By Talking Points:
- Dollar Advances to 6 Week High, On Verge of Critical EURUSD Break
- Euro: Economic Activity Readings Push ECB Further Towards Stimulus
- Japanese Yen Crosses Rebound – How Long Does It Last?
Dollar Advances to 6 Week High, On Verge of Critical EURUSD Break
It’s happening again. The S&P 500 is parked just below a record high at the same time the Dow Jones FXCM Dollar Index (ticker = USDollar) is tentatively turning a bear trend having closed a six-week high. Has the position of the currency as a ‘safe haven of last resort’ changed to one of a carry currency? No. This is a reflection of the quality of sentiment we are dealing with. Rather than look at the relationship between benchmark ‘risk’ gauge and ‘safe haven’, we can also refer to activity measures on the high-flying equity measure. Volatility already flat-lined recently below 12 percent – a rare occurrence over the past seven years – and this past session’s push above 1,890 was forged on one of the lowest readings of volume outside of holidays on record. This has the characteristics of a zombie bull market where complacency and habit dictate progress rather than committed positioning. With Monday’s market holiday, a struggle to rekindle momentum behind either a bullish break or bearish reversal should be expected. In the meantime, that may not prevent the dollar from edging out more serious technical levels. The trouble for the Euro, pullback from AUDUSD and GBPUSD, and the risk move on USDJPY may inadvertently forge a bull trend.
Euro: Economic Activity Readings Push ECB Further Towards Stimulus
The Euro’s troubles don’t end with EURUSD. Against the Japanese Yen, the world’s second most liquid currency has turned a reversal despite a positive risk move; while a monetary policy contrast is pushing EURGBP to two-and-a-half year lows. The looming upgrade to the Eurozone stimulus program in two weeks is keeping the currency on a steady trajectory – with a slow leak in rate premium favoring momentum. In this past session, the regional PMI figures added another facet of certainty for the bear. While the figures didn’t collapse, they certainly aren’t compensating for shortfalls in other areas of the market and economy. Moving forward, a stimulus upgrade will slowly weigh on the Euro. To add a sense of haste to that move, a clear move to a QE-level move or a reversal of capital from the periphery could provide amplitude.
Japanese Yen Crosses Rebound – How Long Does It Last?
The yen crosses are amongst the more sensitive FX pairs to the ebb and flow in general risk trends. Therefore, a rebound for the group as global equities rallied is not necessarily a surprise. Yet, just as there is doubt over the waves of investor interest that will come as the S&P 500 and Nikkei 225 cross upper thresholds, expectations for carry interest at exceptionally low yields and against an abstinent BoJ are founded on circumspect beliefs. Looking ahead to next week, the Japanese docket is loaded. Consumer, business and trade figures will gauge economic health; jobs and spending the consumer; and CPI for monetary policy metrics. But if we are looking for that spark, it is with risk.
British Pound Conviction Wilts as 1.7000 Comes Into View
On the week, the British Pound is up against all of the majors. The rebound in interest rate expectations is sound – it just hasn’t developed all at once. Following up on the better CPI readings and the BoE’s lean towards a more timely tightening schedule in their minutes, the past session provided the details of the 1Q GDP reading – with notable improvements in private spending. However, like everything else off the docket, the reports breakdown has its misses: like the cooling in investment and the drop in exports. Through yields and forward swaps the UK rate forecast is still holding a substantial advantage; but that lead isn’t building.
Canadian Dollar Rallying Ahead of Inflation Data
The Canadian dollar was the best performing major on the day despite a disappointing showing on the economic docket – retail sales unexpectedly contracted in March. Where was the currency finding its strength? Monetary policy. The bearings for the Bank of Canada haven’t necessarily changed, but the market’s perceptions are easing up on the dovish fears that the loonie had come under. If the yield outlook is indeed a key driving for the currency, the upcoming event risk may carry serious weight. TheApril CPI figures are due, and the consensus is for the headline reading to jump back to a 2.0 percent annual clip. That would pull it up to a two-year high and change carry talk.
Emerging Market Index Jumps to 7 Month High, Currency Set Mixed
Though the swell in risk appetite of late is founded on dubious levels of conviction, that doubt didn’t dissuade the highly sensitive emerging market benchmarks from taking advantage. The MSCI Emerging Market ETF jumped a second consecutive day – by 0.7 percent – to top a level last seen in October. Yet, here too, volume seemed to be absent. Amongst the currencies within the class, the performance was notably mixed. The best performer on the day was the Turkey Lira run of 0.7 despite the central bank’s decision to cut the benchmark lending rate and the Indian Rupee running 0.6 percent in the aftermath of the election. At the opposite end of the spectrum, the Brazilian Real dropped 0.4 percent despite a drop in the official jobless rate and a modest 0.3 percent slip for the Thai Baht as a military coup unfolded.
Gold and Silver Flagging While Commodities Advance
It is difficult not to notice the contrast in performance between the market’s favorite precious metals – gold and silver – and that of the other heavily traded metals. Gold has worked its way deeper into a wedge that offers less than $20 of room while silver has carved out a similarly stunted space of $0.40. A breakout seems inevitably for these two; but like risk trends, it is unclear what could motivate a serious breakout one way or the other. In the meantime, the CRB Commodity Index is trading a mere 1.3 percent off its 20-month high set in April – with a clear bullish trend behind it. Amongst the metals Platinum hit an 8-month high and Palladium a near 3-year high this past session. Gold’s – and its cheaper proxy – is still suffering for its adoption of the ‘alternative currency’ reputation. Watch the dollar for breakout guidance.**Bring the economic calendar to your charts with the DailyFX News App.
ECONOMIC DATA
GMT | Currency | Release | Survey | Previous | Comments |
2:00 | CNY | Conference Board Leading Economic Index (APR) | The Tiger economy continues to face an economic slowdown and an upbeat outcome may support AUD, NZD. | ||
6:00 | EUR | German Gross Domestic Product s.a. (QoQ) (1Q F) | 0.8% | 0.8% | Final estimates of first quarter German GDP are to show QoQ at highest level since 1Q 2012. These figures are final estimates and may do little to prop the Euro. |
6:00 | EUR | German Gross Domestic Product w.d.a. (YoY) (1Q F) | 2.3% | 2.3% | |
6:00 | EUR | German Gross Domestic Product n.s.a. (YoY) (1Q F) | 2.5% | 2.5% | |
6:00 | EUR | German Private Consumption (1Q) | 0.7% | -0.1% | These indicators are useful for traders to assess the output growth and economic health. With GDP figures on tap it is likely traders will focus on the headline figures for directional cues, but an upbeat outcome may do little to discourage |
6:00 | EUR | German Government Spending (1Q) | 0.3% | 0.0% | |
6:00 | EUR | German Capital Investment (1Q) | 1.4% | ||
6:00 | EUR | German Construction Investment (1Q) | 1.4% | ||
6:00 | EUR | German Domestic Demand (1Q) | -0.7% | ||
6:00 | EUR | German Exports (1Q) | 0.7% | 2.6% | |
6:00 | EUR | German Imports (1Q) | 1.1% | 0.6% | |
8:00 | EUR | German IFO - Business Climate (MAY) | 111.0 | 111.2 | German business climate and expectations index are near the highest levels since 2011. |
8:00 | EUR | German IFO - Current Assessment (MAY) | 115.3 | 115.3 | |
8:00 | EUR | German IFO - Expectations (MAY) | 106.7 | 107.3 | |
12:30 | CAD | Consumer Price Index (MoM) (APR) | 0.3% | 0.6% | Key headline inflation rate is important in contact of BoC monetary policy, but inflation might lack the necessary punch this time around as Canadian dollar traders are seemingly more focused on housing market for a broader outlook regarding the single-currency. |
12:30 | CAD | Consumer Price Index (YoY) (APR) | 2.0% | 1.5% | |
12:30 | CAD | Canada Consumer Price Index Core (MoM) (APR) | 0.2% | 0.3% | |
12:30 | CAD | Canada Consumer Price Index Core (YoY) (APR) | 1.4% | 1.3% | |
14:00 | USD | Releases New Home Sales Revisions | |||
14:00 | USD | New Home Sales (APR) | 425K | 384K | |
14:00 | USD | New Home Sales (MoM) (APR) | 10.7% | -14.5% |
GMT | Currency | Upcoming Events & Speeches |
7:30 | EUR | ECB's Luis Linde Speaks on Euro Economy |
7:30 | EUR | ECB's Sabine Lautenschlager Speaks on Euro Economy |
10:00 | EUR | ECB Publishes 3-Year LTRO Repayment |
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 | 13.5800 | 2.3800 | 12.7000 | 7.8165 | 1.3650 | Resist 2 | 7.5800 | 5.8950 | 6.5135 | |
Resist 1 | 13.1500 | 2.3000 | 11.8750 | 7.8075 | 1.3250 | Resist 1 | 6.8155 | 5.8475 | 6.2660 | |
Spot | 12.8967 | 2.0968 | 10.3637 | 7.7522 | 1.2514 | Spot | 6.5914 | 5.4445 | 5.9346 | |
Support 1 | 12.8350 | 2.0700 | 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 | 1.3796 | 1.6904 | 102.26 | 0.8983 | 1.0936 | 0.9377 | 0.8689 | 140.38 | 1312.53 |
Res 2 | 1.3774 | 1.6881 | 102.08 | 0.8968 | 1.0921 | 0.9359 | 0.8671 | 140.09 | 1307.71 |
Res 1 | 1.3753 | 1.6858 | 101.91 | 0.8952 | 1.0906 | 0.9341 | 0.8652 | 139.81 | 1302.89 |
Spot | 1.3711 | 1.6812 | 101.55 | 0.8921 | 1.0876 | 0.9305 | 0.8615 | 139.23 | 1293.26 |
Supp 1 | 1.3669 | 1.6766 | 101.19 | 0.8890 | 1.0846 | 0.9269 | 0.8578 | 138.65 | 1283.63 |
Supp 2 | 1.3648 | 1.6743 | 101.02 | 0.8874 | 1.0831 | 0.9251 | 0.8559 | 138.37 | 1278.81 |
Supp 3 | 1.3626 | 1.6720 | 100.84 | 0.8859 | 1.0816 | 0.9233 | 0.8541 | 138.08 | 1273.99 |
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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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