee Kuroda |
10:00 | EUR | EU, Euro Commission, ECB Officials Meet Labor Leaders |
13:00 | USD | Fed’s Yellen Speaks in Washington |
14:00 | EUR | Eurozone Finance Ministers Hold Regular Meeting |
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 | 15.5900 | 2.0000 | 9.2080 | 7.8165 | 1.3650 | Resist 2 | 7.5800 | 5.8300 | 6.1150 | |
Resist 1 | 15.0000 | 1.9000 | 9.1900 | 7.8075 | 1.3250 | Resist 1 | 6.8155 | 5.7350 | 5.8200 | |
Spot | 12.7584 | 1.7975 | 9.0642 | 7.7548 | 1.2404 | Spot | 6.4362 | 5.7262 | 5.7543 | |
Support 1 | 12.5000 | 1.6500 | 8.5650 | 7.7490 | 1.2000 | Support 1 | 6.0800 | 5.4440 | 5.5000 | |
Support 2 | 11.5200 | 1.5725 | 6.5575 | 7.7450 | 1.1800 | Support 2 | 5.8085 | 5.3350 | 5.3040 |
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 | 1.3142 | 1.5176 | 94.77 | 0.9512 | 1.0345 | 1.0290 | 0.8338 | 123.82 | 142.57 |
Resist. 2 | 1.3112 | 1.5141 | 94.48 | 0.9491 | 1.0326 | 1.0268 | 0.8316 | 123.33 | 142.12 |
Resist. 1 | 1.3082 | 1.5107 | 94.18 | 0.9471 | 1.0306 | 1.0246 | 0.8295 | 122.84 | 141.66 |
Spot | 1.3022 | 1.5038 | 93.59 | 0.9429 | 1.0268 | 1.0203 | 0.8252 | 121.87 | 140.75 |
Support 1 | 1.2962 | 1.4969 | 93.00 | 0.9387 | 1.0230 | 1.0160 | 0.8209 | 120.90 | 139.83 |
Support 2 | 1.2932 | 1.4935 | 92.70 | 0.9367 | 1.0210 | 1.0138 | 0.8188 | 120.41 | 139.37 |
Support 3 | 1.2902 | 1.4900 | 92.41 | 0.9346 | 1.0191 | 1.0116 | 0.8166 | 119.92 | 138.92 |
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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com
To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter
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