DailyFX

Euro May not Hold Back the Tides on ECB Cut, Fresh Cyprus Trouble

John Kicklighter

  • Dollar Retreats from Serious Breakout with Fed and NFPs Ahead

  • Euro May not Hold Back the Tides on ECB Cut, Fresh Cyprus Trouble

  • Japanese Yen Starts to Gain after BoJ Hold – Just the Beginning?

  • British Pound Extends its Recovery as Market Realizes Stimulus Not in Cards

  • Canadian Dollar Taps GDP and Trade Data as Carney Set to Speak Again

  • Swiss Franc Updates on its Market Exposure

  • Gold Posts Best Weekly Rally Since January 2012 – All it Took was a Collapse

Dollar Retreats from Serious Breakout with Fed and NFPs Ahead

The dollar seems to slip back into its customary position on the risk spectrum this past week with a retreat that mirrored the S&P 500’s persistence. However, risk trends and dollar bearings may be shaken in the near future as trader prepare for the Fed rate decision and April NFPs. Regardless of what delivers the push, a catalyst for the greenback is desperately needed – particularly if the ambition is to carry the benchmark currency higher. From the Dow Jones FXCM Dollar Index (ticker = USDollar), we can see the risk in the flagging bullish momentum. Having failed to overtake the mid-point of the index’s past decade trading range – fixed just below 16,000 – there is a clear risk for profit taking and reversal. The same assessment can be made when looking at EURUSD as it struggles at 1.3000 and USDJPY after the tentative change of trend after failing to overtake 100. When we talk about fundamental divergence, there is a credible argument to be made that risk trends are ‘overbought’ relative to the historically low yields and questionable confidence established in central bank stimulus. Yet, these obstinate inconsistencies have proven durable. The dollar’s ability to climb alongside ill-founded risk appetite though…

An effort to close the gap between dollar and sentiment trends may be made through the upcoming event risk. The Federal Reserve Open Market Committee (FOMC) rate decision is a key opportunity to stir risk aversion – which is dollar bullish – or inversely deflate the greenback’s strength. The market and media has become deeply divided over assumptions that the central bank will ease the pace of QE purchases well before year end or that it will actually increase the effort. If the balance holds towards a drop in asset purchases before 2013 closes, it will dampen moral hazard and open other regions to play catch up in the stimulus race. The other well-known catalyst to watch if the April labor report (bring the economic calendar to your charts). Habit encourages traders to respond to the outcome relative to the consensus, but the real reaction is one layer deeper as we know the jobless rate is a factor in the Fed’s stimulus plans.

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