Talking Points:
Dollar Suffers First Two-Day Drop In 7 Weeks Before Fed
Euro Traders Should Be Cautious as Currency Extends Rebound After Greek Election
British Pound Climbs after UK GDP Posts Strongest Growth Pace Since 2007
Dollar Suffers First Two-Day Drop In 7 Weeks Before Fed
The Dow Jones FXCM Dollar Index (ticker = USDollar) notched its first two-day decline in seven weeks with Tuesday’s close. However, that shouldn’t be taken as a particularly ominous sign. The fact that the benchmark currency has managed to charge such a persistent advance over such an extended period is impressive. Furthermore, a modest pullback is more than reasonable given the position of the currency and the event risk that lies ahead. For the Greenback, we are only a few days away from closing out a seventh consecutive monthly advance – that would be the first in the USDollar’s and ICE Dollar Index’s histories. Given that singular drive, a modest breather is warranted heading into a critical Federal Open Market Committee (FOMC) meeting.
As far as central bank policy decisions go, the Fed’s first gathering of 2015 isn’t inherently crucial. This isn’t one of the quarterly events where we are issued updated forecasts (inflation, employment, interest rates) and Chairwoman Janet Yellen holds a press conference. Nor is it likely to be a definitive turning point in policy like the end of QE3 last year or the announcement of the first rate hike. Instead, this event is made extraordinary by the context of the broader market. These past few weeks, we have seen the ECB introduce a massive QE program, the BoJ downgrade its inflation outlook (which could lead to another stimulus upgrade), the BoC surprise with a rate cut and other central banks either make clear dovish shifts or come under pressure from unfavorable data. That puts the onus on the US central bank. Does the world’s largest player support its global counterparts – and indirectly support investor sentiment – by offering up rhetoric to push out the timing of the first tightening effort? Or, will the Fed keep its rate bearing on a divergent course to the G10 and potentially undermine ‘moral hazard’?
Euro Traders Should Be Cautious as Currency Extends Rebound After Greek Election
The Euro has rallied hard over the opening two trading days of this week. In fact, EURUSD has posted its biggest two-day with Tuesday’s close since September 18, 2013. Having dropped nearly 20 percent over the past nine months, that may seem overdue; but the catalyst for the correct is remarkable. Over the weekend, Greece put anti-austerity party Syriza in charge of the government. And, though the situation didn’t immediately deteriorate into a Eurozone crisis like that of 2010; the country and Eurozone are clearly on a collision course over the Greece’s onerous debt load. Syriza leader Alexis Tsipras ran on a campaign of pushing back against the harsh rescue requirements the Troika attached to its bailouts over the past five years – and he has not backed down from that drive after winning the office. So far, he has appointed an anti-austerity leaning board and halted the privatization of the Greece’s largest port (Pareaus port). Meanwhile, other Eurozone leaders have made it clear that no haircuts or debt forgiveness are on the agenda. The ECB’s QE program may offer some reprieve for the region, but a revived sovereign crisis is not something it can ‘solve’. Euro investors should remain on their guard.
British Pound Climbs after UK GDP Posts Strongest Growth Pace Since 2007
Top event risk this past session amongst the majors was the United Kingdom’s 4Q GDP release. Through the final three-month period, the pace of growth cooled with a 0.5 percent expansion; but this doesn’t look like a full stall of the country’s economic boom over the past few years. We can see the momentum is still robust when we refer to the annual pace of 2.7 percent –the most vigorous since 2007. For the Sterling, the news supports expectations of a BoE hike sometime this year which helps offset the dovish tone in the minutes from last week. The currency did gain traction against most counterparts this past session, but neither swaps more Short Sterling futures have turned a corner on rate forecasts.
New Zealand Dollar More Potential from RBNZ than Dollar to Fed?
There is little doubt that the Fed rate decision will be an important event risk for the US Dollar whether the event tips dovish or hawkish. That said, the RBNZ’s own policy meeting is likely to exact a heavier toll on the New Zealand Dollar. At the last policy decision, Governor Wheeler tacitly approved of the market’s policy expectations at that time – a hike sometime in the first half of 2015.Since then, however, market-based rate forecasts have plunged and were exacerbated by last week’s weak 4Q CPI. There is far more chance of a dramatic NZ policy surprise.
Australian Dollar Rallies…as Inflation Cools?
The 4Q Australian CPI data weakened from the previous quarter this morning…and the Aussie dollar rallied. There was a slightly better-than-expected outcome for the core-equivalent reading, but it was still on a slowing trajectory. Yet, with this data, there is a tangible, data-derived reason why the RBA may not need to cut rates. Before this data, swaps were pricing in a 44 percent chance of a cut next week. After, it’s 17.
Emerging Markets Slide as PBoC Injects Liquidity, Singapore Loosens Policy
The MSCI EM ETF was modestly lower this past session, but the rally that peaked last week seems to have confirmed its lost momentum. Whether or not that retreat accelerates or not will rely heavily on the Fed’s outlook. Meanwhile, this past session, the Chinese Yuan gained ground after the PBoC used reverse repos to pump liquidity into the market and the Singapore Dollar dropped after the MAS eased policy.
Gold Bugs Ask ‘Where Does the Fed Stand in the Great Currency War’
We have seen an almost universal, dovish shift from central banks these past week. And through that transition, gold has gained on its anti-currency war appeal. Yet, despite Eurozone QE and other efforts directed at cheapening fiat currencies, the precious metal has struggled to overtake $1,300. A critical fuel additive is needed to extend this drive – a Fed that kills any hope/risk of higher yields that will weigh gold.
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ECONOMIC DATA
GMT
Currency
Release
Survey
Previous
Comments
0:00
AUD
Skilled Vacancies MoM (DEC)
-0.80%
0:30
AUD
CPI QoQ (4Q)
0.30%
0.50%
0:30
AUD
CPI YoY (4Q)
1.80%
2.30%
0:30
AUD
CPI Trimmed Mean QoQ (4Q)
0.50%
0.40%
0:30
AUD
CPI Trimmed Mean YoY (4Q)
2.20%
2.50%
0:30
AUD
CPI Weighted Median QoQ (4Q)
0.50%
0.60%
0:30
AUD
CPI Weighted Median YoY (4Q)
2.20%
2.60%
1:45
CNY
Westpac-MNI Consumer Sentiment (JAN)
112.5
2:00
CNY
Bloomberg Jan. China Economic Survey (Table) (JAN)
7:00
EUR
Germany Import Price Index YoY (DEC)
-3.40%
-2.10%
7:00
CHF
UBS Consumption Indicator (DEC)
1.29
7:00
EUR
Germany GfK Consumer Confidence (Feb)
9.1
9
7:45
EUR
France Consumer Confidence (JAN)
91
90
12:00
USD
MBA Mortgage Applications (42027)
14.20%
15:30
USD
DOE U.S. Crude Oil Inventories (42027)
3850K
10071K
15:30
USD
DOE Crude Oil Implied Demand (42027)
14965
19:00
USD
FOMC Rate Decision
0.25%
0.25%
20:00
NZD
RBNZ Official Cash Rate (42033)
3.50%
3.50%
21:45
NZD
Trade Balance (DEC)
75M
-213M
21:45
NZD
Exports (DEC)
4.21B
4.02B
23:00
AUD
Conf. Board Leading Index MoM (NOV)
-0.20%
23:50
JPY
Japan Buying Foreign Bonds (42027)
-¥397.2B
23:50
JPY
Japan Buying Foreign Stocks (42027)
¥657.4B
23:50
JPY
Foreign Buying Japan Bonds (42027)
-¥233.7B
23:50
JPY
Foreign Buying Japan Stocks (42027)
-¥577.4B
23:50
JPY
Retail Trade YoY (DEC)
0.90%
0.40%
23:50
JPY
Large Retailers’ Sales (DEC)
0.50%
1.20%
23:50
JPY
Loans & Discounts Corp YoY (DEC)
2.88%
GMT
Currency
Upcoming Events & Speeches
10:30
EUR
Germany to Sell €2 Bln in 30-Year Bonds
18:50
GBP
BOE Governor Carney to Speak in Dublin
16:30
USD
US to Sell $15 Bln in 2-Year Floating Rate Notes
18:00
USD
US to Sell $26 Bln in 2-Year Notes
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
15.5900
2.5000
12.7000
7.8165
1.3650
Resist 2
8.7400
7.1000
8.4735
Resist 1
15.0000
2.4000
11.8750
7.8075
1.3475
Resist 1
8.4000
6.8500
7.8360
Spot
14.5795
2.3616
11.5729
7.7521
1.3392
Spot
8.1846
6.5466
7.7250
Support 1
14.3800
2.1900
10.2500
7.7490
1.3200
Support 1
7.5200
5.9100
7.2945
Support 2
13.6800
2.0700
9.3700
7.7450
1.2000
Support 2
7.3285
5.7775
6.7280
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
1.1508
1.5343
119.16
0.9161
1.2517
0.8033
0.7563
135.63
1320.77
Res 2
1.1473
1.5307
118.83
0.9126
1.2485
0.8008
0.7537
135.21
1313.98
Res 1
1.1438
1.5272
118.50
0.9090
1.2453
0.7983
0.7512
134.80
1307.20
Spot
1.1369
1.5202
117.84
0.9019
1.2389
0.7932
0.7461
133.96
1293.62
Supp 1
1.1300
1.5132
117.18
0.8948
1.2325
0.7881
0.7410
133.12
1280.04
Supp 2
1.1265
1.5097
116.85
0.8912
1.2293
0.7856
0.7385
132.71
1273.26
Supp 3
1.1230
1.5061
116.52
0.8877
1.2261
0.7831
0.7359
132.29
1266.47
— 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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.Learn forex trading with a free practice account and trading charts from FXCM.
Source: Daily fx