Dollar Suffers Mild Retreat on Volumeless Dow Advance, Fed Remarks
Japanese Yen Ignores BoJ Designate Kuroda’s Vow to Ramp Stimulus
Australian Dollar: RBA Holds Rates after AUDUSD False Breakdown
Euro Ignores Placating Finance Minister Comments, ECB Decision Distracting
British Pound Suffers Uniform Drop Monday, A Lot of Bearishness Before BoE…
Swiss Franc Curbs its Drop as Euro-Area Financial Trouble Builds
Gold: Another Four-Day Run from the Precious Metal Despite Currency War Headlines

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Dollar Suffers Mild Retreat on Volumeless Dow Advance, Fed Remarks
The markets had their first opportunity to react to ‘the sequester’ that was implemented this past Friday evening…and its influence was far more restrained than the surge in confidence following the Fiscal Cliff deal at the beginning of the year. It is natural to draw a comparison to the US government’s latest standoff to the fracas at the beginning of the year as both tap into key fundamental drivers for the greenback: risk trends and the credit worthiness of US debt. The disastrous outcome that so many had feared at the beginning of the year was realized over the weekend when the automatic spending cuts were signed into law. Yet, how did the markets react? Speculative trends went unmolested.

When we learned that the Fiscal Cliff had been avoided – preventing a round of automatic spending hikes and tax hikes – the Dow Jones Industrial Average rallied abruptly and extended its run to the encompass the current bull phase to five-year highs while the dollar took off on a steady climb of its own. The sequester outcome is exactly the opposite as the Fiscal Cliff resolution because the growth-dampening scenario was realized. Yet, the fervor with which the market embraced the crisis evasion was not replicated in the concern that accompanies this shift. The Dow Index climbed on the day to its highest close in five years – though it did so on exceptionally thin volume – and carried risk trends along with it. Alternatively, with risk trends unfettered and a US downgrade a marginally greater threat, the dollar finds itself under pressure. The Dow Jones FXCM Dollar Index (ticker = USDollar) retreated from a failed move on 10,500 and is extending its retreat through Tuesday trade.

Ultimately, the sequester doesn’t carry nearly as much weight in the US fiscal crisis discussion because it can be reversed whenever Congress agrees on a more palatable program; and the economic pain will come on slowly. Perhaps the stop gap budget required by March 27 to avert a government shutdown will carry the market’s attention better. Meanwhile, risk appetite still lacks for the participation and potential return that can secure trends. Yet, the longer it takes for a sentiment correction to take; the greater the risk that the USDollar reverses its strong advance to two-and-a-half year high. Fed officials are certainly doing their part to hobble the currency. This past session, Fed Reserve Vice Chairman Janet Yellen remarked that the limited risks of more stimulus should keep the QE effort in place.

Japanese Yen Ignores BoJ Designate Kuroda’s Vow to Ramp Stimulus
In the past five months, the Japanese yen has dropped more than 20 percent against the US dollar (and most of its other pairs) without the adoption of a serious policy shift. Of course, officials have threatened and ‘jawboned’ the currency – prompting the G7 and G20 to release statements promising that policy would not target exchange rates – but the big threats were never realized. In effect, the yen has dropped on the belief that something serious would be implemented in the not-so-distant future; and speculators wanted to price it in before it actually occurred. This is what we often refer to as ‘buy the rumor, sell the news’. However, that policy of upgrading threats to draw a reaction from the FX market seems to be losing its potency. Bank of Japan Governor nominee Kuroda escalated the stimulus risk when he said he thought ending deflation was the top issue, that he would consider a broader segment of asset purchases and longer maturity JGBs, and that he could move up the time of implementing the open ended stimulus program originally slated for January 2013. The yen hardly moved after this commentary. It seems the market is wants definitive action rather than saber-rattling vows if they are to continue feeding the yen’s tumble without a correction.

Australian Dollar: RBA Holds Rates after AUDUSD False BreakdownAussie dollar traders were tuning into the RBA rate decision this morning, as the FX market’s favorite high-yielding major was facing the threat of another dovish move by the policy authority. The probability of a cut was low according to both traders’ and economists’ expectations, but the impact such a scenario would entail if fulfilled was too significant for such a key carry currency to ignore. Ahead of the actual event, jitters took over and AUDUSD temporarily spiked down to an 8-month low. A retracement was in respect to the event risk, and it could have continued the bear wave if the central bank cut rates or escalated. Yet, the RBA did neither, and now the Aussie dollar is up across the board.

Euro Ignores Placating Finance Minister Comments, ECB Decision Distracting
There was a notable round of event risk for the euro through the opening trading day of the week, but the currency market tempered its reaction to its influence. For data, the Sentix investor sentiment survey dropped back unexpectedly from a July 2011 high and the number of unemployed in Spain grew at a slower pace than expected. What really counts though is the reemergence of a financial crisis in the region. The Eurozone Finance Ministers meeting ended with no hard time frame for a Cyprus bailout and apparently no discussion of Italy’s predicament.

British Pound Suffers Uniform Drop Monday, A Lot of Bearishness Before BoE…
The sterling dropped across the board this past session as the region’s construction activity indicator dropped to a more-than-three-year low and a report on the Funds for Lending Scheme suggested the BoE’s open-ended stimulus effort was coming up very short of its objective. Both developments leverage expectations of a news stimulus from the central bank come Thursday. If it isn’t realized…

Swiss Franc Curbs its Drop as Euro-Area Financial Trouble Builds
There are questions surrounding Cyprus’ long-debated rescue, Portugal and Ireland’s stimulus terms, Italy’s ability to maintain an austerity track and a number of other issues in the Eurozone. In general, the region’s financial health has once again been called into question. Naturally, that is a boon to Europeans’ favorite safe haven – the Swiss banking system. That said, the panic has not crested; and so neither has the franc.

Gold: Another Four-Day Run from the Precious Metal Despite Currency War Headlines
Through Monday’s close, we have seen gold run another four-day trend – this one bearish. That said, progress in the current the current bear wave has eased as we near the 8-month swing low established two weeks ago. A catalyst is needed to sustain a direction at this point –and talk of a currency war taking place through stimulus is the right kind of fuel to generate interest in gold.
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