Dollar on the Verge of Critical Bearish Break
Euro Traders Should be Wary of Heavy Volatility Potential Tomorrow
Japanese Yen Recovery Slows, Data Mixed
British Pound Slides as the Unwind in Stimulus Expectations Slow
Canadian Dollar Charges down to 1.0100 Ahead of February GDP
Swiss Franc Traders Await SNB’s Figures for the First Quarter
Gold Moves to Mid-Point of Past Month’s Range, $1,500 Important

Dollar on the Verge of Critical Bearish Break
Fundamentally speaking, the dollar has run astray of its safe haven role – allowed to deviate thanks to a lack of clear conviction in speculators’ outlook for the markets. Yet, when a lasting fundamental discrepancy – such as the one the greenback has been running – faces a tumultuous technical setup and potent event risk, passive threats have a tendency to turn kinetic. From the Dow Jones FXCM Dollar Index (ticker = USDollar), we find a congestion pattern that has developed over the past two months. Having retreated from the mid-point (50 percent retracement) of the 2009 to 2011 bear wave near 10,600 for the second time, we now find the benchmark at the floor of the congestion pattern. The same boundaries to an extended dollar decline are perceptible amongst the major. EURUSD is hesitating once again below 1.3000, GBPUSD is slowing before its midpoint of the 2013 range at 1.5575 and USDJPY has moved away from 100.

For event risk that can reasonably be expected to generate substantial volatility for the dollar – much less revive market-wide momentum behind sentiment – we will likely be on hold until Wednesday’s Federal Open Market Committee (FOMC) meeting. The existential debate of the central bank’s QE3 program has captured the interest of the trading masses. Up until last week, the consensus seemed to be pulling the debate into a forecast for a tapering of the $85-billion-per-month program by the summer and full stop by year end. This past week, however, sentiment from the opposite extreme started to seep in. Talk of cooling commodity prices leading to deflation have led to discussion of expanding the stimulus effort. Regardless of which way the statement tips, this is going to be a concern that distracts the dollar and risk trends until it is settled. In the meantime, data like the personal income/spending data this past session and the upcoming consumer sentiment figures due in the upcoming session will hold limited sway over price action.

Euro Traders Should be Wary of Heavy Volatility Potential Tomorrow
EURUSD advanced towards 1.3100 Monday more on the strength of the euro than weakness in the greenback. And, that level of influence will almost certainly hold for the next 24 hours with key events on deck. The opening session carried two particular headlines worthy of the euro bulls’ interest. First, the Greek Parliament voted Sunday to pass an unattractive plan to dismiss 15,000 civil servants by the end of next year in a bid to win the next €2.8 billion in bailout money from the Troika. The move secures region-wide financial stability for a little longer – while tearing at the social fabric of a country that is seeing growing support of a withdrawal from the European Monetary Union. Another headline stoking speculative interests was the swearing in of new Italian Prime Minister Enrico Letta. This future of the region’s third largest economy and fiscal state has been a source of consternation since the inconclusive elections in February.

The headlines of the opening trading session mean that Eurozone officials have managed to keep the balancing act of preventing a region-wide crisis going. Yet, they certainly do not prevent other flare ups from seizing control of the currency and market. In the upcoming session, there is serious risk built in to the Cypriot Parliamentary vote on whether to accept the EU’s rescue criteria. Given the number of bailout programs, an approval is likely seen as a certainty. Yet, while the likelihood that the country approves the unfavorable policy necessary to secure aid favorable, the impact to the Euro and its financial system if they do not is extreme. There vote is expected to be close, and the impact of the negative scenario demands traders’ attention and flexibility (Use the DailyFX Breakout 2 strategy when you expect volatility).

Japanese Yen Recovery Slows, Data Mixed
Data from Japan’s docket this morning was a mixed bag. On the positive side, the unemployment rate dropped faster than expected to 4.1 percent (lowest level since November 2008) and household spending rose an a 5.2 percent clip (biggest jump since February 2004) in March. These can be used as evidence of success in Japan’s new economic program (termed ‘Abenomics’) and the BoJ’s stimulus. Yet, considering retail sales and industrial production for the same month both missed, such claims would be preferential. The real trading concern moving forward is whether the BoJ’s actions can steadily devalue the currency, not spur growth. On that front, the outlook is still unclear.

British Pound Slides as the Unwind in Stimulus Expectations SlowPumped of stimulus expectations have been materially subverted these past weeks by the Bank of England’s refusal to expand its asset purchase program at the least meeting and the positive showing with 1Q GDP this past week. This improved outlook – expanded stimulus translates into a larger money supply – has won GBPUSD a near-50 percent retracement on the near-1600 pip drop through the first quarter of the year. How far this ‘unwinding’ progresses is important to assess. If bears have been shaken out, further run requires fundamentals.

Canadian Dollar Charges down to 1.0100 Ahead of February GDP
The Gross Domestic Product data due from Canada over the next 24 hours is important from a big-picture fundamental view, but not necessarily for short-term Canadian dollar price action. The monthly report has a poor track record for generating volatility – much less true trends. To leverage the data’s possible influence, look at pairs not risk-sensitive or economically balanced – like AUDCAD, GBPCAD and NZDCAD.

Swiss Franc Traders Await SNB’s Figures for the First Quarter
The Swiss National Bank (SNB) is scheduled to release the results of their first quarter operations as well as the level of FX reserves they have accumulated through the period. If you are looking for heavy volatility from the franc, look to the cross winds on European data. This update is more as a measure of how the central bank is managing its efforts to keep EURCHF above 1.2000.

Gold Moves to Mid-Point of Past Month’s Range, $1,500 Important
Gold has advanced 8 of the past 10, active trading days. The consistency is impressive but marred by the fact that we are still retracing excessive losses suffered in just two days’ time (April 12 and 15). Meanwhile, the CBOE’s Gold Volatility Index seems to have found an equilibrium (between 25 and 20 percent) nearly double what it was before the incredible tumble. Meanwhile volume on futures and ETFs has dropped back to tepid levels, while Exchange Traded products’ holdings of the metal dropped for the 20th straight trading day.
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA

GMT

Currency

Release

Survey

Comments

1:00

NZD

NBNZ Business Confidence

34.6

Exports sector is the major support for its strong confidence and outlook, matched by the NZ$718M trade surplus in March.

1:00

NZD

ANZ Activity Outlook

32.4