Dollar Extends Its Longest Advance Against Euro Since Sept 2009

By John Kicklighter, Sr. Currency Strategist
  • Dollar Extends its Longest Advance Against Euro Since Sept 2009
  • Euro: Greek Defect not an Immediate Threat, But the Risk is There
  • Japanese Yen Continues its Course Lower, Carry Unwind vs BoJ Buying
  • Swiss Franc: Are the IMF’s EURCHF Suggestions to Be Taken Seriously?
  • New Zealand Dollar Continues Lower as Bollard Says He Would Intervene if Effective
  • Australian Dollar Responds to Budget, Gillard Suggesting RBA Free to Cut
  • Gold Prints its Biggest Decline Since Bernanke Sunk QE3 Hope, Cracks Major Trendline

Dollar Extends its Longest Advance Against Euro Since Sept 2009

The dollar has maderemarkable progress over the past week and a half. The progress thecurrency has made against its high-yield Australian and New Zealandcounterparts as well as the seven day decline for EURUSD (thelongest run since September 2009) speak for themselves. That said,the most liquid currency pair is still struggling to build momentumbelow 1.3000. Further, the Dow Jones FXCM Dollar Index is still well off its16-month range high with a significant push ahead of it if bullswish to forge an irrefutable trend. This position, in fact, fitsthe fundamentals well. There are two ways to set the greenback on astrong and lasting bull run: spark panic that lends itself towholesale deleveraging or alter the dollar’s competitiveness(higher yields). We know where the rate picture fits. As for riskaversion, the S&P 500 is lower but not a full beartrend.

Euro: Greek Defect not an Immediate Threat, But the Risk is There

Is the Euro at imminentrisk of collapse or at the least another round of painful crisis?No. And it is that reason that that we find the Euro a mixedperformance (the shared currency gained against the risk-sensitivecommodity bloc) through yesterday’s close. It is further,most likely the reason EURUSD has found restraint inits slide below 1.3000. Over-ambitious bears may think thefundamentals have disconnected from reality due to the negativeimplications of this past weekend’s elections; butspeculation surrounding the headlines has already been fullyfleshed out. Socialist candidate Francois Hollande’s electionto the French presidency, is a distinct shift away from theambitious austerity that Sarkozy pushed, but it isn’t exactlyunprecedented. The Euro Zone has had a voice for moregrowth-accommodative policy for weeks now. Hollande’s moremoderate approach doesn’t cast out the euro, it simply fallsin line with the growth-first approach. Far more uncertain is thesituation in Greece. The weekend vote fell far short of a majority,and New Democracy’s leader Samaras (a pro-bailout, butlooking for renegotiation) has failed to raise a coalition. Secondplace Syriza (anti-bailout) has three days, but they will unlikelygarner the votes. PASOK’s Venizelos (pro-bailout) willunlikely yield further ground, nor will the Greek President afterthat. There is a lot of uncertainty, but there is still a littletime.

Japanese Yen Continues its Course Lower, Carry Unwind vs BoJ Buying

Monday, it was reported that the Bank of Japan made its largest net purchase of ETFs on record - 39.7 trillion yen. That is a notable intervention, but it isn’t the size that we would expect fundamentally shifts the market’s assessment of the Japanese currency’s primary role, that of a funding asset. Furthermore, it is important to note that this is a purchase that falls within the existent asset purchasing program the central bank had laid out previously. Even if this move did come out of the blue, it would unlikely yield the same kind of impact that we had mid-February to the BoJ’s first announcement of an asset purchasing plan increase. Though risk trends are still lacking momentum, carry unwind is still very prominent.

Swiss Franc: Are the IMF’s EURCHF Suggestions to Be Taken Seriously?

The IMF Tuesdayreleased a statement that the SNB’s ceiling on the strongcurrency was “appropriate” for now. Yet, traders – frustrated by a lack of meaningful direction and momentum – weren’tinterested in this assessment. Their attention went to thesuggestion that policy should revert to a freely floating exchangerate when growth and price pressures stabilize. There was no realtime frame given to that scenario, and they went on to warn thatSwitzerland was vulnerable to the Euro Zone debt crisis. Should webe concerned of the IMF’s stage 2 advice? No, even if thiswere an immediate suggestion, the SNB has its own agenda and thereins. They have stated their interests plainly. Dissuade thefranc.

New Zealand Dollar Continues Lower as Bollard Says He Would Intervene if Effective

RBNZ Governor Bollardwas active on the wires this morning. In the Financial StabilityReport, the policy maker was a voice of caution as he warned thatEurope was still a prime source of uncertainty for the islandnation as much as the rest of the system. It is interesting to seean official speak candidly about how little progress the mosttroubled region has made on its fiscal imbalances andcompetitiveness – most others pander to avoid therepercussions of negative sentiment on their own markets. Kiwitraders, however, should be more focused on what Bollard had to sayabout the kiwi. In reference to the currency, the central bankersaid recent declines match fundamental trends but it could remainhigh despite a deflation in prices domestically. A particularlyinteresting statement was that Bollard would not hesitate to use atool to drive the kiwi down if he had one that wasactually effective.

Australian Dollar Responds to Budget, Gillard Suggesting RBA Free to Cut

There is plenty to keep the Aussie dollar on its back foot; but just to make sure the depreciation continues, policy officials are doing their best to keep the pressure on. Referring to the official Aussie fundamental ‘trinity’, we find first that the Chinese equity markets are taking a turn lower yet fear in this element undermining Australia’s future isn’t particularly active. Interest rate expectations are still the most active concern as we find the market pricing in a 91 percent probability of a 25 bp RBA rate cut next week. Nothing particularly new there. Where the greatest untapped potential still lies is in underlying risk trends. With equity benchmarks still floating near meaningful heights, this is the catalyst we await. In the meantime, Australia’s budget shows it is trying to avoid a poor grade for financing. Fitch approved the effort to balance the budget and agreed with the 2012, 2013 GDP forecasts the budget laid out. Prime Minister Gillard used the occasion to suggest that they had done everything necessary to provide the “maximum room” for the RBA to “move” on rates. Still feeding rate expectations rather than underlying risk trends.

Gold Prints its Biggest Decline Since Bernanke Sunk QE3 Hope, Cracks Major Trendline

We have discussed the fundamental forces working to define gold’s bearings for some time, but the threats have only offered us so much guidance. Finally, we have found drive to the build up – and the spark was distinctly bearish. The 2.0 percent tumble through Tuesday’s session is notable as the biggest drop from the precious metal since the 4.9 percent plunge on February 29 that followed Bernanke’s suggestions that QE3 expectations were overblown (it is also the second biggest drop this year). Where the move really registers however is in its technical picture. Any chart trader would recognize that the day’s drop officially pulled us below a bullish trendline that has been in place since November 2008. This is a changing of the guard, but to make it a true bear’s market, we need liquidity concerns or strong individual dollar.

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ECONOMIC DATA

N ext 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

5:00

JPY

Leading Index CI (MAR P)

96.9

96.3

Major economic indicators could show signs of improvement, but effects of strong JPY, stalling global growth continue to weigh

5:00

JPY

Coincident Index CI (MAR P)

96.2

95.0

6:00

EUR

German Exports SA (MoM) (MAR)

-0.5%

1.5%

German trade balance generally improving since 2009, while low external competitiveness continues to present challenge to French economy

6:00

EUR

German Imports SA (MoM) (MAR)

1.0%

3.6%

6:00

EUR

German Current Account (Euro) (MAR)

18.0B

11.1B

6:00

EUR

German Trade Balance (MAR)

14.3B

14.7B

6:45

EUR

French Trade Balance (Euros) (MAR)

-6000M

-6398M

11:00

USD

MBA Mortgage Applications (May 4)

0.1%

14:00

USD

Wholesale Inventories (MAR)

0.6%

0.9%

22:30

NZD

Business NZ PMI (APR)

54.5

Previous NZ PMI reading was sharply lower in relation to prior month

23:50

JPY

Bank Lending incl Trusts (YoY) (APR)

0.8%

Japanese trade balance expected to swing to negative as Yen resumes appreciation versus US Dollar

23:50

JPY

Bank Lending Ex-Trusts YoY (APR)

0.9%

23:50

JPY

Current Account Total (MAR)

¥1449.0B

¥1177.8B

23:50

JPY

Adjusted Current Account Total (MAR)

¥650.0B

¥854.1B

23:50

JPY

Current Account Balance YOY% (MAR)

-17.1%

-30.7%

23:50

JPY

Trade Balance - BOP Basis (MAR)

-¥42.8B

¥102.1B

GMT

Currency

Upcoming Events & Speeches

7:00

EUR

Italian PM Monti Gives Speech at Conference on European Economy

7:30

EUR

ECB Vice-President Constancio Speaks on Euro Area

8:15

EUR

Germany’s Schäuble, EU’s Van Rompuy, Barroso Speak

10:00

GBP

UK Outlines Government Program in Queen’s Speech

14:00

USD

Fed’s Kocherlakota Speaks on Monetary Policy in Minneapolis

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 AND RESISTANCE

EMERGING MARKETS& 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

13.1680

1.7583

7.8310

7.7608

1.2447

Spot

6.8171

5.6844

5.7986

Support 1

12.5000

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

1.3217

1.6277

80.59

0.9280

1.0043

1.0296

0.8050

105.79

130.46

Resist. 2

1.3184

1.6245

80.41

0.9256

1.0022

1.0268

0.8026

105.46

130.09

Resist. 1

1.3151

1.6214

80.22

0.9231

1.0002

1.0239

0.8002

105.14

129.71

Spot

1.3084

1.6151

79.85

0.9182

0.9961

1.0182

0.7955

104.49

128.97

Support 1

1.3017

1.6088

79.48

0.9133

0.9920

1.0125

0.7908

103.84

128.23

Support 2

1.2984

1.6057

79.29

0.9108

0.9900

1.0096

0.7884

103.52

127.85

Support 3

1.2951

1.6025

79.11

0.9084

0.9879

1.0068

0.7860

103.19

127.48

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/2012/05/09/Dollar_Extends_its_Longest_Advance_Against_Euro_Since_Sept_2009.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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