Dollar On The Verge Of True Bull Trend As Market Awaits Fed On QE3

By John Kicklighter, Currency Strategist
  • Dollar on the Verge of True Bull Trend as Market Awaits Fed on QE3
  • Euro: What is the Next, Critical Fundamental Driver?
  • Japanese Yen: Is the Market Expecting Further BoJ Asset Purchases?
  • Australian Dollar Traders Should Pay Closer Attention to China
  • British Pound Shows Limited Reaction to Housing Pickup, Trade Figures Next
  • Swiss Franc Slides as Both Risk and Euro Interest Firms
  • Gold Notches its First Bearish Close in Four Trading Days

Dollar on the Verge of True Bull Trend as Market Awaits Fed on QE3

The US dollar made a lackluster attempt at the start of this week to revive Friday’s momentum and carry the currency to a critical breakout. However, the push never materialized for the bullish camp, and we are once again left on the cusp of meaningful break or reversal. Technical traders should note the trend of lower peaks starting with the October 5 th reversal. The fundamental impasse behind the greenback’s indecision is easily spotted: a lack of meaningful euro repositioning after last week’s flush of Greek headlines and an ominously quiet scene for risk appetite trends as the S&P 500 eyes multi-year highs. In fact, with the early Asian trading session, futures for the benchmark equities index would make a notable break higher to close in on 1,380 and incidentally notched a near-four-year high. For the safe haven dollar, a strong showing from sentiment is a distinct burden.

That said, conviction has dried up consistently with each effort to revive sentiment trends previously. What is lacking in that determination for continuation or turn is a fundamental trend to ride on. Yet, we may find just such a driver in the upcoming New York session. On deck, we have the FOMC’s monetary policy decision . There is no debate about the benchmark lending rate, but there is some degree of speculation surrounding the mention of the next quantitative easing effort ( QE3 ). It is difficult to gauge just how much interest is built into these expectations, but the market’s pained response to Bernanke’s recent testimony (where further stimulus was not played up) suggests it may be high. As far as scenarios go, any suggestion that another round of asset purchases is still on the table for 2012 would be carry the greatest weight – and such a development would clearly play to capital market speculators’ appetites and thereby drive the dollar lower. Alternatively, if the market has become (as Fed President Fisher suggests) ‘addicted’ to stimulus; a mention of improved growth trends and renewed worry of inflation would come as quite the shock for non-committal bulls. And, a tumble for capital markets from these heights could leverage quite the panic.

Euro: What is the Next, Critical Fundamental Driver?

The conversation over Greece’s future continues in Europe, but the situation doesn’t have the immediate timeline for traders to fret over. On the other hand, the lack of a schedule draws a greater sense of uncertainty for those looking to take advantage of an ‘oversold’ currency. In this past session, the top headline for Europe was the commentary to follow the EU Ministers’ meeting. Speaking for the group, Chairman of the Eurogoup Juncker remarked that Greece would not need a third bailout. Of course, this is ironic because they had said the same thing about the need for the second rescue months ago. Adding a new threat to add to our docket, he went on to suggest that Europe was seeking a “significant” contribution to the Greek rescue from the IMF – suggesting another hurdle that can sabotage the effort’s efficacy. That vote is scheduled for Thursday. Another concern was Spain. Officials said the country’s raised, 5.8 percent GDP-Deficit target was ‘dead’. Ominous and ambiguous.

Japanese Yen: Is the Market Expecting Further BoJ Asset Purchases?

The Bank of Japan’s monetary policy decision is due shortly. Running through the scenarios, it is unlikely that the group will make another meaningful change in their policy regime so soon after their most recent increase of the asset purchase program . However, given the yen’s tumble since the additional 10 trillion yen increase in planned acquisitions was announced, there is a latent speculation that the central bank could take another step to keep the growth-stoking depreciation going. In the absence of another hike to purchases, the currency could find itself exposed to regular risk appetite trends. As an aside, an extension of the lending programs would not carry the same influence.

Australian Dollar Traders Should Pay Closer Attention to China

The Australian dollar tagged a six-week low against its US counterpart Monday before bouncing alongside risk appetite trends. Naturally, where sentiment trends, carry trade will follow. That will be the guiding light for the Aussie currency, but it is growing more and more evident that the greater momentum comes through risk aversion when the tepid outlook for domestic rates amplifies the unwinding effort. An additional issue for this particular high-yield player is the fading health of China. We can look at this past weekend’s report of the largest Chinese deficit since 1989 as a positive for the Aussie dollar (as imports surged on energy demand), but the growth implications represent more lasting trouble.

British Pound Shows Limited Reaction to Housing Pickup, Trade Figures Next

Bank of England policy member Fisher touched upon the austerity / growth balance this past session when he spoke of the “trough trade-offs” in policy for the MPC and FPC. With each economic indicator that suggests further struggle for the economy and decrease in tax revenue, the downside of keeping the line on fiscal policy become more obvious. The RICS House Price Balance for February offered a modest sense of relief with the highest reading in 31 months. Next up, we will see if the trade figure figures will compensate for lacking domestic growth.

Swiss Franc Slides as Both Risk and Euro Interest Firms

Currently, the Swiss franc plays two primary fundamental roles that it switches off between: safe haven currency and Euro-area counterpart. As it happens, the euro was lower across the board through Monday’s close (with the exception of EURJPY); so the franc would find little strength in its close correlation. At the same time, the rebound in risk appetite through the later US session hours and into Tokyo trade stood out. Swissie traders know there is important, unique event risk for their currency this week; but until it hits, watch these correlations.

Gold Notches its First Bearish Close in Four Trading Days

The advance for gold through the second half of last week was lacking for momentum, so Monday’s correction shouldn’t come as too great a shock. The precious metal has seen volatility expectations (implied volatility taken from the CBOE’s ETF Index) flat-line just above fresh six-month lows – suggesting major reversals are going to be harder to come by. That could change quickly , however, if the Fed wants to surprise us. If there is a clear mention of additional stimulus on the horizon, the hit to the dollar and inflation-haven demand will be a strong boon.

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**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

N ext 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

JPY

Bank of Japan Rate Decision

0.10%

0.10%

Bank of Japan expected to continue easing, though will be looking for overall sentiment of possibly discarding price stability

0:01

GBP

RICS House Price Balance (FEB)

-14.0%

-16.0%

House prices continue to decline

0:30

AUD

NAB Business Conditions (FEB)

2

Company survey improving on overall economic recovery

0:30

AUD

NAB Business Confidence (FEB)

4

0:30

AUD

Home Loans (JAN)

-0.1%

2.3%

Credit still tight in consumer markets, could lead to newer easing measures

0:30

AUD

Investment Lending (JAN)

7.5%

0:30

AUD

Value of Loans (MoM) (JAN)

2.0%

6:30

EUR

French CPI (YoY) (FEB)

2.4%

2.3%

French prices relatively stable, though focus may return on rates as debt crisis recedes

6:30

EUR

French CPI EU Harmonized (YoY) (FEB)

2.6%

2.6%

8:15

CHF

Producer & Import Prices (MoM) (FEB)

0.2%

0.0%

Swiss import prices rise in short term, though long term decline may result in more easing

8:15

CHF

Producer & Import Prices (YoY) (FEB)

-2.4%

-2.4%

9:30

GBP

Visible Trade Balance (JAN)

-£7900

-£7111

British trade deficit expected to expand as European economic demand still sluggish

9:30

GBP

Total Trade Balance (JAN)

-£1900

-£1109

9:30

GBP

Trade Balance Non EU (JAN)

-£4300

-£3748

9:30

GBP

DCLG UK House Prices (YoY) (JAN)

0.1%

Could follow other surveys lower

10:00

EUR

German ZEW Survey (Current Situation) (MAR)

41.5

40.3

ZEW survey expected to show improvement in German economy, though may lead to divergence between German and zone-wide

10:00

EUR

German ZEW Survey (Economic Sentiment) (MAR)

10

5.4

10:00

EUR

Euro-Zone ZEW Survey (Economic Sentiment) (MAR)

-8.1

11:30

USD

NFIB Small Business Optimism (FEB)

94.3

93.9

Index continues higher

12:30

USD

Advance Retail Sales (FEB)

1.1%

0.4%

Retail sales expected to increase again, may result in dollar gains despite risk meanings as expectations for Fed rate increase increasing

12:30

USD

Retail Sales "Control Group" (FEB)

0.5%

0.7%

12:30

USD

Retail Sales Less Autos (FEB)

0.7%

0.7%

12:30

USD

Retail Sales Ex Auto & Gas (FEB)

0.4%

0.6%

14:00

USD

Business Inventories (JAN)

0.5%

0.4%

Investment continues on rates

18:15

USD

Federal Open Market Committee Rate Decision

0.25%

0.25%

Major US event of the day: traders will be looking for indications of Fed recognition of accelerated recovery, possible rate increase earlier than expected

23:30

AUD

Westpac Consumer Confidence (MAR)

4.2%

Australia consumer confidence may increase on overall recovery

23:30

AUD

Westpac Consumer Confidence Index (MAR)

101.1

23:50

JPY

BSI Large All Industry (QoQ) (1Q)

-2.5

Industries still seeing pressure, may put focus on more fiscal easing despite politics

23:50

JPY

BSI Large Manufacturing (QoQ) (1Q)

-6.1

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

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

13.1813

1.8298

7.9516

7.7618

1.2719

Spot

6.7826

5.7501

5.9324

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

1.3096

1.5727

77.65

0.9464

1.0227

1.0620

0.8168

100.92

121.26

Resist. 2

1.3055

1.5689

77.49

0.9434

1.0203

1.0586

0.8142

100.59

120.94

Resist. 1

1.3014

1.5652

77.33

0.9405

1.0179

1.0552

0.8116

100.27

120.61

Spot

1.2931

1.5576

77.01

0.9345

1.0132

1.0484

0.8063

99.62

119.97

Support 1

1.2848

1.5500

76.69

0.9285

1.0085

1.0416

0.8010

98.97

119.32

Support 2

1.2807

1.5463

76.53

0.9256

1.0061

1.0382

0.7984

98.65

119.00

Support 3

1.2766

1.5425

76.37

0.9226

1.0037

1.0348

0.7958

98.32

118.67

v

--- Written by: John Kicklighter, Senior Currency 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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Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2012/03/13/Dollar_on_the_Verge_of_True_Bull_Trend_as_Market_Awaits_Fed_on_QE3.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.