Investors Already Positioning for Euro Breakdown; We Remain Sidelined

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- Market optimism fades and suggests more USD strength

- Widespread calls for a break lower in Eur/Usd

- Key economic data and political risk ahead

- Focus for now on monthly US employment data

Although we have seen no clear breakouts in most of the major currencies, and although the Euro still remains locked in a very well defined 1.3000-1.3500 consolidation (that has defined trade for much of 2012), there is a growing sense that the markets are very close to a major pickup in volatility. For now, the breakout looks like it will be in the US Dollar’s favor, given the sharp downturn in risk sentiment this week, on the back of some very disappointing economic data across the globe. In fact, we can’t remember a time when so many were all at the same time, calling for a major US Dollar rally.

Relative performance versus the USD Friday (as of 9:30GMT)

GBP -0.02%

JPY -0.03%

CAD -0.05%

CHF -0.11%

EUR -0.12%

AUD -0.19%

NZD -0.20%

It is with this in mind that we also find it somewhat surprising to see the Euro still so well supported. While it is true that the ECB were slightly hawkish on Thursday, we doubt that this alone will keep the Euro propped above 1.3000. Yet the market remains supported for now, despite the overwhelming bearish sentiment out there. Other currencies like the Australian and New Zealand Dollars have not been as fortunate, yet these markets are also holding up rather well when you consider a 50bp rate cut from the RBA this week and some disastrous employment numbers out of New Zealand.

There is a good deal of economic data and event risk over the coming days, and the results from these calendar events could very well influence the direction in the markets. Kicking things off is the monthly US jobs report, and many are now expecting a disappointment here following the softer ADP report earlier in the week. From there, the attention will turn to the political front, when all will be watching the highly anticipated election results out of France and Spain. The big issue will be if the election results compromise the current plan which involves the implementation of IMF austerity measures.

As far as currency strategy is concerned, we would recommend remaining on the sidelines until a clearer directional bias presents. The fact that everyone is calling for a major USD rally is certainly compelling, but not enough for us to test the waters.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: Overall, the market remains locked in a very tight directionless, choppy consolidation. Ultimately a break back above 1.3500 or below 1.3000 will be required for clearer directional bias. At this point, the market has stalled by some key resistance just ahead of 1.3300 to once again put the pressure on the downside towards the multi-day range lows down by 1.3000. Only back above 1.3500 would negate outlook.

USD/JPY: The latest pullback from the 2012, 84.20 highs is viewed as corrective and it looks as though the market could still see a bit more weakness before considering the possibility for the formation of a medium-term higher low. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate.

GBP/USD: Although the market had been very well bid in recent sessions, the rally looks like it might finally be closer to stalling out in favor of a bearish resumption. Look for a daily close back below 1.6150 to officially confirm, but aggressive traders may want to consider fading any strength beyond 1.6300 with daily studies starting to roll from overbought. Ultimately, only a daily close above 1.6400 would delay outlook.

USD/CHF: Our core constructive outlook remains well intact with the latest setbacks very well supported by psychological barriers at 0.9000. It now looks as though the market could be looking to carve a fresh higher low, and we will be looking for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should then accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

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$$$ Dollar – Breakout or Breakdown Nearly Inevitable on FOMC, GDP

 21 April 2012 00: 44 GMT 

 

fundamental forecasts for the US Dollar: neutral

The US Dollar (ticker: USDOLLAR) refused to break under resistance key or support important for another trading week as financial markets remain as undecided than ever. US Federal Open Market Committee (FOMC next week) can be particularly moving the market as traders look for clarity. The new monetary policy action, however, seems unlikely, and it can take a substantial change in the rhetoric of the Fed to push the dollar above its recent commercial range against the Euro and other major counterparts.

Disappointments in recent economic data U.S. the stage for a FOMC set more moderate rate of Wednesday the decision and leave risks to the decline of the dollar. But economists predict data on growth gross domestic product US end week will show robust us growth through Q1 and can provide support for the dollar.

However, it feels like we've been here before: major economic data on the folder and a surprise could theoretically force a discussion USDOLLAR or rupture. Time will tell whether or not we see actually these large jumps.

All eyes turn to the Federal Reserve as the FOMC announced a rate. New interest rate moves is extremely unlikely, but for the Fed will issue guidance on future economic conditions and their internal predictions for rate moves in the future. Non-agricultural mass pay recent weakness and us initial Jobless Claims figures could lead to more moderate forecasts. In addition, speculation remains rampant that slower job growth could push the Fed to adopt political accommodation through Quantitative Easing (there). It goes without saying that advice at low rates of interest or there could force losses of US Dollar.

The greenback could see volatility on growth of GDP for the first quarter Friday, and lofty expectations indicate risks remain downward on the increase in the probability of disappointment. Economists predict that weather favorable to the United States and better than expected, the area performance Euro has made strong economic growth in the first three months of the year. Indeed, robust national economic data supports these predictions. Optimism may limit the reactions of high price of higher growth than expected, while that disappointment could sink the U.S. dollar.

Then where we see resolution? If anything, it feels like global risks remain to the downside that Dow Jones FXCM Dollar index remains dangerously close to the substantial support, and financial markets remain fickle as traders seek direction in all areas. It is quite possible that a USDOLLAR escape could be a more major change for stocks and other asset classes. Our technique of strategist warns that the USDOLLAR is wrapped to the extreme. In other words, the next stage of the dollar could be large. What direction is anyone's guess, but we will keep a close eye on the main events of the upcoming week and their effects on the main pairs USD. -DR