Dollar: EUR/USD and USD/JPY Critical after 5 Week USDollar Rally

RELATED QUOTES

SymbolPriceChange
^USDOLLAR10,461.74+15.40
EURUSD=X1.3810-0.0006
USDJPY=X102.6250+0.205
GBPUSD=X1.6792-0.0009
AUDUSD=X0.9323-0.001

  • Dollar: EUR/USD and USD/JPY Critical after 5 Week USDollar Rally
  • Japanese Yen Traders Watch G20, Government and BoJ Candidates
  • Euro Climb Threatened if ECB Eases Pressure, LTRO2 Repayment Small
  • British Pound Ready for Volatility but Can Jobs and BoE Minutes Carry Trend?
  • Canadian Dollar Traders Watch CPI Release for Signs of BoC Shift
  • Australian Dollar: Rising 10-Year Yields May Reflect Falling Foreign Demand
  • Gold Suffers Critical, Bearish Break as G20 Take Up FX Competition

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Dollar: EUR/USD and USD/JPY Critical after 5 Week USDollar Rally

As resolute as risk appetite seems in the S&P 500’s refusal to retreat and volatility measures’ anchor to multi-year lows, the dollar gained a significant foothold this past week. The equal-weighted Dow Jones FXCM Dollar Index (ticker = USDollar) won its fifth consecutive weekly rally with Friday’s close. With this impressive run, the benchmark is up over 6 percent from its September lows and currently at its highest level since September 2010. This strength still draws confusion, though, as most associate the dollar to EURUSD. This particular pair was little changed on Friday and on the week, but it is also 2.5 percent off its highest from the start of this week. This pair hasn’t prevented the greenback’s underlying strength, but it will likely prove critical as to whether the trend can continue.

In contrast to the pressure the Euro has exacted on the dollar, the reserve currency has found considerable buoyancy through USDJPY – which is benefiting from Japan’s determination to devalue their currency. Yet, a more than 20 percent climb in the span of five months smacks of an extreme position that demands relief. Though the G20 statement seems as if it will carry a soft threat to competitive currency devaluation, the market may take the opportunity to back off of the yen in general. If that is the case, the dollar’s top bullish contributor will leave a gaping hole. In steps EURUSD. A correction from the most liquid pairing and break of an established (and unfavorable for the dollar) trend can strike just the right level of strength for the greenback. But that will take something provocative – risk aversion or stimulus imbalances narrowing.

Japanese Yen Traders Watch G20, Government and BoJ Candidates

There are a few different fundamental lines to keep track of for trading the yen – a situation that adds to the risk of reversal. Most immediate for FX watchers is the impact that the G20 statement will have on central bank frontrunners’ positioning. Vows by policy officials to evoke the unlimited stimulus effort and thereby collapse the currency have worked wonders. Yet, since the G7 hurled its indirect warning at Japan, the FX market has been on hold. Even if the country isn’t labeled in the bigger meet’s statement, we may have just enough to concern to deflate yen exposure. That brings us to our second order business: a constant watch on government officials’ (Prime, Finance and Economy Ministers) remarks on policy and stimulus intentions. And, finally, we must keep a vigilance on the BoJ Governor search.

Euro Climb Threatened if ECB Eases Pressure, LTRO2 Repayment SmallThough it has not been an active endeavor, the European Central Bank (ECB) has seen its balance sheet shrink – a dramatic contrast to its global counterparts. In fact, the region’s stimulus exposure has dropped over 10 percent since the pivotal policy meeting in which the group introduced its OMT program. In rough financial waters, this would prove worrisome; but in these conditions where investors chase anemic yields with no thought of risk, it is a serious boon. We have seen market rates rise substantially for the Euro. Yet, that trend certainly broke last week with short-term yields retreating. Is the ECB softening on growth, inflation, jobs? Watch the first scheduled repayment of LTRO2 on Friday.

British Pound Ready for Volatility but Can Jobs and BoE Minutes Carry Trend?

This past week, the sterling dropped against all of its liquid counterparts – ranging from a 0.9 percent stumble against the yen up to the aggressive 3 percent drop versus the New Zealand dollar. The most recent selling extends a general trend since the year began. The pound has been significantly weakened. What’s the drive behind this move? Investors are starting to apply more weight to the triple dip recession the UK has fallen into which in turn leverages concerns that the Bank of England (BoE) will inevitably catch up to the Fed and BoJ with more stimulus. So far, these fears haven’t played out. Coming up, the minutes from the last central bank meeting can perhaps give more clues as to a time frame. That said, if it doesn’t feed the doves / bears and jobs data is decent; an oversold pound may receive a pop.

Canadian Dollar Traders Watch CPI Release for Signs of BoC Shift

Not six months ago, the Canadian dollar seemed the perfect currency. Not only did it avoid the worst of the global financial crisis and an exaggerated recession, it carried a yield appeal and was labeled a reserve currency by central banks (later caught on to by the IMF). However, a critical aspect of this perfect façade is starting to crumble – expectations that the Bank of Canada (BoC) is on pace to hike rates well before its counterparts and sometime this year. Governor Carney backed off of his volatile language weeks ago, and now FX and rates traders are looking for evidence as to where the central bank will fully abandon its tightening hopes. In the week ahead, we have plenty of data to crunch including housing prices, trade figures, wholesale and retail sales figures. Of greatest interest though is the CPI data well below target.

Australian Dollar: Rising 10-Year Yields May Reflect Falling Foreign Demand

Equity indexes have held fast to their highs while the same market’s volatility measure is anchored to five-year lows. Sentiment is elevated and fear is all-but absent according to these closely-watched measures. And yet, the highest yielding of the major currencies – the Aussie dollar – had a mixed week. This is yet another, running measure of the ‘quality’ of sentiment; but it also carries an element of the Australian currency’s own position in the risk spectrum. The inflow of capital seeking higher yield of AAA-assets and Europe haven flows amongst other sources seems to be reversing current. The yield on the 10-year government bond is at May highs – which suggests demand is dropping.

Gold Suffers Critical, Bearish Break as G20 Take Up FX Competition

Gold has found itself in a general bear trend for the past four months, but 2013 was developing a level of stability for the troubled metal – until this past week. Following a virtually unchanged performance through the period ending on the 8th, gold suffered a hefty 3.4 percent plunge through this most recent week. That is the biggest decline on that time frame since June – when the market was consolidating at the now 18-month range floor. The bearish trend mirrors the dollar’s climb closely. However, this past week’s – and particularly Friday’s massive 1.5 percent tumble – doesn’t find much support in the FX world. This particularly push likely comes in response to the G20’s likely adoption of a pact not to competitively devalue their exchange rates. It is interesting that eased pressure on deficit reduction was outweighed as a currency/gold balance.

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

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

21:30

NZD

Performance Services Index (JAN)

51.5

The manufacturing report sparked a significant, kiwi rally

0:01

GBP

Rightmove House Prices (MoM)

0.20%

Large swings in data set: 5 yr. avg.: 0%, high: 4.1%, low: -3.3%

0:01

GBP

Rightmove House Prices (YoY)

2.40%

Stable upward trend over last 17 months, avg. of 1.7%

0:30

AUD

New Motor Vehicle Sales (MoM)

2.20%

Volatile growth, between 10.7% and -10.1% over last 3 years

0:30

AUD

New Motor Vehicle Sales (YoY)

17.90%

Upward trend since -14.8% on 5/11, 2 yr. high of 22.3% on 5/12

6:00

JPY

Machine Tool Orders (YoY)

-26.1%

Sharp downward trend since 3/10 high of 262%, 6-mth. avg.:-14.5%

9:00

EUR

Euro-Zone Current Account n.s.a. (euros)

19.8B

Volatile upward trend, previous month 2nd highest level in 5 yrs.

9:00

EUR

Euro-Zone Current Account s.a. (euros)

14.8B

Upward trend since 12/10, 13 months straight positive

GMT

Currency

Upcoming Events & Speeches

9:00

EUR

ECB’s Nowotny Briefs Journalists

13:00

EUR

Van Rompuy Speaks to EU Parliament on EU Budget Proposal

14:30

EUR

ECB’s Draghi Speaks in Brussels at Quarterly Hearing on ECB

16:30

EUR

ECB’s Draghi at Quarterly Euro Systemic Risk Board Meeting

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

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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

15.5900

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

5.8300

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.8155

5.7350

5.8200

Spot

12.6899

1.7670

8.8550

7.7545

1.2371

Spot

6.3222

5.5827

5.5435

Support 1

12.5000

1.6500

8.5650

7.7490

1.2000

Support 1

6.0800

5.4440

5.5000

Support 2

11.5200

1.5725

6.5575

7.7450

1.1800

Support 2

5.8085

5.3350

5.3040

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

1.3476

1.5652

94.70

0.9297

1.0126

1.0389

0.8533

126.91

147.01

Resist. 2

1.3447

1.5619

94.40

0.9277

1.0111

1.0368

0.8513

126.42

146.53

Resist. 1

1.3418

1.5585

94.10

0.9258

1.0095

1.0347

0.8492

125.93

146.05

Spot

1.3360

1.5518

93.50

0.9218

1.0064

1.0305

0.8451

124.96

145.09

Support 1

1.3302

1.5451

92.90

0.9178

1.0033

1.0263

0.8410

123.99

144.12

Support 2

1.3273

1.5417

92.60

0.9159

1.0017

1.0242

0.8389

123.50

143.64

Support 3

1.3244

1.5384

92.30

0.9139

1.0002

1.0221

0.8369

123.01

143.16

v

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

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

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Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.25230.000.00%
    USDSGD=X
    1.7295-0.0007-0.04%
    EURSGD=X
    2.1028-0.0013-0.06%
    GBPSGD=X
    81.9588+0.1765+0.22%
    SGDJPY=X
    6.1919-0.00020.00%
    SGDHKD=X
    2.5913+0.0058+0.22%
    SGDMYR=X
    9,119.5850+0.7227+0.01%
    SGDIDR=X
    4.9718+0.0014+0.03%
    SGDCNY=X
    1.1675-0.0012-0.11%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,294.00-7.90-0.61%
    GCQ14.CMX
    19.60+0.02+0.08%
    SIK14.CMX
    90.18-0.65-0.72%
    ^XAU
    3.05+0.02+0.51%
    HGK14.CMX
    104.30+0.83+0.80%
    CLK14.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.73+0.08
    ^FVX
    2.72+0.08
    ^TNX
    3.52+0.06
    ^TYX

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.116+0.001+0.87%
    B22.SI
    0.129+0.004+3.20%
    545.SI
    2.190.0000.00%
    JS8.SI
    0.143+0.004+2.88%
    5GB.SI
    0.49+0.010+2.08%
    5GJ.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.26+0.045+20.93%
    5UE.SI
    0.485+0.020+4.30%
    5UL.SI
    0.16+0.010+6.67%
    A03.SI
    0.735+0.040+5.76%
    L02.SI
    0.335+0.015+4.69%
    554.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    26.61-0.960-3.48%
    HD9.SI
    0.565-0.025-4.24%
    G08.SI
    0.275-0.005-1.79%
    M1Z.SI
    0.28-0.005-1.75%
    B69.SI
    0.30-0.005-1.64%
    RE4.SI