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Talking Points:

  • Dollar Posts Fourth Measured Advance after Data Feeds the Taper
  • British Pound Breakout Building Alongside Gilt Yields
  • Euro Unfazed by Weak PMI Data, Spain Long-Term Debt Sale
Dollar Posts Fourth Measured Advance after Data Feeds the Taper

In the green through early trade Friday, the Dow Jones FXCM Dollar Index (ticker = USDollar) is working on its fifth consecutive daily advance. If we close this final session for the week in the green, it would be the first drive of this magnitude since the run through November 1 – notably, the beginning of a multi-month bull leg. Yet, consistency is not a complete measure of conviction. The drive behind this upswing is as subdued as the decline that preceded (a 10-day slide that covered only 160 points). A failure of this recovery and shift to more meaningful lows would require either the Fed abandoning its Taper ambitions or global capital markets embarking on a participation-heavy asset build up – low probability scenarios. Alternatively, a persistent speculative deleveraging is the best medicine for a dollar rally – probable but elusive.

British Pound Breakout Building Alongside Gilt Yields

Though a universal decline against the majors, the pound’s losses this past session were rather modest. Doubt over the Bank of England’s (BoE) rate ambitions may be gnawing at sterling bulls who have driven the currency higher over the past 8 months, but it the issue isn’t severe enough that rate hawks are having to abandon their positions. That may change soon. Following up on the uptick in the jobless rate and softening of inflation this week, we have heard BoE members reinforce the ‘2015 is a reasonable time frame’ mantra. Pound traders should keep an eye on 2-year Gilt yields. A tenor that matches the time frame for the first hikes, these yields look prone to a technical break.

Euro Unfazed by Weak PMI Data, Spain Long-Term Debt Sale

The Euro was little changed this past session, but that counts as a ‘strong’ performance given the fundamental developments on the day. The most accessible news on the day was the unexpected drop in the Eurozone’s February PMI figures (a leading growth reading) and the sharp miss in consumer sentiment survey for the same period. These are ultimately pullbacks in broadly improving trends, so the Euro impact remains reserved. A more remarkable measure of conditions was Spain’s auction of 5, 10 and 30-year bonds. The debt sale was met with strong demand expected with yields at six-year lows. Appetite for yield is driving capital to periphery Europe, and that may not change until risk falters.

Yen Crosses Shelve Reversal as Volatility Fails to Take

A tentative rally from the Japanese yen Thursday morning failed to take and reversal from the crosses reverted to congestion. As has been the case for months, the currency is following two prominent trends: carry appetite (a result of risk trends) and BoJ stimulus. On the former, the equity-based VIX Volatility Index barely bounced before it grew winded, and the impetus to deleverage expensive carry trades faded. Far more concerning for long-term yen cross bulls though should be the change in momentum from the Japanese central bank. The open-ended QE has helped lift inflation, but it is having limited success in sustaining growth. Meanwhile, record trade deficits, a loss of domestic purchasing power and impending tax hike are creating a dilemma for the need and efficacy of more support. Are the costs of stimulus matching its benfits?

Canadian Dollar Top Market-Mover Potential with Data Ahead

Friday’s economic docket is relatively light Friday, but the Canadian dollar certainly pulls its weight during the lull. The 13:30 GMT simultaneous release of December retail sales and January CPI will give both an economic activity and inflation read for policy officials. The Bank of Canada has pulled the ‘carry outlook’ rug from under the loonie, and the bleeding will likely only be staunched when the potential for tightening is once again on the same level as the RBNZ or even RBA. Neither report is expected to offer bulls/hawks much relief. In the week ahead, the weight of the data picks up noticeably with the fourth quarter GDP and current account balance due.

New Zealand Looks to Another Round of Important Data before RBNZ Hike

We are just under three weeks out from the Reserve Bank of New Zealand’s next policy decision. Yet, despite a near-certainty amongst market participants (96 percent according to swaps) and economists (14 of 15 polled by Bloomberg) that this event will end with a 25 bps rate cut to 2.75 percent, the New Zealand dollar is lower versus nearly every one of its counterparts over the past week and month. Interest rates are certainly a key pricing instrument for currencies, but this is also a forward looking market. Looking to swaps, we know the markets have been pricing over 100 bps worth of hikes 12 months out since mid-December. Unless the pace of the tightening is seen accelerating or the first moves are realized, the early adoption gains are potentially priced in. In the week ahead, fresh updates to the 2-year inflation outlook, trade and housing activity can at least shape the pace of the upcoming tightening cyle.

Emerging Markets Calendar Fills Out with GDP, Rate Decisions Next Week

A cursory look at the Emerging Market currencies this past session showed some sense of relief. The most sensitive of this grouping posted gains against the greenback as the ‘fear’ premium – the same in volatility measures – eased back. Yet, this is far from a systemic change. While the financial fear surrounding countries like Argentina, Venezuela and Ukraine have ebbed, the risks are still palpable. Looking ahead to next week, one eye should also be kept on our favorite ‘risk’ barometers as global volatility in capital flows is one of the Emerging Market’s greatest risks; but there is more tangible event risk to account for just ahead. The health of the developing world’s economies and financial markets has been peddles as a top priority for the G20 gathering in Australia – though policy that alters our course is unlikely. Later on, we have a docket packed with GDP readings (from Brazil, India, South Africa) and rate decisions (Brazil and Colombia).

Gold and Silver Runs Turn to Consolidation

Last week, gold posted an incredible 4.1 percent rally while silver surged 7.3 percent – the largest advance from both since the week of August 16. Yet, the lack of a tangible fundamental current via anti-dollar, anti-inflation or anti-risk appeal seems to have left the commodities to drift just as hopes for more a more structural bull trend have been stoked. Looking at ‘participation’ figures for the more costly metal, futures volume has failed to reinforce the 2014 upswing and open interest continues to carve its general trend towards 5-year lows. Potential remains should Emerging Markets destabilize, another wave of global stimulus awash the market or the Dollar post a make a move on mutli-month lows; but those are not high probability events. If gold is to return to $1,500 – much less $1,900 – a dramatic change is necessary.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

9:00

EUR

Italian Consumer Price Index- FOI ex Tobacco (JAN)

107.1

The prior YoY print was the worst since 2009.

9:00

EUR

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

0.6%

0.6%

9:30

GBP

Retail Sales ex Auto (MoM) (JAN)

-1.2%

2.8%

MoM expectations are very low on account of last month’s blowout print. Any beat here will contribute to strong data out of the U.K. and is likely to maintain the Pound’s bullish run.

9:30

GBP

Retail Sales ex Auto (YoY) (JAN)

5.0%

6.1%

9:30

GBP

Retail Sales Inc Auto (MoM) (JAN)

-1.0%

2.6%

9:30

GBP

Retail Sales Inc Auto (YoY) (JAN)

5.0%

5.3%

9:30

GBP

Public Finances (PSNCR) (Pounds) (JAN)

9.0B

9:30

GBP

Public Sector Net Borrowing (Pounds) (JAN)

-9.0B

10.4B

9:30

GBP

Public Sector Net Borrowing ex Interventions (JAN)

-7.5B

12.1B

13:30

CAD

Retail Sales (MoM) (DEC)

-0.8%

0.6%

Since Wednesday, the USD/CAD has resumed its move higher after a brief correction from multi-year highs. A missed figure here in CPI could help continue that strong USD/CAD run while a meet or beat may provide weakness for a strategic opportunity to buy dips on a Friday low.

13:30

CAD

Retail Sales Less Autos (MoM) (DEC)

0.1%

0.4%

13:30

CAD

Consumer Price Index (MoM) (JAN)

0.1%

-0.2%

13:30

CAD

Consumer Price Index (YoY) (JAN)

1.3%

1.2%

13:30

CAD

Bank Canada Consumer Price Index Core (MoM) (JAN)

0.1%

-0.4%

13:30

CAD

Bank Canada Consumer Price Index Core (YoY) (JAN)

1.3%

1.3%

13:30

CAD

Consumer Price Index s.a. (MoM) (JAN)

0.2%

13:30

CAD

Consumer Price Index Core s.a. (MoM) (JAN)

0.20%

15:00

USD

Existing Home Sales Revisions

The MoM figure was originally est. at -3.5% last week, but poor data on Wednesday has hurt sentiment.

15:00

USD

Existing Home Sales (JAN)

4.69M

4.87M

15:00

USD

Existing Home Sales (MoM) (JAN)

-4.0%

1.0%

GMT

Currency

Upcoming Events & Speeches

ALL

G20 Finance Ministers Meet in Sydney

EUR

Ireland Sovereign Debt Rating Published by Fitch

11:00

EUR

ECB Publishes 3-Year LTRO Repayment

13:30

EM

Brazil Current Account | Foreign Investment (JAN) (Emerging Markets)

18:10

USD

Fed's James Bullard Speaks on U.S. Economy

18:45

USD

Fed's Fisher to Speak on Economy

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

14.0200

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.5135

Resist 1

13.5800

2.3000

11.8750

7.8075

1.3250

Resist 1

6.8155

5.8475

6.2660

Spot

13.2388

2.1785

10.8853

7.7558

1.2627

Spot

6.4839

5.4204

6.0378

Support 1

13.0000

2.1000

10.2500

7.7490

1.2000

Support 1

6.0800

5.3350

5.7450

Support 2

12.6000

1.7500

9.3700

7.7450

1.1800

Support 2

5.8085

5.2715

5.5655

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.3860

1.6812

103.23

0.8946

1.1024

0.9093

0.8379

142.25

1340.67

Res 2

1.3837

1.6781

102.99

0.8928

1.1005

0.9072

0.8358

141.88

1335.05

Res 1

1.3813

1.6750

102.75

0.8910

1.0986

0.9050

0.8336

141.51

1329.43

Spot

1.3766

1.6688

102.26

0.8873

1.0947

0.9007

0.8294

140.77

1318.20

Supp 1

1.3719

1.6626

101.77

0.8836

1.0908

0.8964

0.8252

140.03

1306.97

Supp 2

1.3695

1.6595

101.53

0.8818

1.0889

0.8942

0.8230

139.66

1301.35

Supp 3

1.3672

1.6564

101.29

0.8800

1.0870

0.8921

0.8209

139.29

1295.73

v



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