Talking Points:
Dollar Rallies as 10 Year Yield Tumbles
British Pound Tumbles Versus Majors as Rate Outlook Slumps
Euro: Does ECB’s Warning of Bubble Risk Extend to EZ Periphery Markets?
Dollar Rallies as 10 Year Yield Tumbles
The Dow Jones FXCM Dollar Index (ticker = USDollar) surged to a seven-week high this past session. Against the traditional risk backdrop, the stalled rally for the S&P 500 and broader equity markets helps, but doesn’t confer an impetus. If the focus was instead on interest rate expectations, the currency’s fundamental performance was equally discordant. In fact, the 10-year US Treasury yield collapsed 2.8 percent this past session – the biggest drop since March 13 at 2.436 percent the lowest level since last June. With neither a safe haven bid nor a competitive yield bearing, where was the greenback sourcing its strength. As the saying goes, ‘in the land of the blind, the one-eyed man is king’. While the dollar’s fundamental stats may have not materially improved, its counterparts have fared materially worse. Between a multi-week bear trend for EURUSD, a key technical break below 1.6750 for GBPUSD, and bearish thrust below 0.8500 for NZDUSD (the largest carry-based major); the dollar is gaining ground through its counterparts’ own abdication.
A ‘best of the worst’ performance is not one likely to last in a market that is frustratingly directionless while also seemingly so close to tipping a more systemic change in activity levels. From yields, we are not likely seeing a genuine delay in the time frame for the first rate hike – much less a break from Taper – but rather a bid for the paper. Volume on Treasury futures have surged around the contract roll, while foreign demand for a floating rate 2-year note (an inflation and rate measure) picked up. We may not receive clarification until next week’s NFPs. Meanwhile, the ‘risk’ element remains, with an FX crowd ready to jump to the dollar and yen should fear take the wheel.
British Pound Tumbles Versus Majors as Rate Outlook Slumps
Though GBPUSD’s 0.6 percent, 99-pip decline was not a single-handed to return to more volatile trading conditions, it was nevertheless a remarkable move for the pound. For the benchmark pair, the drop cleared the technical floor of a bull trend that has guided the market higher for the past 11 months. Furthermore, it was a universal slump for the sterling versus most of its counterparts – the exception being GBPNZD. On the docket, the Debt Management Office sold £1.1 billion in 2052 index-linked bonds. In turn, the 2-year Gilt yield dropped 7.6 percent to 0.644 and the 1-year-2-year forward swap dropped 3.45 percent. The high-flying rate expectations for the BoE may be coming under pressure, but there hasn’t been anything tangible to spark concern of a delayed first hike. And, there is little on the immediate docket.
Euro: Does ECB’s Warning of Bubble Risk Extend to EZ Periphery Markets?
Fundamental euro traders were likely watching the Germany employment statistics this past session. And, the unexpected 24,000-net increase in the jobless ranks was certainly news worthy. Yet, it didn’t stir the EURUSD to the day’s tumble. That falls to a combination of the unfavorable monetary policy expectations ahead for the ECB, further comments from central bankers insinuating a move is unavoidable on June 5 and an ECB report showing bank lending fell for a third month in April. Particularly interesting was a biannual report from the bank which suggested there may be a financial bubble that has developed out of a chase for yields. Does that apply to EZ periphery bonds?
New Zealand Dollar Worst Performer on the Day as Banks Expect Dispersed Hikes
Once again, the New Zealand dollar was the worst performer amongst the major. This retreat is gaining serious ground with NZDUSD dropping below 0.8500 and AUDNZD making a move to push through the 1.0900 resistance that has capped the pair through 2014. The sharp decline in the ANZ’s business sentiment survey certainly adds a bearish weight on the market, but the scope of this move certainly finds its origination in diminished rate expectations. Given the RBNZ is actively engaged in a rate tightening cycle, that may seem a contradiction in terms. However, the market moved to price hikes well in advance – and now the expected pace of consecutive hikes is coming serious doubt.
Japanese Yen: Will BoJ Consider Retail Sales Plunge, Upcoming CPI?
The Japanese economy received a black mark this morning when retail sales figures for April collapsed more aggressively than expected. However, the market was prepared for an adjustment given that was the timing of the nation’s tax hike. Should we expect similar responses from the upcoming round of critical data? Household spending for April is certainly an ‘at-risk’ measure, but the jobless rate, industrial production and CPI figures fall further outside its influence. Would an economic slump and moderation in price pressures encourage a QE upgrade?
Emerging Market Currency Mixed, Sovereign Bond Appetite Soars
Just as the climb in developed world capital market indexes stalled this past session, so too did the Emerging Market’s stumble. The MSCI Emerging Market ETF rose 0.6 percent – hefty enough to curb bearish interests but restrained enough to prevent a meaningful break to new highs. On the FX front, the field was mixed. Gains were marked by the Brazilian Real, Indian Rupee and Turkish Lira; while the Mexican Peso and Russian Rubble slipped. Of particular note amongst the different asset classes, a EM sovereign debt index hit a record high.
Gold Tumble Continues but at a More Controlled Pace
Volatility didn’t snuff out gold’s bearish move. On the back of Tuesday’s hefty 2.2 percent tumble, the precious metal followed up with another 0.5 percent slide this past session. Volume behind the move in the ETF and futures market remains elevated. Meanwhile, the CBOE’s Gold Volatility Index is still up over 15 percent from its 12-month low set earlier this month. This is an impressive move, but just like risk or the dollar; continuation requires more than just a technical drive. A dollar rally could feed bears while a risk aversion wave could roust the bulls.**Bring the economic calendar to your charts with the DailyFX News App.
ECONOMIC DATA
GMT
Currency
Release
Survey
Previous
Comments
1:00
AUD
HIA New Home Sales (MoM) (APR)
0.2%
Private capital expenditure is expected to decline to the lowest level in over 5-years. The Aussie has been under pressure due re-emerging China risks A miss here may further weigh on AUD.
1:30
AUD
Private Capital Expenditure (1Q)
-1.9%
-5.2%
12:30
CAD
Current Account (BoP) (Canadian dollar) (1Q)
-$12.8B
-$16.0B
Trade and wage growth figures are two key economic measures for the Canadian economy
12:30
CAD
Average Weekly Earnings (YoY) (MAR)
2.3%
12:30
USD
Gross Domestic Product (Annualized) (1Q S)
-0.5%
0.1%
US 1Q GDP it to show the world largest economy contracted 0.5 percent in the first-quarter. With US Dollar technical hinting at a reversal an upbeat outcome may push the US Dollar higher, but a miss in expectations or a downward revision may weigh on the U.S as it weighs on interest rate expectations..
12:30
USD
Personal Consumption (1Q S)
3.1%
3.0%
12:30
USD
Gross Domestic Product Price Index (1Q S)
1.3%
1.3%
12:30
USD
Core Personal Consumption Expenditure (QoQ) (1Q S)
1.3%
1.3%
12:30
USD
Initial Jobless Claims (MAY 24)
315K
326K
Initial claims expected to drop back towards seven-year low set two weeks ago
12:30
USD
Continuing Claims (MAY 17)
2655K
2653K
14:00
USD
Pending Home Sales (MoM) (APR)
1.0%
3.4%
Home sales m/m are expected to decline from the highest level in over 2-years.
14:00
USD
Pending Home Sales (YoY) (APR)
-8.9%
-7.4%
22:45
NZD
Building Permits (MoM) (APR)
-3.5%
8.3%
Building permits may provide insight on future economic activity and financial health, with building permits slowing to the lowest level in 2014 NZD may come under slight pressure.
23:05
GBP
GfK Consumer Confidence Survey (MAY)
-2
-3
Impact may be amplified by recent volatility
23:30
JPY
Jobless Rate (APR)
3.6%
3.6%
The economic health counterpart to policy officials’ inflation update. A price target matters only so far as economic activity remains robust
23:30
JPY
Job-To-Applicant Ratio (APR)
1.07
1.07
23:30
JPY
Household Spending (YoY) (APR)
-3.7%
7.2%
23:30
JPY
National Consumer Price Index (YoY) (APR)
3.3%
1.6%
The BOJ has raised its forecast for business investment and inflation as they feel the April sales-tax hike had limited impact on the Japanese economy. Earlier this month Japan 1Q GDP crushed expectations, fueling an optimistic outlook for the economy. An upbeat outcome may strengthen the Yen as it may dampen bets of seeing the BOJ expand its asset-purchase program.
23:30
JPY
National CPI Ex-Fresh Food (YoY) (APR)
3.1%
1.3%
23:30
JPY
National CPI Ex Food, Energy (YoY) (APR)
2.2%
0.7%
23:30
JPY
Tokyo Consumer Price Index (YoY) (MAY)
3.0%
2.9%
23:30
JPY
Tokyo CPI Ex-Fresh Food (YoY) (MAY)
2.9%
2.7%
23:30
JPY
Tokyo CPI Ex Food, Energy (YoY) (MAY)
2.1%
2.0%
23:50
JPY
Industrial Production (MoM) (APR P)
-2.0%
0.7%
Preliminary figures of Industrial production m/m are to show a marked drop in factory sector-activity. The year-on-year rate is expected to drop to a 5-month low.
23:50
JPY
Industrial Production (YoY) (APR P)
4.6%
7.4%
GMT
Currency
Upcoming Events & Speeches
1:30
JPY
BoJ’s Sayuri Shirai Speaks on Japanese Economy
12:30
USD
Fed’s Sandra Pianalto Speaks on U.S. 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
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
12.8709
2.0979
10.4622
7.7529
1.2553
Spot
6.6343
5.4864
5.9596
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
1.3692
1.6818
102.37
0.9040
1.0925
0.9337
0.8558
139.44
1278.00
Res 2
1.3670
1.6794
102.21
0.9024
1.0910
0.9320
0.8541
139.17
1272.81
Res 1
1.3648
1.6770
102.04
0.9008
1.0896
0.9302
0.8523
138.90
1267.61
Spot
1.3604
1.6723
101.71
0.8976
1.0866
0.9267
0.8488
138.36
1257.21
Supp 1
1.3560
1.6676
101.38
0.8944
1.0836
0.9232
0.8453
137.82
1246.81
Supp 2
1.3538
1.6652
101.21
0.8928
1.0822
0.9214
0.8435
137.55
1241.61
Supp 3
1.3516
1.6628
101.05
0.8912
1.0807
0.9197
0.8418
137.28
1236.42
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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