Dollar Rally Extends And Breaks Key Levels Along the Way
The Dollar started a strong
move through the close of the past week. The strongest weekly launch for
the Greenback in nearly two years was a convincing effort from a
currency that spent the previous five weeks in retreat. There was only
one problem: an extended holiday weekend in the US and a few other key
financial centers (UK, Germany, Hong Kong) threatened to thin the ranks
and suffocate speculative momentum. Monday’s session was certainly
lacking for conviction, but it didn’t encourage the recent swell in
speculative interests to simply abandon their post. And, when liquidity filled out this past session, the world’s most liquid currency picked up where it left off.
In the past session’s performance, the Dollar
gained ground on all of its counterparts and further notched its
seventh climb in the past eight trading days. Whether or not this move
continues to build upon recent critical breaks – EURUSD 1.1000, GBPUSD
1.5500, USDJPY 122 – depends on what has motivated the drive to this
point. A revived appreciation for the Fed’s monetary policy lead seems
to be taking the reins, and that would be an effective enough motivator
to sustain a run with the proper fuel. Building on the strong
combination of Friday’s core CPI uptick and Fed Chair Janet Yellen’s
remarks for a 2015 first hike, the news feed reinforced the hawkish
swell this past session. On the data front, a durable goods improvement
led to an upward revision in growth forecasts and consumer confidence
marked an unexpected uptick. Meanwhile, following in his colleague’s
footsteps, Vice Chair Stanley Fischer seconded the sentiment of a hike
before year’s end. There is considerable room for speculation as to how
much premium has been afforded the Dollar for its advantageous rate
forecast, but with Fed Fund futures tables still pricing a first move out in January 2016, there is short-term potential to be squeezed.
Monetary policy may be a
ready contributor to the Dollar’s advance, but fuel is needed for this
long burning fire. That said, the docket ahead doesn’t provide the same
type of kindling. Treasury auctions and MBA mortgage applications are
the extent of scheduled event risk. Bulls may be able to find supplement
to timing the first FOMC hike (and the subsequent pace thereafter) if risk aversion grows legs. This past session, with the return of liquidity the S&P 500
took a tumble with many other sensitive assets following suit. The
problem with any ebb in speculative appetite is that complacency has
proven consistently a stronger market force. Richmond Fed President Jeffrey Lacker reminded us this morning of the risks that lurk even within our field of vision.
He remarked that distorted incentives have contributed to the erosion
of financial stability – a different way of noting the ‘costs’
associated with the catchall of stimulus. When will the market pay
closer attention and adjust to these more frequent warnings? It seems
not yet. As an aside, Lacker said he wouldn’t write off a June hike just
yet.
Euro: Greece Risk of an Accident Growing
The last self-imposed ‘make
or break’ deadline for Greece passed a few weeks ago, and there has been
little evidence that progress has been made since that transition back
into the game of financial roulette. Allianz Chief Economic Advisor
Mohamed El-Erian put the risk in perspective when he assessed that risk of a financial ‘accident’ in Greece (running out of cash) was growing. CDS and bond yields support this fear.
Japanese Yen Pairs Conviction Uneven but USDJPY Propelled to 7-Year High
The Yen crosses rose across
the board this past session, but the stand out was clearly the stand
out. Backed by a general bid for the Dollar, this pair cleared seven
months of resistance – the top placed after the QQE upgrade in October –
and charged to a fresh 7 year high above 122.
Yet, not all pairs were showing this motivation. What’s more, the risk
backdrop opposed this carry appetite. USDJPY won’t be able to go it
alone.
Australian Dollar Suffers Weak Chinese Data, Tempered Commodity Prices, Weak Housing
One of the worst performing
major currencies this past session, the Aussie Dollar was plagued by a
number of issues. A drop in key commodity prices for which the country
is a notable exporter of would saddle the bulls. In addition to the
general risk aversion, the data would also find this morning a drop in
1Q Aussie construction and persistent slump in Chinese consumer
sentiment. Not much is going the Aussie’s way.
Canadian Dollar Likely Faces No BoC Changes…But Vigilance Worthwhile
As a base case scenario, the Bank of Canada is unlikely to change its bearings on policy today
– either officially or through rhetoric in its statement. However, the
market has proven exceptionally sensitive to perceived shifts in the
‘comm bloc’ policy groups. At its last meeting the BoC turned dead
neutral on its view for policy moving forward. That sets a very fine
line to walk and a ripe situation for speculators to respond.
Emerging Markets on Verge of Bigger Retreat, Ruble and Real Selling Gaining Purchase
Emerging Markets have proven
one of the more willing asset classes to take a tumble on waning
speculative appetite this week. The MSCI EM ETF dropped back to its
lowest level in nearly two months this past session on rising volume.
Key currencies have also given back ground versus the USD (RUB, BRL, INR). It doesn’t help that the Fed’s Fischer suggested EM is sensitive to FOMC moves but prepared.
Gold Suffers Sharp Drop, Another One-Off?
Like other metals and general commodities priced in Dollars, Gold
suffered a sharp decline this past session. We have seen abrupt tumbles
like these multiple times over the past few months, but they have consistently turned out to be one-offs that
would ultimately hold to congestion (rather than revive bullish
interests). Whether the precious metal is ready to commit to a serious
tumble likely has much to do with the USD.
GMT
|
Currency
|
Release
|
Survey
|
Previous
|
Comments
|
-:-
|
Japan Cabinet Office Economic Report (MAY)
| ||||
1:30
|
Australia Construction Work (1Q)
| ||||
1:30
|
CNH
|
China Industrial Profits (APR)
| |||
1:45
|
CNH
|
China Consumer Confidence - MNI (MAY)
| |||
5:00
|
JPY
|
Japan Small Business Confidence (MAY)
| |||
6:00
|
Switzerland Consumption Indicator - UBS (MAY)
| ||||
6:00
|
Germany Consumer Confidence - GfK (JUN)
| ||||
6:45
|
EUR
|
France Consumer Confidence (MAY)
| |||
11:00
|
USD
|
US Mortgage Applications - MBA (May 22)
| |||
14:00
|
Bank of Canada Rate Decision
| ||||
23:50
|
JPY
|
Japan Retail Sales | Retail Trade (APR)
| |||
23:50
|
JPY
|
Japan Capital Flows (May 22)
|
GMT
|
Currency
|
Upcoming Events & Speeches
|
23:50
|
JPY
|
Bank of Japan Meeting Minutes (Apr 30)
|
0:10
|
USD
|
Fed's Lacker to Discuss Financial Stability
|
0:30
|
AUD
|
RBA's Lowe to Speak
|
1:30
|
JPY
|
BoJ's Iwata to Speak
|
-:-
|
EUR
|
ECB to Discuss ELA Liquidity Lines
|
-:-
|
ALL
|
G-7 Finance Ministers, Central Bankers Meet [May 27-29]
|
9:30
|
EUR
|
Germany to Sell €2 Bln in 30-year Bonds
|
9:30
|
UK to Sell £700 Mln in 43-Year Inflation Bonds
|
|
15:30
|
USD
|
US to Sell 1-Month Bills (Liquidity)
|
15:30
|
USD
|
US to Sell $25 Bln in 1-Year Bills
|
15:30
|
USD
|
US to Sell $13 Bln 2-Year Floating Rate Notes
|
17:00
|
USD
|
US to Sell $35 Bln in 5-Year Notes
|
SUPPORT AND RESISTANCE LEVELS
CLASSIC SUPPORT AND RESISTANCE
EMERGING MARKETS 18:00 GMT
|
SCANDIES CURRENCIES 18:00 GMT
|
|||||||||
Currency
|
Currency
| |||||||||
Resist 2
|
16.5000
|
2.7500
|
13.8500
|
7.8165
|
1.4275
|
Resist 2
|
9.3300
|
7.3650
|
8.5270
|
|
Resist 1
|
16.0000
|
2.7000
|
12.6500
|
7.8075
|
1.3935
|
Resist 1
|
8.7400
|
7.1000
|
8.4735
|
|
Spot
|
15.2857
|
2.6407
|
12.0874
|
7.7524
|
1.3501
|
Spot
|
8.4705
|
6.8484
|
7.7472
|
|
Support 1
|
14.5000
|
2.3580
|
11.3500
|
7.7490
|
1.3425
|
Support 1
|
8.2675
|
6.4725
|
7.3000
|
|
Support 2
|
13.6800
|
2.2850
|
10.8500
|
7.7450
|
1.3230
|
Support 2
|
7.8150
|
6.3325
|
6.7300
|
INTRA-DAY PROBABILITY BANDS 18:00 GMT
\CCY
|
Gold
|
||||||||
Res 3
|
1.1020
|
1.5535
|
124.27
|
0.9643
|
1.2546
|
0.7847
|
0.7343
|
135.47
|
1207.66
|
Res 2
|
1.0986
|
1.5500
|
123.97
|
0.9611
|
1.2517
|
0.7823
|
0.7319
|
135.08
|
1202.92
|
Res 1
|
1.0951
|
1.5464
|
123.67
|
0.9580
|
1.2487
|
0.7800
|
0.7294
|
134.70
|
1198.19
|
Spot
|
1.0883
|
1.5393
|
123.07
|
0.9517
|
1.2428
|
0.7752
|
0.7246
|
133.94
|
1188.72
|
Supp 1
|
1.0815
|
1.5322
|
122.47
|
0.9454
|
1.2369
|
0.7704
|
0.7198
|
133.18
|
1179.25
|
Supp 2
|
1.0780
|
1.5286
|
122.17
|
0.9423
|
1.2339
|
0.7681
|
0.7173
|
132.80
|
1174.52
|
Supp 3
|
1.0746
|
1.5251
|
121.87
|
0.9391
|
1.2310
|
0.7657
|
0.7149
|
132.41
|
1169.78
|
Written by: John Kicklighter, Chief Strategist for DailyFX.com
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