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Forex pairs in this Article » USDOLLAR, GOLD, EUR/USD, USD/JPY, GBP/USD
  • Dollar at Risk of Lasting Bear Trend if S&P 500 Doesn’t Capitulate
  • Japanese Yen Wins Biggest Rally in 3 Years, USDJPY Eyes 95
  • Euro: Will the OMT Hold Up to Market Pressure?
  • New Zealand Dollar: Setting Expectations for the RBNZ Rate Decision
  • British Pound Looks to Jobs Data to Push GBP/USD Above 1.5700
  • Swiss Franc: Parliamentary Committee May Disrupt Break of Bank Secrecy
  • Gold Meanders Below $1,400 as Volume Dries Up
Dollar at Risk of Lasting Bear Trend if S&P 500 Doesn’t Capitulate

An effort by the US dollar to recover its footing ended miserably this past session – but the bears haven’t been allowed free rein over the benchmark currency just yet. For the Dow Jones FXCM Dollar Index (ticker = USDollar), the 0.7 percent slip Tuesday was third sharpest in 2013. It also so happens that the previous two larger stumbles came this past week. This speaks to an increasingly volatile market backdrop which can often open the door for a far more prolific trend development given the correct push. Yet, with the USDollar facing significant support between a multi-year range mid-point at 10,560 and 100-day moving average at 10,500; leveraging the bears’ drive is perhaps more difficult that current fundamentals permit. Weakness over the past few weeks owes much of its existence to the eased fear of the Fed ‘tapering’ its stimulus program next Wednesday at the June policy meeting. The influence of this tempered dollar driver has shown itself in the S&P 500’s ability to hold 1,600 support, but a weak 3-year Treasury auction shows that the shift is inevitable. Stimulus and risk threaten to set each other off.

Japanese Yen Wins Biggest Rally in 3 Years, USDJPY Eyes 95

The Japanese yen soared this past session in the aftermath of the Bank of Japan’s (BoJ) monetary policy announcement. USDJPY tumbled 2.8 percent for the biggest drop in three years, EURJPY collapsed 3.1 percent (only tipping a three-month record) and AUDJPY retreated 3.0 percent (only the biggest slip in two months). Aside from breaking recent records for momentum, we should note how universal the move was as evidence that a fundamental nerve was tapped. Considering the benchmarks for stimulus-supported risk appetite weren’t in freefall, we can deduct that this was yen-specific fare. It is therefore interesting to note that a ‘no-change’ outcome from the central bank was translated into a broad unwinding of yen crosses. This reaction tells us a lot about how far the market has priced in Japan’s stimulus effort. If an expected decision to keep the monetary base expansion target to ¥60-70 trillion leads to a reversal in the BoJ’s unspoken yen-devaluation effort, it suggests the market priced in too much. We’ve retreated to key support for USDJPY (95) and other pairs, but what provokes this bear?

Euro: Will the OMT Hold Up to Market Pressure?

European policy officials were debating the efficacy and legality of the Outright Monetary Transactions (OMT) program this past session. Both the ECB’s Asmussen and Bundesbank’s Weidmann were testifying to the German Constitutional Court this past session with mixed views. Weidmann voiced his belief that the central bank was not responsible for absorbing the excess risk of sovereign debt. However, it was the generally supportive Asmussen that earlier posed the more interesting question: what happens to those countries that need help but don’t meet the requirements of the OMT? This is a more likely scenario than the market seems to be considering as general risk appetite holds buoyant. But for how long? Spanish, Italian and Greek 10-year bond yields are up over 18 percent from May lows

New Zealand Dollar: Setting Expectations for the RBNZ Rate DecisionTop scheduled event risk for the next 24 hours of trade is the RBNZ rate decision. However, this may be a title in recognition rather than probability for market influence. The Reserve Bank of New Zealand has maintained its benchmark lending rate at 2.50 percent since its last cut back in March 2011. Looking at overnight swaps, the market see zero probability that a change in this rate is on the menu – though the 12-month forecast is still showing debate over the chances of a 25bp hike. What we should really look for in this particular meeting – and those over the coming months – is the level of concern in market volatility and expectations of inflation. While Governor Wheeler is unlikely usher a rate change in, he has shaken the market with the admission of modest intervention back on May 8. How consistent is this effort..

British Pound Looks to Jobs Data to Push GBP/USD Above 1.5700

There is still considerable speculation over the probability of the Bank of England (BoE) changing its monetary policy bearing when new Governor Marc Carney comes on board as well as the changes that would come should a ‘Triple Dip’ recession threat return. Yet, both of these vague concerns are further into the future than the average FX trader typically scans. Therefore, we shouldn’t assume these drivers will have sway unless there is something to materially stir them. Meanwhile, we look for cross currents – like the dollar’s tumble for GBPUSD – or look for event risk that can stir short-term volatility. In the upcomingsession, we have the May employment figures. This could theoretically change the fate of future GDP readings or monetary policy; but we are likely to see far more concrete results in short-term volatility.

Swiss Franc: Parliamentary Committee May Disrupt Break of Bank Secrecy

Over the past three years, most of our analysis for the Swiss franc was sourced from risk trends (as a safe haven) or the euro (due to the unnatural hold for EURCHF at 1.2000 due to manipulation). However, the evidence that the franc is moving further and further away from these dynamics continues to grow. Correlations between the Swiss currency and its Japanese and US counterparts have retreated. Further confirmation of this separation is seen in the level of swing for pairs like USDCHF and EURCHF. There is something far more prolific at work that can unseat the franc’s normal fundamental role. This past session a committee for the Swiss Parliament recommended a vote against law that would allow banks to circumvent secrecy laws while providing US authorities documentation on its citizens that sought out bank accounts to avoid taxes. This can substantially change the ‘safety’ appeal of the currency. The Upper House is set to vote on this bill today.

Gold Meanders Below $1,400 as Volume Dries Up

Both the USDollar and risk appetite (measured through US equities) suffered this past session, but gold seems simply incapable of living up to its ‘safe haven’ and ‘alternative store of wealth’ roles. The precious metal closed 0.6 percent lower at the end of the New York session Tuesday on increasingly anemic volume (the 7.2 million shares in the GLD ETF was well below the two-week average) and flimsy participation levels. Looking at futures, aggregate open interest is near four-year lows; while ETF holdings of the commodity dropped to 68.4 million ounces – the lowest level of exposure in over two years. Where’s the disconnect? Volatility. Despite a settling in heavy price swings for gold since the April crash through $1,500, the CBOE’s Gold Volatility Index is still 75 percent higher than before this seismic event. Hardly safe haven inspiring.

**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

0:30

AUD

Westpac Consumer Confidence (JUN)

-7.0%

0:30

AUD

Westpac Consumer Confidence Index (JUN)

97.6

1:30

AUD

RBA Credit Card Balances (APR)

$A49.7B

1:30

AUD

RBA Credit Card Purchases (APR)

$A20.2B

5:30

EUR

French Non-Farm Payrolls (QoQ) (1Q F)

-0.2%

-0.1%

6:00

EUR

German CPI (YoY) (MAY F)

1.5%

1.5%

6:00

EUR

German CPI - EU Harmonised (YoY) (MAY F)

1.7%

1.7%

6:45

EUR

French CPI (YoY) (MAY)

0.9%

0.7%

6:45

EUR

French CPI - EU Harmonised (YoY) (MAY)

0.9%

0.8%

6:45

EUR

French Current Account (euros) (APR)

-2.9B

8:00

EUR

Italian CPI - EU Harmonized (YoY) (MAY F)

1.3%

1.3%

8:30

GBP

Claimant Count Rate (MAY)

4.5%

4.5%

8:30

GBP

Jobless Claims Change (MAY)

-5.5K

-7.3K

8:30

GBP

Average Weekly Earnings inc Bonus (3MoY) (APR)

0.2%

0.4%

8:30

GBP

Average Weekly Earnings ex Bonus (3MoY) (APR)

0.8%

0.8%

8:30

GBP

ILO Unemployment Rate (3M) (APR)

7.8%

7.8%

8:30

GBP

Employment Change (3Mo3M) (APR)

-10K

-43K

9:00

EUR

Euro-Zone Industrial Production s.a. (MoM) (APR)

0.0%

1.0%

9:00

EUR

Euro-Zone Industrial Production w.d.a. (YoY) (APR)

-1.0%

-1.7%

11:00

USD

MBA Mortgage Applications (JUN 7)

-11.5%

14:30

USD

DOE U.S. Crude Oil Inventories (JUN 7)

-6267K

17:00

USD

US Treasury Sells 10-Year Treasuries (Reopening)

18:00

USD

Monthly Budget Statement (MAY)

-$110.0B

$112.9B

21:00

NZD

RBNZ Interest Rate Decision

2.50%

2.50%

23:50

JPY

Japan Buying Foreign Bonds (Yen) (JUN 7)

-1172.5B

23:50

JPY

Japan Buying Foreign Stocks (Yen) (JUN 7)

-137.3B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (JUN 7)

-119.7B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (JUN 7)

-191.1B

GMT

Currency

Upcoming Events & Speeches

5:00

JPY

Bank of Japan Economic Report

EUR

Bank of Portugal Releases Data on Banks

9:00

GBP

BoE's Paul Fisher Speaks on U.K. Economy

EUR

ECB's Benoit Coeure Speaks on Central Banking

21:05

NZD

RBNZ Governor Graeme Wheeler Holds Press Conference

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

15.0000

2.0000

10.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.1150

Resist 1

12.9000

1.9000

10.2500

7.8075

1.3250

Resist 1

6.8155

5.8300

5.9365

Spot

12.8336

1.8926

10.0887

7.7642

1.2538

Spot

6.5510

5.6019

5.7784

Support 1

12.0000

1.6500

9.3700

7.7490

1.2000

Support 1

6.0800

5.6075

5.7400

Support 2

11.5200

1.5725

8.9500

7.7450

1.1800

Support 2

5.8085

5.4440

5.5000

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

1.3426

1.5775

97.98

0.9354

1.0277

0.9597

0.8016

130.44

153.09

Resist. 2

1.3398

1.5743

97.62

0.9328

1.0257

0.9565

0.7987

129.96

152.59

Resist. 1

1.3369

1.5710

97.27

0.9302

1.0236

0.9534

0.7958

129.49

152.08

Spot

1.3311

1.5646

96.56

0.9250

1.0196

0.9471

0.7901

128.54

151.08

Support 1

1.3253

1.5582

95.85

0.9198

1.0156

0.9408

0.7844

127.59

150.08

Support 2

1.3224

1.5549

95.50

0.9172

1.0135

0.9377

0.7815

127.12

149.57

Support 3

1.3196

1.5517

95.14

0.9146

1.0115

0.9345

0.7786

126.64

149.07

v

--- 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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