Dollar Unable To Capitalize On Euro, Yen Weakness

The euro was crushed under headlines suggesting systemic risks are returning to the region and risk trends were pushing the yen crosses higher, yet the U.S. dollar found itself unable to capitalize on its counterparts’ weakness. The Dow Jones FXCM Dollar Index ended Tuesday virtually unchanged at 10,450 -- but perhaps that is a win for the safe haven considering the Dow Jones Industrial Average reflected a record high close for U.S. equities. Weight was giving to the data offered on the day, but durable goods were just as weak as new home sales and consumer confidence figures when you look at the details. For the dollar to truly take off, we need one of three motivating catalysts: a committed risk trend move; the Fed to imply a QE3 end date; or other central banks to pick up the pace.

Euro: Why Doesn’t the Risk of Region-wide Bank Levies Spur Selling?
Volatility has proven the bane of euro traders’ existence the past two weeks. While a heightened level of activity can be a boon for FX traders, when it lacks for consistency in direction or a foundation in perceptible fundamental trends; it is merely dangerous chop. The issue once again is Cyprus. While the country seems to have secured a bailout and liquidity for the time being, there are deeper questions as to what the use of a ‘bank levy’ on deposits means as an option in future rescues in the euro zone. This is particularly troubling considering Eurogroup President Dijsselbloem stated explicitly that its use is a very real option moving forward. Systemic fears take time to gain a head of steam however.

Japanese Yen Now Dependent on Risk Moves Before April 4
There are some remarkable wedge patterns on a number of yen-based crosses that look like they are primed for breakout. However, a true breakout -- that leads to trend development -- needs the fundamental pressure to build momentum. That critical component is missing for the Japanese currency. There are two things that can unilaterally jumpstart a bullish or bearish trend for the funding currency: a committed risk-based move or a serious change in Japan’s monetary policy regime. For the Bank of Japan (BoJ), it is now highly unlikely that extraordinary steps are taken (an emergency meeting or surprise policy) before the official meeting on April 4. In fact, it was new Governor Kuroda who said he will discuss policy specifics at the actual decision. That means the burden for serious trends is on risk. It is difficult to imagine a momentum-backed move for risk appetite building at these levels given fundamentals, but there is certainly a strong risk aversion possibility lingering.

Australian Dollar: RBA Relents to Strong CurrencyThe saying that ‘no one likes a quitter’ doesn’t apply to FX trading. When it comes to a central bank that refuses to enter the stimulus or verbal manipulation game, bulls take note. The Reserve Bank of Australia (RBA) has had multiple attempts so far this week to sound its alarm and try their hand at tempering the side effects of the United States’ massive stimulus effort and Japan’s eventual upgrade to its own program. But they haven’t. RBA Governor Stevens managed to avoid meaningful commentary in his prepared speech on the economy Tuesday morning. On a similar tack, the RBA’s Financial Stability report didn’t go any further than stating that business and consumer confidence have reflected the negative implications of a high currency. RBA member Broadbent went directly to the point when she said that the Australian dollar would likely remain elevated going forward and the country has adapted to the burden. Not a driver, but a ‘hands off’ blessing for future gains.

British Pound Traders Should Look Closer at Osborne’s Comments
With the exception of GBPJPY, the British pound was universally weak through the past session. For those watching the docket, the CBI’s retail sales activity report for March printed a much weaker-than-expected ‘0’ reading against a 13 forecast (a five-month low). The cable was sliding around the time of the release, but it was hardly a serious escalation of the bearish trending that was in place before the data hit. As is always the key to fundamentals – we must ask whether this data taps the fundamental issues that truly matters to pound traders. While we can make the connection to tepid growth which is a side effect of austerity and the Bank of England’s lack of buttressing, but there are too many degrees of separation for it to be a ready market mover. Far more interesting -- but also generally overlooked -- was a comment made by Chancellor Osborne, who in testimony said the remit given to the BoE was catching up to MPC practices. It is subtle, but essentially suggests that the greater degree of freedom given to the bank is not an automatic license a massive stimulus swell. We’ll see this again.

Canadian Dollar Volatility Threshold High for February CPI Data
The Canadian dollar was one of the best performing currencies through the past 24 hours of trading. It seems the investment appeal coupled with a financial system that has avoided serious crisis was the top billing for the period. The traditional lines of loonie price action were quiet. An empty economic docket and lack of buzz on the interest rate outlook tapped out the fundamental opportunities for heavy volatility or trend development, but it would offer enough of a contrast to its counterparts’ issues to offer a glow. The upcoming session will carry a more active tone to it with the scheduledrelease of the Consumer Price Index (CPI) data for February. If the Bank of Canada (BoC) is to regain that hawkish character and revive rate hike potential, inflation is key. The headline figure is seen picking up, but 0.8 percent is far from target.