Dollar: NFPs, Market Holiday Volatility and Risk Trend Scrutiny

• Dollar: NFPs, Market Holiday Volatility and Risk Trend Scrutiny
• Euro Buoyancy Through Smaller Fire Wall and Spanish Austerity Encouraging?
• Australian Dollar Will Face Strong Reaction to RBA Regardless of Outcome
• British Pound Correlation to Euro Far More Important than BoE Decision
• Japanese Yen’s Week Ending Drop – A Sign of What’s to Come?
• Canadian Dollar Can React to Own Job Data without NFP Conflict
• Gold Closes its Quarter at Record Highs: And Other Interesting Facts

Dollar: NFPs, Market Holiday Volatility and Risk Trend Scrutiny

There is a relatively easy way to describe the dollar’s standing: through the end of Friday, the past week, the month of March and the first quarter of 2012; the Dow Jones FXCM Dollar Index (Ticker =USDOLLAR) was little changed. We have certainly had our fair share of volatility through all of those time frames, but little constructive trend development. Will conditions change going forward? That depends on what fundamental mix we are faced with. Though we may focus on the benchmark, the dollar’s lack of progress does not stray from the market norm. The equilibrium between risk and reward – the inevitable denominator for all assets and all markets – is still critically unbalanced. While equities are forging higher, the same optimism hasn’t been replicated in commodities, carry or high yield bonds. If we want to have a strong, consistent and market-wide drive for risk appetite, we need conviction to direct capital across all asset classes.

Waiting for the divergence between carry and equities to resolve itself can take time. Meanwhile, we should assess the potential for volatility and trend development in the coming week’s fundamental waves. From a purely safe haven perspective, the dollar will be tapped into the sentiment that follows the news that the Euro-area’s firewall increase was smaller than expected and Spain had vowed severe austerity measures (more on that below). From the US calendar and newswires, there are big ticket items ahead; but their global market-moving potential will likely be muted. There are a number of Fed speeches on deck, but we know the balance of how members are leaning given the round of commentary through the past week. For similar reasons, the FOMC statement won’t offer any surprises. That said, the market will continue to speculate on monetary policy and the potential of another round of stimulus. The 10-year Treasury yield has retraced much of its incredible breakout mid-March to five-month highs but rate expectations are proving stubborn in their call for a 2013 hike.

For a top headline event, we have March NFPs on Friday. The market impact from this data beyond the 60 minute market was already dubious, but we have another caveat: the fact that it will be released on a market holiday (Good Friday). This data will likely have a limited influence over rate / QE3 expectations and the absence of capital market participants will dampen risk trends. There will be plenty of volatility however…

Euro Buoyancy Through Smaller Fire Wall and Spanish Austerity Encouraging?

The event risk for the Euro-region this past Friday were the most influential for the entire week; and yet, the market simply drifted through the headlines. Rather than focus on the cooling in regional inflation and drop in German retail sales, FX traders were watching what the EU Finance Ministers would agree to for boosting the region’s firewall. There were suggestions that the total program could top €940 billion, but the final product was far more restrained at €500 billion plus the €300 billion that was already allocated to Greece, Ireland and Portugal. Other concerns included Spain announcing plans for its biggest budget overall in three decades despite 23 percent unemployment and Ireland using Greece’s favorable treatment to win a delay making a payment on its rescue fund. Moving forward, these will still be issues; but we will have fresh content to keep the market on its toes as well. The ECB rate decisionwill be interesting not for rates, but an update on Draghi’s recent, hawkish lean.

Australian Dollar Will Face Strong Reaction to RBA Regardless of Outcome

Given the Aussie dollar’s response to Chinese data these past few weeks, the manufacturing and service sector activity reports for the upcoming week should be monitored. However, there is also event risk closer to home. Economists do not expect any change to the benchmark lending rate from the RBA, but speculation has certainly built up behind the policy forecast. With 75 bps worth of cuts priced in over the next year and a 44 percent market probability of a 25 bp cut this time around, there is a significant portion of the market mispricing either way.

British Pound Correlation to Euro Far More Important than BoE Decision

If we turned back the clock some years, the Bank of England rate decision was a major catalyst for sterling volatility. Nowadays, it doesn’t even draw the market’s interest when it pops up on the calendar. Without guidance after a stay on rates and bond purchases, there is nothing for the market to price in that it didn’t know already. Therefore, we should not look to the UK docket, but rather the euro if we want to get a sense of sterling performance. Through the end of this past week, the 20-day correlation between EURUSD and GBPUSD hit 0.91 (1.00 is perfect).

Japanese Yen’s Week Ending Drop – A Sign of What’s to Come?

We are now heading into a new fiscal year for Japan and the hindrance of capital repatriation is passed. Some say that the there was little impact, but the stalled rally for USDJPY would suggest differently. Now we venture back into unadulterated fundamental territory. The Japanese yen began a remarkable plunge that began in early February. Will that capital outlook immediately pick back as Friday’s yen cross surge suggests? There will be a natural tendency to that effect, but we should be very wary of any meaningful risk aversion drives that hits carry.

Canadian Dollar Can React to Own Job Data without NFP Conflict

Normally, the Canadian labor statistics’ volatility potential is completely washed out because the US NFPs are due released at or near the same time. That won’t be the case this coming week. While the US data’s schedule will stick to its regular release day, the Canadian figures are due Thursday. The consensus forecast is set for a 10,000-job net increase which means we have a good chance of a ‘surprise’. Given that will be the last day of regular trading for capital markets, the added volatility will be good for those that look for event-derived trades.

Gold Closes its Quarter at Record Highs: And Other Interesting Facts

We don’t often look at quarterly charts; but since it is the end of Q1, I decided to look at gold’s performance. The precious metal marked its highest close (1668) on record, but its high through the period marked another lower top to February and January before it. The 12-month average true range (ATR) for the metal hit a record 212 points and volume on the futures market topped 12.4 million contracts (the second highest on record). Gold managed to advance against all the majors over the three months but was 12.2 percent higher against yen specifically.

ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
1:00	CNY	PMI Manufacturing (MAR)	51	51	Official and bank’s own data showing moderation in manufacturing growth
2:30	CNY	HSBC Manufacturing PMI (MAR)		49.6
23:01	GBP	Hometrack Housing Survey (MoM) (MAR)		0.0%	Housing prices showing some longer term strength, though other surveys mixed
23:01	GBP	Hometrack Housing Survey (YoY) (MAR)	0.8%	-1.4%
23:30	AUD	AiG Performance of Mfg Index (MAR)		51.3	Manufacturing growing slower
23:50	JPY	Tankan Lge Manufacturers Index (1Q)		-4	The Bank of Japan’s Tankan surveys will be the major data leading, with the weaker yen factored in. Better outlook could see accelerated recovery in Japan
23:50	JPY	Tankan Non-Manufacturing (1Q)		4
23:50	JPY	Tankan Lge Mfg Outlook (1Q)		-5
23:50	JPY	Tankan Non-Mfg Outlook (1Q)		0
23:50	JPY	Tankan Large All Indust Capex (1Q)		1.4%
0:30	AUD	TD Securities Inflation MoM% (MAR)		0.1%	Inflation expectations gradually falling, RBA scope to cut rates increasing
0:30	AUD	TD Securities Inflation YoY% (MAR)		2.0%
1:30	AUD	Building Approvals (MoM) (FEB)		0.9%	Construction industry seeing decline as domestic economy seeing ST turning point
1:30	AUD	Building Approvals (YoY) (FEB)		-14.6%
7:15	CHF	Retail Sales (Real) (YoY) (FEB)		4.4%	Growth may continue
7:30	CHF	PMI Manufacturing (MAR)		49	European PMIs not expected to move markets, still seeing shrinking with spending and orders pressured by lower outlook
7:45	EUR	Italian PMI Manufacturing (MAR)		47.8
7:50	EUR	French PMI Manufacturing (MAR F)		47.6
7:55	EUR	German PMI Manufacturing (MAR F)		48.1
8:00	EUR	Italian Unemployment Rate (s.a) (4Q)		8.1%	Italian labor market expected to be weaker
8:00	EUR	Italian Unemployment Rate (SA) (FEB P)		9.2%
8:00	EUR	Eurozone PMI Manufacturing (MAR F)		47.7	Overall sector still falling
8:30	GBP	BoE Housing Equity Withdrawal (4Q)		-8.6B	Consumer spending may weaken
8:30	GBP	PMI Manufacturing (MAR)		51.2	British manufacturing better
9:00	EUR	Euro-Zone Unemployment Rate (FEB)		10.7%	Overall labor market weaker
14:00	USD	Construction Spending MoM (FEB)	0.8%	-0.1%	US sector expected to recover even as house prices weaker
14:00	USD	ISM Manufacturing (MAR)	53.5	52.4	Input prices expected to increase, though effects on Fed rates limited
14:00	USD	ISM Prices Paid (MAR)	62.1	61.5
17:00	EUR	Italian Budget Balance (Year to date) (MAR)			Italian budget seeing recovery as Monti government continues austerity, tightening
17:00	EUR	Italian Budget Balance (MAR)		-7.4B

GMT	Currency	Upcoming Events & Speeches
16:15	CAD	Bank of Canada's Carney Speaks in Waterloo, Ontario

SUPPORT AND RESISTANCE LEVELS

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

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

CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency	USD/MXN	USD/TRY	USD/ZAR	USD/HKD	USD/SGD		Currency	USD/SEK	USD/DKK	USD/NOK
Resist 2	16.5000	2.0000	9.2080	7.8165	1.3650		Resist 2	7.5800	5.6625	6.1150
Resist 1	14.3200	1.9000	8.5800	7.8075	1.3250		Resist 1	6.5175	5.3100	5.7075
Spot	13.1813	1.8298	7.9516	7.7618	1.2719		Spot	6.7826	5.7501	5.9324
Support 1	12.6000	1.6500	6.5575	7.7490	1.2000		Support 1	6.0800	5.1050	5.3040
Support 2	11.5200	1.5725	6.4295	7.7450	1.1800		Support 2	5.8085	4.9115	4.9410

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	1.3096	1.5727	77.65	0.9464	1.0227	1.0620	0.8168	100.92	121.26
Resist. 2	1.3055	1.5689	77.49	0.9434	1.0203	1.0586	0.8142	100.59	120.94
Resist. 1	1.3014	1.5652	77.33	0.9405	1.0179	1.0552	0.8116	100.27	120.61
Spot	1.2931	1.5576	77.01	0.9345	1.0132	1.0484	0.8063	99.62	119.97
Support 1	1.2848	1.5500	76.69	0.9285	1.0085	1.0416	0.8010	98.97	119.32
Support 2	1.2807	1.5463	76.53	0.9256	1.0061	1.0382	0.7984	98.65	119.00
Support 3	1.2766	1.5425	76.37	0.9226	1.0037	1.0348	0.7958	98.32	118.67

v