Dollar Shies Away From 1.3000 Against Euro, 100 Versus Yen

The edge of the market’s angst last week was dulled Monday – helping risk trends stabilize for a mild bounce from US equities and notable slip from the safe haven US dollar. Yet, while the regular hallmarks of risk appetite were readily visible (equities rise, implied volatility readings drop, safe havens falter), there was very conviction in the appetite for risk exposure. For the benchmark dollar, tempered appetite for liquidity – top priority when fear grips the broader markets – meant that the move to fresh two-and-a-half year highs was shut down. From the Dow Jones FXCM Dollar Index (USDollar), an intraday advance to 10,579 established a technical high; but the currency was beat back before the close. That same restraint was handed down through the dollar-denominated ‘majors.’ EUR/USD bounced just after coming within 15 pips of 1.3000, AUDUSD recovered 30 pips from its session low at six-week lows and even USD/JPY failed on a run to 100.

It should come as little surprise that the dollar’s ambitions were capped through the start of this week. It takes a greater level of conviction and momentum to drive markets through significant technical support/resistance and compel the next stage of a prominent trend. And, this is a deeper resistance than mere technical boundary. To provoke the USDollar to overtake the mid-point of the past five year’s range and definitely shift momentum to equity bears with an S&P 500 break below 1,535, we would need to see a concerted change in risk appetite. There are loose elements to support risk aversion: rich pricing, fading global growth trends, near-record low rates of return and distortions caused by excessive stimulus; but none of these aspects were particularly novel or capital intensive.

Looking for a unifying banner for risk trends to rally behind through the opening session of the trading week, the pinnacle of event risk was the G20’s commitment to support growth (though there was no agreement on how), the Chicago Federal Reserve activity index’s dip back below zero and the housing sector offering an ambiguous shirk as existing home sales dipped due to low inventory levels. We’ll look for more of a concerted effort to be made in the upcoming session perhaps on Apple earnings. Though, the probability of a data driven risk trend is low.

Japanese Yen: USD/JPY Destined for a 100 Break if Risk Behaves
While the positive risk lean this past session was tepid, the yen crosses should still have taken advantage of the halfhearted bid due to the Bank of Japan’s vow to see the yen lower and the appeal of a consistent carry payout. Yet, the funding currency is now universally – though moderately – higher against all of its major counterparts through early trading this morning. This deviation from a uniform read of risk appetite trends is another sign that we are lacking a serious drive in sentiment – bullish or bearish. Nevertheless, at this pace, USD/JPY is still more likely to overtake 100 without a committed risk aversion move that sees important technical levels from key benchmarks give way. In the meantime, knowledge that there is a dense range of entry and exit orders just above 100 will draw the market – like gold’s approach to $1,500.

Euro Mixed Between Deficit Data and Fading Structural Risk Pressure
Headlines for the euro were mixed. On the data front, the Eurozone government debt-to-GDP ratio for 2012 reported by the Eurostats revealed deficits soared to a record 90.6 percent despite the austerity measures enforced at the expensive of multiple member recessions. On the other hand, the advanced April reading from the consumer confidence report offered a modest tick higher. Data-wise, we will find something far more intriguing in the upcoming session with the April PMI figures – considered timely GDP updates. Meanwhile, keep an eye on the newswires. Spain’s deficit ballooned, Italy is struggling to form a working government and Greece will have to vote on austerity measures this week.

New Zealand Dollar: Choose Your Pair Carefully for RBNZ Reaction
The New Zealand has offered a tentative retreat in the early hours of trading this morning, but it will be difficult for the currency to find drive behind bullish or bearish move ahead of the meaningful event risk due late in the upcoming US trading session. The Reserve Bank of New Zealand (RBNZ) is scheduled to deliver its monetary policy decision at 21:00 GMT, and the off-chance of a policy change will keep speculators from taking unnecessary risk. That said, the probability of a measurable hawkish or dovish change in tone is low. ‘No change’ can be market moving under some circumstances but not likely here. To leverage the most response from the event, avoid pairs that have high risk sensitivity.

Australian Dollar Slips after China Manufacturing Data Cools
Though it was tepid, there was a notable easing on the Australian dollar through the opening session. This morning, the push looks to be a little more resolute thanks to the encouragement of the Chinese manufacturing data. The first (‘flash’) reading of the April factory PMI report printed well below expectations (50.5), though it was still in growth territory above 50 and better than February’s print. Nevertheless, a softening in this dominate source of demand for Australian raw materials presents a fundamental concern that adds to speculative issues on thin carry.

British Pound: London Markets Little Moved by Fitch Downgrade
This past Friday, the sterling’s mild reaction to Fitch’s downgrade of the United Kingdom’s sovereign rating (from AAA to AA+) could have been pinned to the absence of London liquidity during its release. Well, the entire market had a chance to respond to the second hit to the country’s perfect reading, and there was little sign of speculative lament due to the move. Risk trends seemed more influential with GBP/JPY and GBP/USD lower on the day – and we have discussed how tepid that fundamental wind was.