Forex: Dollar Wedged Between 1.3400 and 1.3325, Awaiting Catalyst

  • Dollar Wedged Between 1.3400 and 1.3325, Awaiting Catalyst
  • Swiss Franc Posts Biggest Collapse in 14 Months, Is it Free?
  • Japanese Yen Drops but Recovers After Officials Says Collapse May be an Issue
  • Euro Most Overextended Currency of the Majors
  • New Zealand Dollar Posts Standout Rally after Data Mix
  • British Pound Awaits CPI for Update on Policy Bearing
  • Gold at Immediate Breakout Risk

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Dollar Wedged Between 1.3400 and 1.3325, Awaiting Catalyst

With risk trends struggling for consistency and Fed officials passing up the opportunity to offer a tangible shift in monetary policy, the dollar was a mixed bag Monday. The Dow Jones FXCM Dollar Index’s (ticker = USDollar) performance on the session was essentially a technical advance by the thinnest of margins. Turning away from the USDCHF and USDJPY (spurred on by counterparty fundamental catalysts), most dollar traders are keeping their gaze fixed on EURUSD. Aside from its authority as the Forex market’s most liquid pairing, this benchmark has shown the greatest degree of depreciation since last week and is arguably the dollar’s weakest point. In other words, if there is to be a recovery registered, it will be done so through this pair. However, if we want to break back below 1.3300, we may need to see the S&P 500 below 1,450.

Swiss Franc Posts Biggest Collapse in 14 Months, Is it Free?

While the Japanese yen and euro continue to stand out for their impressive performances, these two high-profile currencies would not put in for the most impressive performance for the day Monday. That title goes to the Swiss franc. Long ago relegated to the position of afterthought, this currency may once again deserve our attention. Since September 2011, the Swiss National Bank (SNB) has vowed to keep a floor of 1.2000 underneath EURCHF. Since April of last year, the pair had essentially flat-lined at that level. That meant that however euro traded against its third party crosses, the franc essentially did the same. That anchor started to loosen up in September of this past year, but has finally shown serious signs of a permanent departure from the imposed boundary. In fact, through early morning trading, EURCHF has rallied almost 300 pips in the span of less than four trading days. Monday’s rally alone was the biggest since November 7, 2011. That is serious.

Japanese Yen Drops but Recovers After Officials Says Collapse May be an Issue

The Japanese yen was already leveling off Monday, but the it made a concerted move higher during Tuesday’s Asian session. There is certainly weight behind a necessary correction of an immensely oversold currency – but as economist John Maynard Keynes said: ‘the markets can remain irrational longer than you can remain solvent.’ The yen’s tumble has been fully engaged and driven through most sensible arguments of being ‘oversold’. What changed? There was a potential crack that formed in the government’s otherwise unwavering vow to stimulate the currency to the ground. Economy Minister Amari broke rank and remarked that an ‘excessively weak yen’ has negative effects on Japanese. This is hardly a wholesale change in the policy line, but bulls are looking for a reason to take profit. A true retreat comes with risk aversion.

Euro Most Overextended Currency of the Majors

While the Euro-area’s tail risk seemed to be receding, the shared currency didn’t seem to exhibit too much inherent strength through the opening session of the new trading week. Through the final 48 hours of the past trading week, the euro was spurred on by the ECB’s hold on policy (offsetting dovish expectations) as well as Spain’s financial improvements (strong debt sales and suggestions that the rescue program would drop seniority claims in the event of a default). Over the previous session though, there was limited follow up on that strong wave. Germany’s Finance Minister remarked that the Eurozone would be stable even if Greek reforms faltered – seen as pandering. In other headlines, Standard & Poor’s affirmed the top credit ratings of Netherlands, Luxembourg and Finland (raising the outlook of the latter two). Positive, but not bullish.

New Zealand Dollar Posts Standout Rally after Data Mix

The New Zealand dollar advanced against every one of its liquid counterparts Monday – a considerable feat given the performance of counterparts like the euro and the lack strength from equities (as a measure of risk appetite) through the same period. The kiwi’s performance began early in the trading session and continued through the lull in equity futures performance. Fundamentals kicked in for the investment currency shortly after the US close. The REINZ housing inflation indicator noted a quick, 0.6 percent drop in prices through December and sales growth (year-over-year) cooled to an 8.2 percent clip – just off the slowest pace since April 2011. Yet, that negative influence was more than offset by the news that 4Q Business Confidence (from the NZIER) swelled to a 20 reading – a positive showing a majority projecting growth.

British Pound Awaits CPI for Update on Policy Bearing

With the exception of the unique plunge from the Swiss franc, the British pound leveraged a particularly weak opening to the new trading week. The docket was light for the sterling on the opening session. The only thing to raise interest was a proposal made by the Bank of England’s Financial Policy Committee to be able to adjust the amount of reserves banks hold against real estate assets, bonds and derivatives in order to strengthen the financial system. In effect, this is an austerity measure for the financial system to avoid a full crisis. Yet, this is still a proposal. In the coming session, FX traders should watch the economic docket. The UK will release inflation (CPI and RPI) figures which will tell us how much room the BoE has to maneuver with monetary policy – or whether it has to make a move to avert a policy impasse.

Gold at Immediate Breakout Risk

Complacency has set in for gold at a very dangerous time for the financial community’s favorite metal. Including the early morning trading Tuesday, gold has produced seven consecutive days of higher lows following the commodity’s spike low on January 4. On the other opposite side of the market, we have seen a progress of consistent bear phases that began with the failure to overtake 1,800 back in early October. In technical parlance, gold has developed a wedge (with a dominant, bearish theme) that must be resolved with a breakout. Looking at other activity measures for the metal, the pressure build is clear. The CBOE’s volatility index for the commodity has leveled off just above record lows, open interest on futures has steadily built up since late December and volume has trended higher over the past week. What we need now is a spark to ignite this unstable situation. Changes in stimulus efforts would be the ‘cleanest’ fundamental development, but few things are ever clean – furthermore, we don’t have any systemic stimulus events on deck. Instead, gold traders should watch the dollar.

ECONOMIC DATA

Next 24 Hours

GMT

Currency

Release

Survey

Previous

Comments

0:01

GBP

RICS House Price Balance (DEC)

-8%

-9%

House Prices have been declining since 6/2010.

4:30

JPY

Bankruptcies (YoY) (DEC)

-

-12.0%

6:00

JPY

Machine Tool Orders (YoY) (DEC P)

-

-21.3%

21.3% is sharpest decline since 11/2009.

7:00

EUR

German Consumer Price Index (MoM) (DEC F)

0.9%

0.9%

7:00

EUR

German Consumer Price Index (YoY) (DEC F)

2.1%

2.1%

7:00

EUR

German CPI - EU Harmonised (YoY) (DEC F)

2.1%

2.1%

8:00

EUR

German Public Finances Balance-GDP Ratio (2012)

-0.1%

-0.8%

8:00

EUR

German GDP n.s.a. (YoY) (2012)

0.8%

3.0%

19 year average is 1.42% growth.

9:30

GBP

Producer Price Index Input n.s.a. (MoM) (DEC)

0.0%

0.1%

Input prices averaged 1.5% growth over 2012, Year-over-Year.

9:30

GBP

Producer Price Index Input n.s.a. (YoY) (DEC)

0.4%

-0.3%

9:30

GBP

Producer Price Index Output n.s.a. (YoY) (DEC)

2.4%

2.2%

Core output prices averaged 1.9% growth during 2012 on a yearly change basis.

9:30

GBP

PPI Output Core n.s.a. (YoY) (DEC)

1.5%

1.4%

9:30

GBP

DCLG UK House Prices (YoY) (NOV)

1.6%

1.5%

House prices returned to growth on 4/2012.

9:30

GBP

Consumer Price Index (MoM) (DEC)

0.5%

0.2%

Consumer prices averaged 3.1% inflation over last 6 years on a yearly measure.

9:30

GBP

Consumer Price Index (YoY) (DEC)

2.7%

2.7%

9:30

GBP

Core Consumer Price Index (YoY) (DEC)

2.6%

2.6%

9:30

GBP

Retail Price Index (MoM) (DEC)

0.4%

0.0%

9:30

GBP

Retail Price Index (YoY) (DEC)

3.0%

3.0%

10:00

EUR

Euro-Zone Trade Balance s.a. (euros) (NOV)

8.0B

7.9B

Eurozone began earning a surplus trade balance on 11/2011 and has since increased by 212%.

10:00

EUR

Euro-Zone Trade Balance (euros) (NOV)

10.0B

10.2B

13:30

USD

Advance Retail Sales (DEC)

0.2%

0.3%

6 year average growth rate: 0.2%

13:30

USD

Retail Sales Less Autos (DEC)

0.2%

0.0%

13:30

USD

Retail Sales Ex Auto & Gas (DEC)

0.4%

0.7%

13:30

USD

Producer Price Index (YoY) (DEC)

1.5%

1.5%

2012 average at 2.0%

13:30

USD

PPI Ex Food & Energy (YoY) (DEC)

2.1%

2.2%

2012 average at 2.6%

13:30

USD

Empire Manufacturing (JAN)

0

-8.1

2012 average at 4.23. 6 year average at 4.49. 11 year average at 9.33.

14:00

CAD

Existing Home Sales (MoM) (DEC)

-

-1.7%

15:00

USD

Business Inventories (NOV)

0.3%

0.4%

Average since 1948 at 0.5%

23:30

AUD

Westpac Consumer Confidence (JAN)

-

-4.1%

Increased by 11% since bottoming on 8/2011.

23:30

AUD

Westpac Consumer Confidence Index (JAN)

-

100

GMT

Currency

Upcoming Events & Speeches

13:00

USD

Fed's Rosengren Speaks on Economic Outlook in Providence, RI

13:50

USD

Fed's Kocherlakota Speaks on Policy in Golden Valley, Minn.

17:30

USD

Fed's Plosser Speaks on Economic Outlook in Rochester, NY

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visitTechnical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit ourPivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USDMXN

USDTRY

USDZAR

USDHKD

USDSGD

Currency

USDSEK

USDDKK

USDNOK

Resist 2

15.5900

2.0000

9.2080

7.8165

1.3650

Resist 2

7.5800

6.1875

6.1150

Resist 1

15.0000

1.9000

9.1900

7.8075

1.3250

Resist 1

6.8155

5.9190

5.8200

Spot

12.6551

1.7705

8.7200

7.7518

1.2250

Spot

6.4655

5.5928

5.5302

Support 1

12.5000

1.6500

8.5650

7.7490

1.2000

Support 1

6.0800

5.5840

5.6000

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

1.3450

1.6234

90.17

0.9206

0.9905

1.0616

0.8443

120.62

145.68

Resist. 2

1.3423

1.6209

89.92

0.9189

0.9890

1.0596

0.8423

120.21

145.22

Resist. 1

1.3396

1.6183

89.67

0.9171

0.9876

1.0576

0.8403

119.81

144.77

Spot

1.3343

1.6132

89.18

0.9135

0.9848

1.0535

0.8363

119.01

143.87

Support 1

1.3290

1.6081

88.69

0.9099

0.9820

1.0494

0.8323

118.21

142.96

Support 2

1.3263

1.6055

88.44

0.9081

0.9806

1.0474

0.8303

117.81

142.51

Support 3

1.3236

1.6030

88.19

0.9064

0.9791

1.0454

0.8283

117.40

142.06

v

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

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

Sign up for John’s email distribution list, here.

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Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.2526-0.0002-0.02%
    USDSGD=X
    1.7302-0.0002-0.01%
    EURSGD=X
    2.1033-0.0002-0.01%
    GBPSGD=X
    81.7693+0.00190.00%
    SGDJPY=X
    6.1905+0.0004+0.01%
    SGDHKD=X
    2.5850+0.0002+0.01%
    SGDMYR=X
    9,116.9668-3.3359-0.04%
    SGDIDR=X
    4.9692-0.004-0.08%
    SGDCNY=X
    1.1684-0.0007-0.06%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,295.80-7.90-0.61%
    GCQ14.CMX
    19.65+0.02+0.08%
    SIK14.CMX
    90.18-0.65-0.72%
    ^XAU
    3.04+0.02+0.51%
    HGK14.CMX
    104.59+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
    0.115-0.002-1.71%
    B22.SI
    0.48+0.020+4.35%
    5GJ.SI
    2.27+0.090+4.13%
    5ME.SI
    2.190.0000.00%
    JS8.SI
    0.61+0.005+0.83%
    E5H.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.162+0.034+26.56%
    5GF.SI
    0.20+0.034+20.48%
    5WD.SI
    0.59+0.050+9.26%
    L5I.SI
    0.28+0.020+7.69%
    C33.SI
    0.215+0.015+7.50%
    5UE.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.103-0.010-8.85%
    5OS.SI
    0.112-0.008-6.67%
    5RC.SI
    0.355-0.025-6.58%
    KJ9.SI
    0.215-0.015-6.52%
    F9M.SI
    0.29-0.020-6.45%
    5PC.SI