Talking Points:
- Dollar Rebound Attempts to Revive Trend as Fed Minutes Massage Rate Speculation
- Euro: Confusion Over Greece Situation Leaves Results in QE Complacency
- Australian Dollar Rally Limited After RBA Leaves Rate Unchanged
Dollar Rebound Attempts to Revive Trend as Fed Minutes Massage Rate Speculation
The Dollar was thoroughly trounced Friday after the severe miss for March nonfarm payrolls. That said, it seems low liquidity holiday conditions are the best time to receive bad news. Since last week’s nasty spill pressured the Greenback to troubling levels – a nine-month channel floor for US Dollar, 1.1000 for EUR/USD and 1.5000 for GBP/USD amongst others – the currency has muscled a modest recovery. It is just enough of a rebound for the benchmark to move bulls away from the ledge, but not enough to suggest they will be unobstructed in a return to 11-year highs. Like the S&P 500’s bullish drift in its exceptionally deliberate channel from the beginning of 2013, the Dollar is finding some considerable support in the comfort of status quo. It is far more taxing on speculators to reverse a well-established and exploitable trend than it is maintain it.
From a fundamental perspective, the US currency isn’t without support for its bullish coast. Despite a trimmed view of its hawkish lean, the Fed is still well ahead of its major counterparts on the monetary policy scales. Yet, at some point, a moderation can eat into the currency’s premium and send it to a deeper correction. As of today, Fed Fund futures are not fully pricing in a rate hike by the central bank until January 2016. Technically, this measure of policy benchmarking was already trading at a discount to the significantly more hawkish lean of the Greenback itself, but the divergence is unlikely to continue to grow. A June hike – the earliest analysts and primary dealers believe a first move would be realized – is looking less likely after last week’s labor report. Should further updates reinforce a deferred timeframe for the first move (whether July, September and especially later), the Dollar will find itself rebalancing. Ahead, we will have a few items to weigh for timing. The Fed’s Powell and Dudley are set to speak on monetary policy and the FOMC minutes from March is due.
Euro: Confusion Over Greece Situation Leaves Results in QE Complacency
Does Greece have enough funding to cover its upcoming obligations Thursday (€458 million IMF loan repayment) or not? It isn’t clear. We have seen plenty of unattributed remarks from Greek officials channeled through the financial media and market participants are quick to weigh in on the financial situation. This is what happens when there isn’t a consistent communication plan between Greece and its creditors, and when the market is increasingly skeptical that the situation will end well. This past session, the Greek deputy finance minister revived the German reparations claim (with a figure of €279 billion) which will go nowhere and instead comes off – if an official position of the government – as a last ditch effort to cover a failing negotiation. Ahead, Prime Minister Tsipras meets with Russia’s Putin which can prove very provocative.
Australian Dollar Rally Limited After RBA Leaves Rate Unchanged
Heading into Tuesday morning’s RBA rate decision, the market pegged a 75 percent probability that the central bank would follow up on February’s easing with another 25bp cut to a 2.00 percent benchmark. Given that level of speculation and the tumble from the Aussie dollar in preceding week, the central bank’s decision to hold necessitated some speculative adjustment. The Aussie’s rally was broad, but it is lacking for gusto. The statement makes it look like a deferred easing, not an impossible one. And, a ‘no change’ policy isn’t an active outcome.
British Pound Heartened by PMIs but BoE Warning Echoes
On the data side, the British Pound’s fundamental bearing seemed to improve this past session. The UK’s Composite PMI reading for March rose sharply to a 7-month high. Given the economy is one of the more robust in the developed world and the BoE is still in second place for returning to rate hikes (seen as March 2016); data like this could help shift the 10-month, nearly 3,000-pip GBPUSD tumble. Yet, the market refuses to pay the BoE as much hawkish speculation as the Fed. Meanwhile the central bank has repeated its warning of financial risks.
Yen Little Moved by BoJ Decision to Keep Unprecedented QQE Program In Place
The Bank of Japan deliberated on monetary policy this morning and there were no significant surprises. The group maintained the pace of its QQE program – an ¥80 trillion increase in the money base – in an 8-1 vote that once again finds Kiuchi calling for a shift to a ¥45 trillion target. Since the introduction of the BoJ’s stimulus program back on April 4, 2013, its balance sheet has doubled to ¥322.6 trillion. This effort competes with the ECB for girth of active easing programs, but appetite for further expansion has certainly waned over the months.
Emerging Market Benchmark Stalls After Hitting 2015 High, Ruble Slowly Gains
After its surge these past few weeks, the Emerging Markets have taken the top spot for 2015 performance among the most common ‘risk assets’. The MSCI ETF has rallied as much as 6.7 percent from its March 26 low and moved on to set highs last seen in mid-December. That said, conviction seems to be flagging the move. Volume has dropped as new highs have been reached. Similar hesitation is showing through in EM currencies. The Russian Ruble however, is attempting to maintain its slow advance, up 0.8 percent versus the USD this past session.
Gold Advance Losing Momentum and Volume
Gold is attempting to extend its rebound from its March swing low at $1,142 to its fourth week of advance. Yet, despite crossing a few noteworthy levels, the conviction behind the move seems to be drying up the further the metal progresses. On the one hand, we learned from the COT figures that net speculative futures interest posted its biggest increase in long exposure in nine weeks (25,738 contracts). On the other, volume behind futures has steadily declined with the April extension – Tuesday marked the lowest volume in 2015 – while ETF holdings of the commodity has dropped to a January low on a 3.8 percent purge from the February 24 peak. If the Dollar sacrifices itself with a plunge, gold bulls may find their cause refreshed. Otherwise, this is looking like a familiar pattern of reservation for the market.