Filed Under:
  • Dollar Ready to Revive Bull Trend, Perhaps the Fed will Provide
  • Euro Unimpressed by Bond Swap, Stumbles on Greek Credit Event
  • Japanese Yen: Will the Bank of Japan Fuel the Fire with More Easing?
  • Canadian Dollar Rallies Against European Counterparts after Jobs Data
  • British Pound Subordinated to Hawkish ECB, Focus on Inflation
  • Swiss Franc Readies for SNB Rate Decision, Growth Forecasts, Sentiment Read
  • Gold Posts Dramatic Recovery after Greece's Technical Default


Dollar Ready to Revive Bull Trend, Perhaps the Fed will Provide

Despite the supposed improvement in the Euro-region's financial situation and expected boost to risk appetite seen through the US employment report, the safe haven dollar clearly came out on top through the end of this past week. In fact, the Dow Jones FXCM Dollar Index's rally on Friday was the largest since November 23rd and the benchmark's performance encouraged a positive performance on the week against all its most liquid counterparts. When those fundamental developments that normally lead a market to falter (risk appetite or euro strength for the dollar) show a diminished influence; we are seeing the first step towards an underlying sentiment shift. Now we need a dollar-positive driver to establish whether this is just a fundamentally impotent period or a true change in the sensibilities of the markets.

Looking ahead to the coming week, this particular fundamental balance will be put to the test. On deck Tuesday, we have the Federal Open Market Committee's (FOMC) policy decision. What the strung out capital market bulls will look for in this event is evidence that supports their expectations or hopes for another round of stimulus. There is little anticipation of QE3 following this particular event, but there is still clear speculation of another round later in the year. Should the statement follow Chairman Bernanke's recent testimony with no real entertainment to the notion of another program and the Fed Beige Book's improved outlook for economic activity, the scope for any further capital injections will evaporate. That in itself is a boon to the manipulated dollar, but it would be the collapse in overinflated risk appetite (S&P 500) that rallies bulls.

Euro Unimpressed by Bond Swap, Stumbles on Greek Credit Event

The euro was given everything it wanted last week&or at least everything you'd expect a bull to want. Not only did the ECB mark a shift away from stimulus expansion to the early stages of monitoring inflation for tightening, an immediate threat to regional stability was deferred. This past Friday was the day of reckoning for the fundamentally-inclined. It began early with the tally in the Greek PSI bond swap hitting 85.8 percent participation on ¬172 billion. That cleared the way for the country to use its collective action clauses (CAC) to complete a restructuring of its debt load and stave off an immediate default. The trouble was, there was little doubt that this would be the outcome. The alternative would have been too painful for officials and banks to tolerate. On that same token, the subsequent decision by the ISDA to call a 'credit event' to trigger CDS was likewise expected. So where do we go from here? The market starts to project what's next. Recession. Strains for Greece, Portugal, Ireland. Just as surely as the market concerns itself with the possibilities of further stimulus, the threat of renewed financial tension will be there.

Japanese Yen: Will the Bank of Japan Fuel the Fire with More Easing?

The Japanese yen ended off this past week with its third largest, single-day tumble against the US dollar in four months. At this point, the benchmark pair is up 8.4 percent since the beginning of February and now trades at a 10 month high. This particularly pairing, however, represents its worse showing. Over the past week, the yen has actually gained against the Australian and New Zealand dollars as well as the British pound. What are we to make of this: we are seeing risk aversion gaining traction, but the yen is no longer a favored player in the risk aversion scheme. Next week, we will watch the BoJ rate decision. Though it is heavily expected that the policy authority will stand pat, there is a latent risk that they may decide to leverage the yen's growth-supportive plunge by bumping up its asset purchases.

Canadian Dollar Rallies Against European Counterparts after Jobs Data

It isn't coincidence that the Canadian dollar managed an advance against all its most liquid counterparts with the exception of the US dollar last week. The loonie is 'drafting' the economic improvement in its larger counterpart. Add to that the hawkish turn that the Bank of Canada took after its decision to hold the benchmark rate and we have a structural, bullish case. As for the February employment data for the country, the net 2,800 jobs lost through the month was not as remarkable as the unexpected drop in the jobless rate to 7.4 percent.

British Pound Subordinated to Hawkish ECB, Focus on Inflation

When the financial health of the Euro Zone deteriorates, the sterling is in immediate jeopardy as the risk of a spillover crisis stokes traders' fear. Yet, in the subsequent relief from that indirect financial anxiety, the pound is slower to respond. So it was with the currency towards the end of this past week as Greek and EU officials hit their cues. What puts the sterling in an even worse position is that its bearings are still set towards further policy easing while ECB President Draghi has already started to talk about inflation. We saw output prices at the factory level jump and even a pullback in the 12-month inflation forecast brings the figure to 3.5 percent. But will policy officials firm up the outlook?

Swiss Franc Readies for SNB Rate Decision, Growth Forecasts, Sentiment Read

It's difficult to miss the absolute lack of direction for EURCHF. In risk averse markets where people are fleeing the financial troubles of the Euro-area, the franc naturally benefits (though not enough to bring EURCHF to tag that critical 1.2000 level). Yet, conversely, when conditions seem to improve for the world's most troubled region (even when it is speculation of that eventual improvement - often the catalyst for the preemptive speculators), the pair again fails to make progress. What will change the tides for this unnaturally moored pair? We will either need a lasting and strong recovery in risk appetite and confidence in the European markets, or we'll need the SNB to act. The central bank will have an opportunity this coming week with a scheduled rate decision, but it is unlikely that they will change policy. The market may need to force their hand.

Gold Posts Dramatic Recovery after Greece's Technical Default

Perhaps the most remarkable performance to end the week was not the dollar's surge or the yen plunge but gold's positive close. Risk appetite trends (the S&P 500) were up, the Greece pushed through its bond swap and the greenback itself was showing a strong performance. That hits all three of the primary fundamental drivers for the commodity with a supposedly negative drive. So where is the disconnect? Doubt in the persistence of risk appetite and the financial questions that (not to mention, stimulus) that remain with Greece's most recent effort to buy time.

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ECONOMIC DATA

Next 24 Hours

GMT
Currency
Release
Survey
Previous
Comments
(Sat)
CNY
Trade Balance (USD) (FEB)
-$5.70B
$27.28B
Both exports and imports expected to rise on better outlook, domestic consumption drives imports
(Sat)
CNY
Exports YoY% (FEB)
32.0%
-0.5%
(Sat)
CNY
Imports YoY%(FEB)
30.2%
-15.3%

23:50
(Sun)
JPY
Machine Orders (MoM) (JAN)

-7.1%
Japanese machine orders may continue to recover on long term basis
23:50
(Sun)
JPY
Machine Orders YOY% (JAN)

6.3%
23:50
(Sun)
JPY
Domestic CGPI (MoM) (FEB)

-0.1%
Domestic consumer prices still in deflation
23:50
(Sun)
JPY
Domestic CGPI (YoY) (FEB)

0.5%
(Sun)
CNY
New Yuan Loans (FEB)
750.0B
738.1B
Loans and money supply expected to increase as fine tuning may mean additional easing
(Sun)
CNY
Money Supply - M0 (YoY) (FEB)
13.5%
3.0%
(Sun)
CNY
Money Supply - M1 (YoY) (FEB)
6.0%
3.1%

(Sun)
CNY
Money Supply - M2 (YoY) (FEB)
12.8%
12.4%

0:01
GBP
Lloyds Employment Confidence (FEB)

-73
Index seeing some recovery
5:00
JPY
Consumer Confidence (FEB)

40
Confidence levels climbing higher
9:00
EUR
Italian GDP sa and wda (QoQ) (4Q F)

-0.7%
Italian output may remain stagnant
9:00
EUR
Italian GDP sa and wda (YoY) (4Q F)

-0.5%
21:45
NZD
Food Prices (MoM) (FEB)

0.0%
Driver of inflation calming
23:00
NZD
QV House Prices YoY% (FEB)

2.7%
Domestic real estate in demand
23:50
JPY
Tertiary Industry Index (MoM) (JAN)

1.4%
Services industries still higher


GMT
Currency
Upcoming Events & Speeches
18:00
USD
Monthly Budget Statement (FEB)


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 & 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
12.6425
1.7873
7.5692
7.7580
1.2544

Spot
6.8027
5.6653
5.7007
Support 1
12.6000
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
1.3271
1.5804
83.39
0.9294
0.9988
1.0709
0.8321
109.73
130.87
Resist. 2
1.3234
1.5772
83.16
0.9267
0.9967
1.0675
0.8294
109.35
130.47
Resist. 1
1.3197
1.5739
82.93
0.9241
0.9947
1.0642
0.8267
108.97
130.06
Spot
1.3123
1.5674
82.46
0.9188
0.9905
1.0576
0.8214
108.22
129.26
Support 1
1.3049
1.5609
81.99
0.9135
0.9863
1.0510
0.8161
107.47
128.46
Support 2
1.3012
1.5576
81.76
0.9109
0.9843
1.0477
0.8134
107.09
128.06
Support 3
1.2975
1.5544
81.53
0.9082
0.9822
1.0443
0.8107
106.71
127.66
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

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