Dollar Skittish Below 12 Year High Risk, Monetary Policy Themes Heat Up

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Dollar Skittish Below 12 Year High Risk, Monetary Policy Themes Heat Up
Euro: What Should we Expect from the ECB, Greece Today?
Australian Dollar Holds Precarious Floor after Chinese GDP Hits 6-Year Low

With the USDollar testing the 12-year highs established in March, the currency was once again faced with an important question: is there enough conviction to extend the incredible nine-month bull trend? This decision seemed to be more than the data and general conviction of the market were ready to answer as the market chose the path of least resistance – a pullback from the highs. There isn’t room for the Greenback to retreat before the tone of the market turns into concerted selling. This isn’t just true of the Dow Jones FXCM Dollar Index. There isn’t much room for the Dollar to slip with EURUSD, GBPUSD, USDJPY or USDCAD before speculators would consider it a tide shift. That puts the pressure on the market to make a decision. The question is whether we have a fundamental banner to unite speculators’ efforts.

This past session, the US docket offered meaningful updates to the themes that have kept the currency’s reins these past months; but they didn’t seem to hit the timbre necessary to motivate speculators. The surface level event risk was factory level inflation data (PPI), the NFIB small business optimism survey and US earnings. All three carried a tone of disappointment. Wells Fargo, JPMorgan and Intel managed to beat the market expected EPS numbers to retrench the growth and investment backdrop for the US; but earnings forecasts have generally been lowered regularly for some time now and the underlying figures do not look so rosy. An extension of the price figure slowdown generates little surprise and the sentiment report is offset by the general bull trend for the headline and wage projections. For those watching US rates – most USD traders – more interesting was NY Fed’s consumer survey which showed the second highest wage earnings growth report in the series’ history (to June 2013) and a new fourth vote from the Cleveland Fed to hike the discount rate (7-4) according to minutes.

Ahead, there is plenty of scheduled event risk to weigh for the Greenback. Direct listings include the TIC capital flows report for February, the FOMC’s Beige Book and a few Fed speeches. However, for sheer market influence, the Dollar may find stronger winds from counterparts responding to Chinese GDP and the ECB rate decision. If not, the market may wait until Friday’s CPI to stir rate timing.

Euro: What Should we Expect from the ECB, Greece Today?

The European Central Bank (ECB) is scheduled to meet today, but what surprises should we expect to the group considering they only this past month activated their QE program? It is highly unlikely that they will announce any upgrades this early in the effort and no central bank would be so foolish as to shoot themselves in the foot by saying they are dubious by its uptake. Instead, we should look into rhetoric that clarifies where they will continue to purchase assets as sovereign bonds carry limitations. This may also be an opportunity to find an official bank view on Greece. Speaking of the troubled country, a 3-month bill auction will be the market’s opportunity to show its confidence.

Australian Dollar Holds Precarious Floor after Chinese GDP Hits 6-Year Low

Top event risk for this session has already crossed the wires, and many tactical traders were likely disappointed by the lack of volatility to follow in its wake. With AUDUSD and AUDJPY struggling to keep their heads above levels keeping back six-year lows and/or general bear trends, China reported its 1Q GDP data and a range of March figures. After four quarters of persistent 0.1 percentage point beats, GDP printed in-line at a six-year low 7.0 percent pace. The monthly data disappointed across the board. This data will carry weight moving forward.

British Pound Unfazed by Downtick in CPI, Rate Outlook Still Undervalued

The Pound faced key event risk this past session, but the market-moving potential the data posed depended on its outcome. The round of March inflation figures was filtered by rate watchers to concentrate on CPI. Expectations have been set for a softening of price pressures and the BoE has repeated its temporary nature due to volatile components; so an unchanged headline figure and 9-year slow 1.0 percent core reading carry limited weight. Short Sterling futures are not fully pricing in a first rate hike from the BoE until 2Q 2016.

Canadian Dollar Traders Should Be Wary of BoC

In January, the Bank of Canada caught the market off guard with a surprise 25 bp rate cut to 0.75 percent. That is not so long ago that speculators should have forgotten the potential for surprise from this group’s policy decisions. With a BoC meeting ahead, the probability of a follow up cut is low, but it is a distinct possibility. Policy officials have voiced clear concern about the country’s strength and the existence of downside risks to their forecasts. There is still room to cut for Canada and seemingly the will to do it.

Emerging Markets Lead 2015 Cross-Asset ‘Risk’ Performance

Next to Chinese shares, Emerging Markets assets seem to be the best performing of the traditional ‘risk’ assets this year. Year-to-date the MSCI EM ETF is up 9 percent – outpacing US shares, high yield and carry. As the Fed tightening story shifts reserves though, this will be a recovery difficult to maintain. In the FX ranks, the Ruble was the biggest gainer versus USD for a 2.6 percent advance to six-month highs.

Gold Volume Picks Up as Metal Slips to Two-Week Lows

Gold futures volume jumped this past session as the metal slid below $1,200. There isn’t much momentum to this dive just yet, but its struggle after the past week’s speculative buildup in COT figures as well as the adoption of greater stimulus appetite (as with the ECB), it is concerning. At 15 percent, the CBOE’s gold volatility index is just off its most staid levels in seven months.

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