Dollar Suffers Its Biggest Drop In Month, Not A Signal Of Trend

By John Kicklighter, Currency Strategist
  • Dollar Suffers its Biggest Drop in Month, Not a Signal of Trend
  • Euro Interest Outpaces Sentiment Climb, Threat of Collapse Builds
  • Swiss Franc Surges Across the Board – The SNB Just Can’t Win
  • British Pound Climbs Alongside Euro, Risk as GDP Figures Approach
  • Australian Dollar In the Mood to be Reassured by RBA Stevens
  • Canadian Dollar: Can BoC’s Carney Move the Market?
  • Gold’s Rally Cools as Risk Appetite Improves, Greece Fears Ease

Dollar Suffers its Biggest Drop in Month, Not a Signal of Trend

Both risk appetitetrends (represented by carry trade interest and the S&P 500)and the Euro fundamental consensus improved through the morningtrading hours Friday. And, though the advance on both frontswasn’t convincing of a second wind in a dominant trend, thecombined impact for the dollar was its biggest single-day drop in amonth. In the absence of a singular, dominant fundamental trend; acombination of issues can deliver a comparable impact for acurrency that finds itself on the extremes (like the primaryanti-euro and liquidity providing greenback). That said, acobbled-together fundamental drive lacks the endurance of a core,thematic trend. What does that mean for dollar bears ? Without a reneweddrive from the S&P 500 to new multi-year highs or a surge fromthe euro in the lead up to next week’s lending program (moreon that below), the dollar’s tumble will stutter andstall.

For the final day of the trading week, it will be difficult - though not impossible - to incite a major shift in speculative capital. Aside from the vague threat / recovery potential for the Euro Zone’s financial health, US docket carries secondary indicators (new home sales and the second reading of the University of Michigan’s consumer sentiment survey). Perhaps the round of Fed speakers on tap for US economic health and monetary policy commentary can play to the stimulus influence in the prevailing capital markets bull trend.

Euro Interest Outpaces Sentiment Climb, Threat of Collapse Builds

The euro managed anadvance against all of its major counterparts (with a minorexception of a 0.02 percent drop against the franc) Thursday.Particularly interesting of this performance is that it denotesthat the shared currency outpaced its high yield counterparts– or in fundamental parlance: the improvement in the Eurofinancial crisis theme outpaced the climb in general risk appetitetrends. In turn, the euro hit a two month high against the dollar,sterling and the Canadian dollar (a safe haven, Europeancounterpart and investment currency respectively). Yet, thisstrength seems increasingly suspect when measured against thetrouble that the region faces. Fear surrounding‘implementation risks’ for Greece’s secondbailout program is headline material. Though the EU ministersagreed to the program in principle, there are many ways that the country couldfail to secure the package – and even if they do, longer-termissues remain. IMF officials remind us that the 120 percentdebt-to-GDP target is a ‘best scenario’ situation.Adding insult to injury, it is believed that the group will notincrease its contribution to Greece’s rescue beyond the€30 billion originally promised. And, taking it even further,European Commission released its growth forecasts for the region.The Euro Zone outlook now calls for a 0.3 percent contraction,while Greece, Italy, Spain and Portugal are seen pitching intorecession. However, all of this can be counteracted if speculativeinterests focus on the second LTRO liquidity injection scheduledfor February 29 th . Recent history hasshown us that few things can encourage temporary risk taking aseffectively as a stimulus program.

Swiss Franc Surges Across the Board – The SNB Just Can’t Win

As mentioned above, the Swiss franc was the one currency that held off the euro’s advances this past session. Against most other counterparts, the currency posted an impressive advance to multi-month highs. That seems an unusual outcome considering risk appetite alleviates the demand for safe havens and the euro’s implied fundamental stability would suggest capital would be moving away from the franc. If all the expected considerations are lined up for a slide and the currency fails to comply, what hope is there for it to drop should risk aversion and anti-euro sentiment return? Clearly, the SNB’s threat carries limited weight for the market. Unless the central bank expands its efforts to something more proactive than simply buying euros should we reach 1.20, the EURCHF will remain a constant threat of overrunning the bank’s efforts.

British Pound Climbs Alongside Euro, Risk as GDP Figures Approach

Having a fundamentaland financial connection to the euro can be a burden and a boon.With the shared currency’s climb this past session, thesterling would breathe a sigh of relief from the overbearing threatof a regional crisis. That said, the pound’s buoyancy was far more reservedthan its larger counterpart – as is evidenced byEURGBP’s extended run. Expectations for further BoE stimulusdoesn’t cut it as an explanation for this pair as theECB’s efforts are far more expansive. In the upcomingsession, we’ll look at the details of the 4Q GDPfigures.

Australian Dollar In the Mood to be Reassured by RBA Stevens

There were two sets offundamental headlines for the Australian dollar , and more unexpectedseries seemed to have the lesser impact. Keven Rudd (resignedforeign minister) followed up on his threats by announcing hisintentions to challenge Prime Minister Gillard’s Laborleadership at the February 29 th ballot. Yet, the Aussiedollar hasn’t shown a blip in response to this ongoingdevelopment. Alternatively, the absence of a direct threat offurther rate cuts from RBA Governor Steven’s assists thecurrency higher. The difference: the market is already on a riskappetite kick.

Canadian Dollar: Can BoC’s Carney Move the Market?

Though the Canadiandollar enjoys much of the respect that its Australian and NewZealand counterparts earn as prime carry trader currencies, itfalls far short when it comes to genuine yield. Not only is theCandian benchmark rate at a 325 bp and 150 bp discount to the AUDand NZD respectively, its money market and bond yield differentialsare just as sizable. Is it commodities that keep this currencyriding the proverbial coattails? Perhaps BoC Governor Carney will shift the focusback to the rate differential when he discusses monetarypolicy.

Gold’s Rally Cools as Risk Appetite Improves, Greece Fears Ease

The trend is intact. Gold climbed for a fourth consecutive day through Thursday’s close to extend the best run for the commodity since the five-day series ending January 5 th . That said, momentum cooled markedly in this most recent push. While the dollar’s retreat was a meaningful booster for the anti-fiat asset, tempered interest in Europe’s financial troubles pulled up on the safe haven reins. Perhaps the expectation of more stimulus next week (the ECB’s second LTRO) can keep the trend in place even if momentum spills off somewhat…

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ECONOMIC DATA

N ext 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

1:35

CNY

MNI February Business Condition Survey

55.95

Leading indices before newest move by government to ease

2:00

CNY

Conf Board China Leading Economic Index (JAN)

115

7:00

EUR

German GDP n.s.a. (YoY) (Q4 F)

1.5%

1.5%

Final German output numbers could show decline in exports as most worrying

7:00

EUR

German Domestic Demand (Q4)

0.4%

7:00

EUR

German Government Spending (Q4) (Q4)

0.0%

0.6%

7:00

EUR

German Construction Investment

-0.7%

7:00

EUR

German Imports (Q4)

-0.9%

2.6%

7:00

EUR

German GDP w.d.a. (YoY) (Q4 F)

2.0%

2.0%

7:00

EUR

German Exports (Q4)

-1.4%

2.5%

7:00

EUR

German Capital Investment (Q4)

0.5%

0.9%

7:00

EUR

German Private Consumption (Q4)

-0.1%

0.8%

7:00

EUR

German GDP s.a. (QoQ) (Q4 F)

-0.2%

-0.2%

9:30

GBP

Gross Fixed Capital Formation (Q4 P)

-0.7%

1.3%

Preliminary UK GDP data showing stagnant growth, could prompt more innovative easing by the Bank of England

9:30

GBP

Exports (Q4 P)

1.6%

-0.8%

9:30

GBP

Imports (Q4 P)

0.1%

0.5%

9:30

GBP

Index of Services (MoM) (Q4 P)

0.1%

0.6%

9:30

GBP

Index of Services (3Mo3M) (Q4 P)

0.0%

0.1%

9:30

GBP

Total Business Investment (YoY) (Q4 P)

2.2%

4.3%

9:30

GBP

GDP (QoQ) (Q4 P)

-0.2%

-0.2%

9:30

GBP

GDP (YoY) (Q4 P)

0.8%

0.8%

9:30

GBP

Private Consumption (Q4 P)

0.2%

0.0%

9:30

GBP

Government Spending (Q4 P)

0.1%

0.2%

9:30

GBP

Total Business Investment (QoQ) (Q4 P)

-0.7%

0.3%

14:55

USD

U. of Michigan Confidence (FEB F)

72.8

72.5

Final data could improve

15:00

USD

New Home Sales (JAN)

315K

307K

New Sales could help construction sector

15:00

USD

New Home Sales (MoM) (JAN)

2.6%

-2.2%

GMT

Currency

Upcoming Events & Speeches

14:45

CAD

Bank of Canada's Carney Speaks in New York

15:00

USD

Revisions: Existing Home Sales

15:45

USD

Fed's Williams Speaks in New York

16:35

USD

Fed's Bullard Speaks on Housing

18:30

USD

Fed's Plosser Speaks on Monetary Policy in New York City

18:30

USD

Fed's Dudley to Speak on Monetary Policy in New York

SUPPORT AND RESISTANCE LEVELS

To seeupdated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To seeupdated PIVOT POINT LEVELS for the Majors and Crosses, visitour Pivot Point Table

CLASSIC SUPPORT ANDRESISTANCE EMERGING MARKETS 18 :00GMT SCANDIES CURRENCIES 18:00GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

16.5000

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.6625

6.1150

Resist 1

14.3200

1.9000

8.5800

7.8075

1.3250

Resist 1

6.5175

5.3100

5.7075

Spot

12.7976

1.7586

7.6653

7.7545

1.2538

Spot

6.6240

5.5631

5.6214

Support 1

12.6000

1.6500

6.5575

7.7490

1.2000

Support 1

6.0800

5.1050

5.3040

Support 2

11.5200

1.5725

6.4295

7.7450

1.1800

Support 2

5.8085

4.9115

4.9410

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\ Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist. 3

1.3515

1.5868

80.87

0.9122

1.0063

1.0871

0.8482

108.42

127.46

Resist. 2

1.3478

1.5836

80.67

0.9096

1.0041

1.0838

0.8455

108.08

127.12

Resist. 1

1.3440

1.5805

80.48

0.9071

1.0020

1.0804

0.8428

107.75

126.78

Spot

1.3366

1.5743

80.10

0.9020

0.9977

1.0737

0.8374

107.07

126.10

Support 1

1.3292

1.5681

79.72

0.8969

0.9934

1.0670

0.8320

106.39

125.42

Support 2

1.3254

1.5650

79.53

0.8944

0.9913

1.0636

0.8293

106.06

125.08

Support 3

1.3217

1.5618

79.33

0.8918

0.9891

1.0603

0.8266

105.72

124.74

v

--- Written by: JohnKicklighter, Senior Currency Strategist for DailyFX.com

To contact John , email jkicklighter@dailyfx.com . Follow me on twitter athttp://www.twitter.com/JohnKicklighter

To be added toJohn’s email distribution list, send an email with thesubject line “Distribution List” to jkicklighter@dailyfx.com .

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DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2012/02/24/Dollar_Suffers_its_Biggest_Drop_in_Month_Not_a_Signal_of_Trend.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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