FX:Dollar Just Short Of 16 Month High, We Need A Push
Dollar Just Short of 16 Month High, We Need A Push
We are keeping the count on the dollar’s impressive run. With Wednesday’s close, that is four consecutive bullish trading days and 11 advances in the past 13 sessions. This impressive run has yielded another official close at levels not traversed since January 2011, but one statistic that we have yet to nudge is a 16-month high on an intraday trading basis. Given the momentum behind this move, it may seem a shoe-in that a new high is in the cards; but follow through is becoming increasingly difficult to support on this drive.
As we press new highs on the dollar, the burden for fundamental fuel grows higher and higher. Yet, as we have seen with the benchmark equity indexes (the most stubborn of risk-tracking barometers) panic isn’t leveraging the risk aversion drive. And, without panic, we don’t have that instinctive drive to seek shelter in the world’s last resort currency: the US dollar. Letting up on the fundamental gas and positioned at the tail end of large moves, risk of correction is high.
In the past session, the battered capital market bulls had the chance to revive the call that has led the charge behind reinvestment for the past three years: stimulus – specifically Fed stimulus. Though the Federal Reserve offered a statement, its forecasts and Chairman Bernanke for question and answer after its last policy decision; there was still a latent chance that the policy group could outline the procedure for further support should it be needed. This would set the pace for the more dovish policy forecasts (like Goldman Sachs) that believes further easing will be enacted within the next few months. What was seen in the minutes did little to tip the scales towards QE3 or another Operation Twist. Most notable was the account that ‘several’ FOMC members suggested further easing may be necessary should the recovery fall apart. If the market were particularly susceptible to stimulus hopes, this may have provided a real boost; but keeping the options open is far from a rally cry.
Over the coming 24 hours, there are few key pieces of event risk that could meaningfully nudge the dollar one way or another. As usual, greenback traders should remain tapped in to the larger ebb and flow of risk positioning. Here too, there are few definable catalysts to point to. That means we will have to gauge the propensity for speculators covering on the recent run versus unexpected headline fodder.
Euro: Market Starting To Panic Over Greece, Crisis Fallout
We are starting to see the signs of genuine panic surround the euro. While the euro itself is still stable (though notably weaker), we can see evidence of fear percolating through headlines and across various points of the market itself. Through the past 36 hours, the newswires were littered with stories that a full-blown bank run had taken over in Greece. This was later dismissed, but investors saw it as a viable enough threat that the concerns were taken seriously. In reality, the fear comes from reasonable evidence with net deposits in Greece’s banking system standing just off a six-year low 160 billion euros and given recent comments by the President that another 700 million euros had been withdrawn since the failed election. Another shock that ran through the system was speculation that the ECB was planning to up its crisis fight with LTRO 3 or reactivation of government bond purchases, but that too was rebuffed by "official sources" who say previous efforts are being reviewed. When the market finds itself more prone to bombastic headlines, it suggests genuine fear. Default premiums and equity declines support that concern.
British Pound Takes A Hit After BoE Repeats A Dovish Bias
The sterling may have undermined its own detachment to the euro-area’s troubles and risk trends in general with its fundamental round this past trading day. The April labour data was a pleasant surprise with a 13,700-person drop in jobless claims (the biggest drop since June 2010) and unexpected downtick in the unemployment rate from February’s16-year high. Yet, the market was not interested in employment figures that were fighting the trend of a double-dip recession. The focus was on the BoE’s Quarterly Inflation report. This report projected that the first hike was likely after 1Q 2014. Further, the report and Governor King reiterated the threat that the EU crisis posed – something the market tried to ignore.
Japanese Yen Unfazed By GDP Beat, Market Focuses On Risk
Perhaps the last big piece of event risk this week was the reading of first quarter Japanese GDP released this morning. The impact from the data, however, belied its economic importance. According to the figures, the world’s third large economy (after the US and China) grew a slightly-greater-than-expected 1.0 percent over the opening quarter, leading the annualized reading to climb to 4.1 percent expansion. That was a notable reading, but the support from reconstruction spending is expected to fade. And, in the end, this doesn’t spur carry interests.
Australian Dollar Pauses As 10 Year Yield Stabilizes At Record Low
The Australian dollar has outpaced the deterioration in its interest rate forecast as well as the slide in Australian and US shares. So then, where is this additional momentum coming from? The outlook for rates and underlying temperature for risk are critical components of the Aussie dollar’s performance, but current yield is also an important factor. In the past two months, the yield on the 10-year Australian bond has dropped more than 25 percent. Over the past three days, this benchmark has found some stability; but a true rebound has yet to materialize.
Swiss Franc: Risk To EUR/CHF Growing As EZ Crisis Fears Solidify
As the sting of panic starts to bite at the euro, Swiss policy officials have to recheck their contingency plans. If the regional crisis (which has been acknowledged and lamented over by Japan, the US, the UK, and of course European officials over just the past 24 hours) intensifies, the very real flight of capital out of the eurozone will put immediate pressure on EUR/CHF exchange rate. There was another rejected spike towards the 1.2000 floor this past session, but we haven’t seen another epic clash. That could soon change. What does the SNB have planned?
