Dollar suffers a fall most since October, where from here?

Dollar Suffers Biggest Drop Since October, Where to From Here? Euro: Are We Set for an Immediate Reversal Monday? Australian Dollar Traders Prepare for a Halt in RBA Cuts British Pound: Will the BoE Vote Finally Tip to More Bond Purchases? Canadian Dollar Climbs with Risk, Prepare for Employment Data Japanese Yen Reportedly Showing its Influence as a Reserve Gold Rallies as EU Speaks Stimulus, Looking for Action from ECB Dollar Suffers Biggest Drop Since October, Where to From Here?
Last week was a wild ride for the US dollar, but the situation will only grow more complicated for the benchmark going forward. For most of this past week, the Dow Jones FXCM Dollar index was carving out a tedious range with no definable direction. That changed suddenly early Friday morning after the EU Summit statement tapped into the Pavlovian response to any mention of mass stimulus that capital and FX traders are implicitly always expecting. As is usually the case with flashing headline with far-reaching implications, the speculative masses reacted first and saved questions about the details and scope of the development for later. Having suffered its biggest, single-day loss since October 27, the dollar is now in a good position to be reviewed. As discussed yesterday, European officials mentioned an agenda that could significantly curb financial stress for the world’s greatest source of uncertainty – if investors believe in it. Considering the dollar is a currency that depends on its acute safe haven status and thereby stressed risk trends, where we go from here depends on how much good will the EU has bought itself.
We will pick apart the actual Euro-region programs viability in the Euro section below, but it is important to understand the stake the dollar has in the situation. If fear that a financial storm is spreading across the globe retreats, the most direct leverage the currency has will disengage. If we look at the bigger picture, global yields are fading into record lows, growth is stalling and capital has been drained from the system. This is itself the foundation of a bearish market. However, speculation plays a critical role in transitional market swings. In other words, if traders are looking for a reason to rally; they will use the ambiguous support to justify the move. Moreover, judgment will not center on this past week’s developments. Building or breaking confidence further requires additional catalysts to flesh out a trend. On our docket next week: we pick up the EU debate on Monday, Wednesday faces a liquidity lull for the Independence Day holiday; the ECB meets Thursday; and Friday brings NFPs.
Euro: Are We Set for an Immediate Reversal Monday?
In the past months and years, we have seen a number of European financial programs and facilities that at first seemed impressive but ultimately failed to pass muster. However, in a world were acting late can mean missing out on a trade, there is often a quick move on the basis of headlines at the sacrifice of the details. Is that the case for the Euro currently, having posted sizable rallies against safe haven counterparts (the yen and dollar) without the proper merit to sustain its advance? Given the scope of the recommended programs from the EU Summit and the level of contention at the policy official level for pushing them through, this is the kind of news that can overwhelm the senses of even a well-prepared market of skeptics.
Breaking down the Summit promises to its core components, we start to see the hallmark of the traditional ‘buy time’ effort the Euro officials have become known for. Overlooking the EIB contribution and Growth Pact as long-term efforts that don’t answer immediate financial concerns, we move right into the recapitalization and bailout territory. Dropping seniority status on Spanish bailout funds and tapping the EFSF is promising, but details on how much they receive are still fuzzy. The big ticket item of ESM buying sovereign bonds requires a ‘Memorandum of Understanding’ and carries unspecified conditions. Then there is the ESM direct bank funding that requires a common bank supervisor, which should be established sometime before the end of the year. Perhaps the lead into the ECB decision can keep hopes up. Rate cuts won’t help.
Australian Dollar Traders Prepare for a Halt in RBA Cuts
Over the past two RBA rate decisions, the central bank has carved 75 basis points off of its overnight cash rate (OCR). From October, the benchmark rate is down 125bps and is now at its lowest level since November 2009. Aggressive rate cuts are the product of a slowing economy and financial strain. That means risk aversion encourages easing which leverages the negative pressure on the investment-favored Aussie dollar. We’ve already seen a rebound from overstretched risk trends and rate expectations. Is there enough relief there for an RBA hold?
British Pound: Will the BoE Vote Finally Tip to More Bond Purchases?
According to the minutes of the last BoE rate decision, the policy group barely missed the majority needed to increase its bond purchases. Warnings that a Euro Zone crisis is spilling over to the UK and pressure from politicians to supplement austerity measures with central bank austerity have elevated the pressure for policy easing. Even if asset purchases rise 50 billion sterling as expected, it isn’t clear what impact it would have. For the economy, it is a pittance compared to global pressures; but for the currency it raises the stimulus competition.
Canadian Dollar Climbs with Risk, Prepare for Employment Data
USDCAD plunged Friday, but was there a representation of the Canadian dollar’s own influence in this move? Certainly the loonie extended its move after the release of a better-than-expected April GDP reading; but then again, EURUSD was offer a more aggressive anti-dollar push. Next week, we will have the Canadian jobs data for a more directed blast. That said, the NFPs could easily overwhelm the local data.
Japanese Yen Reportedly Showing its Influence as a Reserve
We know that the Japanese yen is a preferred safe haven for the FX market, but the evidence isn’t always immediately evident. A report from the BoJ showed that foreign holdings of yen assets jumped to a record (records began in 2002) 44 trillion yen. That said, another report from the IMF showed that the yen’s share of global reserves rose in the first quarter to 3.55 percent from 3.53 percent. For comparison, the dollar accounts for 62.2 percent while the euro is 25 percent. Safe haven seems a disputable term.
Gold Rallies as EU Speaks Stimulus, Looking for Action from ECB
With the dollar suffering its largest hit in 8 months and the global market murmuring about European stimulus, gold was bound to find lift Friday. That said, when it comes to this alternative to currencies and fiat debt, we need an active booster to carry the market higher. Yet, there was no immediate implementation from the EU Summit. Will the ECB supplement with an LTRO? Unlikely. If this is the case, gold’s rally may fall apart.
For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/
**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
Hometrack Housing Survey (MoM) (JUN)
Housing princes less during the month of June.
Hometrack Housing Survey (YoY) (JUN)
AiG Performance of Manufacturing Index (JUN)
Tankan Large Manufacturers Index (2Q)
Manufacturing activity outlook expected to print third consecutive quarterly contraction.
Tankan Non-Manufacturing Index (2Q)
Tankan Large Manufacturers Outlook (2Q)
Tankan Non-Manufacturing Outlook (2Q)
Tankan Large All Industry Capex (2Q)
TD Securities Inflation (MoM) (JUN)
A last minute inflation read ahead of the RBA.
TD Securities Inflation (YoY) (JUN)
HSBC Purchasing Manager Index Manufacturing (JUN)
The mark will have already been made with Sunday’s official read.
RBA Commodity Price Index (JUN)
Notable for gauging the resilience of the balance of trade in Australia among week global economy outlook.
RBA Commodity Index SDR (YoY) (JUN)
Retail Sales (Real) (YoY) (MAY)
May reading was weakest since Sep ‘11.
SVME-Purchasing Managers Index (JUN)
Will provide a reading of how the euro-Zone crisis is affecting the manufacturing sector.
Italian Purchasing Manager Index Manufacturing (JUN)
French Purchasing Manager Index Manufacturing (JUN F)
German Purchasing Manager Index Manufacturing (JUN F)
Euro-Zone Purchasing Manager Index Manufacturing (JUN F)
Italian Unemployment Rate s.a. (MAY P)
Hasn’t ticked lower since Feb ’11.
Purchasing Manager Index Manufacturing (JUN)
An improvement from the May 2009 low would be welcome, but still point to contraction.
Euro-Zone Unemployment Rate (MAY)
Unemployment rose in most major EU countries in May.
Is the US falling victim to a global slowdown?
Construction Spending (MoM) (MAY)
Strong new home sales for May.
Italian Budget Balance (euros) (JUN)
Historically higher deficits in 2H of year.
Italian Budget Balance (euros) (YTD) (JUN)
BoJ Deputy Governor Yamaguchi To Attend Panel Discussion
ECB's Joerg Asmussen Speaks on Euro Economy
ECB's Ewald Nowotny Speaks on Euro Economy
Fed's John Williams Speaks on Monetary Policy
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
INTRA-DAY PROBABILITY BANDS 18:00 GMT

$Dollar Suffers its Biggest Hit in Five Months as Risk Rallies

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Dollar Suffers its Biggest Hit in Five Months as Risk Rallies Euro: ECB Rate Hold Keeps Yield, But Where is the Stability? British Pound Up Next for Stimulus Speculation Australian Dollar Makes it Three-for-Three on Impressive Data Japanese Yen Sees the Balance of Power Between Risk and Intervention Swiss Franc Faces Inflation and Employment Data Gold: A True Reflection on Stimulus Chances? Dollar Suffers its Biggest Hit in Five Months as Risk Rallies
The Dow Jones FXCM Dollar Indexsuffered its biggest single-day loss since January 3 (the first liquid trading day of the year) on a tremendous swell in stimulus expectations. We know the cumulative effects that financial support from the Fed and other policy authorities has on the dollar. One of the most effective stimulators in the world, the US central bank may be even more effective at devaluing its currency than it is at providing financial stability. And, as a safe haven currency, the capital market boost that large stimulus programs provide specifically undermines the dollar’s most prominent catalyst over the past month. The only problem is that there seemed to be little actual support for stimulus.
With the aggressive decline in growth-sensitive markets since the beginning of May, we have seen expectations for a stimulus response from the ‘financial stability guard’ (Fed, ECB, PBoC, etc) rise sharply. And so, heading into this week, the assumption of official support from the world’s largest policymakers was clearly reflected in the financial media. Yet, what we have seen so far this week seems to contradict the expected path to another injection. Tuesday, the impromptu G7 meeting ended with no guidance or definitive policy to take action or react to future periods of trouble. This past session, the best opportunity to find an actual boost (the ECB policy decision) passed with a distinct hands-off outcome. Given the pulse for global risk seems to yield from the Euro Zone’s financial troubles, a direct effort to smother the fire before it spread could have carried a lot of weight for risk trends. Instead, further support was only described as an action in the aftermath (more on this below).
Where the European authorities had the best chance to leverage global confidence on the last trading day specifically, the greatest overall influence still resides with the Federal Reserve and speculation surrounding QE3. Even though most of the financial trouble for the global markets to this point has been largely isolated to the Euro-region, the chance for losses and future spread of instability has charged the expectation for another round of Fed support. After this past Friday’s big NFP miss, it seemed a certainty to the stimulus believers; but the Beige Book from this past session seemed to hold a distinctly optimistic bias – on growth, labor and real estate. Given we’ll see rate and growth forecasts at the June 20 Fed meeting and it’s the last meeting before Operation Twist expires, the timing seems right. But is it truly needed?
Euro: ECB Rate Hold Keeps Yield, But Where is the Stability?
Has the Euro intrinsically strengthened over the past 24 hours and this week or is its recovery against the US dollar merely a reflection of underlying risk trends. Just in the past trading session alone, EURUSD climbed 1.0 percent – the biggest single-day rally since November 11. However, when we look at the currency’s relative performance against the other majors we see a distinct outperformance against safe havens and underperformance versus higher yielding currencies. From the ECB rate meeting, there was a high degree of speculation that the policy group could provide much-needed stability for the region’s financial strain. The decision to hold rates maintains the yield advantage the euro holds over the dollar and other counterparts; but cut or not, it would do little to stabilize sovereign debt, credit health or bank liquidity. That would come through a revival of the SMP program or anotherLTRO program – both were conspicuously absent. Fear surrounding the Euro-region’s troubles could further abate through no effort of European authorities if QE3 expectations gain traction.
British Pound Up Next for Stimulus Speculation
The fourth and final central bank decision this week is due in the upcoming London session. The Bank of England could be a difficult policy decision to analyze as the group notoriously remains silent when they do not make changes. That is the most likely outcome. On the other hand, the call for stimulus has spread to the UK as surely as it has to the Euro Zone and US. As fear that the Euro crisis is spreading beyond its own boarders, the reality is that the UK is most likely to be the first domino to fall. Will Member Adam Posen and crew yield to the cooling inflation, weak 1Q GDP reading and spill over crisis concerns with more bond purchases? The market may not care immediately if risk trends are firm…
Australian Dollar Makes it Three-for-Three on Impressive Data
Just as surely as the Australian dollar found its fundamentals perfectly aligned through May to secure an aggressive selloff, we have found the backdrop fully support a bullish recovery this week. Not only have risk appetite trends recovered, but the Aussie fundamentals themselves have significantly raised the currency’s profile. Following a smaller-than-expected rate cut and big jump in 1Q GDP, we saw this morning that the nation added 38,900 jobs against a forecast of no change. Where the 12-month rate cut forecast was 156bp Monday, it’s now 101bp.
Japanese Yen Sees the Balance of Power Between Risk and Intervention
It is important to recognize the difference. After multiple stimulus efforts (subtle and explicit) these past few months, the yen crosses continued their decline unfazed. Yet, with the rebound in risk appetite through the first half of this week, the same group is up between 1.5 and 3.9 percent. Intervention cannot compete with standard risk flows. A report from Bloomberg harkened back to the success of the 1995 intervention – which was found traction through US and EU coordination. Policy officials don’t have that luxury this go around. And so, they hope like speculators.
Swiss Franc Faces Inflation and Employment Data
With all the volatility behind risk-sensitive pairs this week and the retrenchment of volatility on EURCHF, the Swiss franc has understandably moved off the radar. However, we should not lose sight of this currency or pair. The next move is likely to be violent and unnatural rather than slow and steady. As such, we will watch the employment and inflation figures on deck to see if they provide justification for further SNB action.
Gold: A True Reflection on Stimulus Chances?
There is a lot of speculation surrounding potential stimulus programs moving forward, which risk trends tend to run away with. However, what is the actual probability that further support from these supranatural players will be realized? Perhaps gold gives us a better reflection of the chances as it pits fiat against alternative store of wealth. Gold did jump against the dollar early Wednesday but lost those gains before the close.
For Real Time Forex News, visit:http://www.dailyfx.com/real_time_news/
**For a full list of upcoming event risk and past releases, go towww.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
AiG Performance of Construction Index
Halifax Plc House Prices s.a. (MoM)
Despite deterioration in housing prices, investors still treat London real estate as a safe haven.
RBA rate cut on June 5th 25bs to 3.5% suggest low inflationary pressure. Change in unemployment will be an indicator of future rate cuts.
Tokyo Avg Office Vacancies (%)
6th month in a row printing higher unemployment.
Deteriorating growth is an important component to justifying further action from the SNB to balance growth
Foreign Reserves (Australian dollar)
Deflation pressures add to the SNB’s claims that more can and needs to be done on monetary policy front.
Purchasing Manager Index Services
Service sector report needed to support manufacturing and construction figures.
Stimulus expectations have fallen through on the ECB and Fed so far, what will the BoE provide?
After the disappointing outcome of May NFPs, this timely data will carry greater weight
Ivey Purchasing Managers Index s.a.
Factory activity has cooled across the world, can Canada buck the trend?
Follows the biggest increase in credit in 10 years.
Fed's Bernanke Testifies to Joint Economic Committee
Fed's Lockhart Speaks on U.S. Economy in Georgia
Fed's Kocherlakota Speaks in Minneapolis
Fed's Fisher Speaks on Renminbi in California
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
INTRA-DAY PROBABILITY BANDS 18:00 GMT

$ Dollar suffers fall more than four weeks on the quiet day

Dollar Suffers Biggest Drop in Four Weeks on Quiet Day? Euro Fundamentals Worsen, Though Markets Lose Interest British Pound: BoE Discusses the UK’s Greatest Problem – The Euro Zone Swiss Franc Maintains its Elevated Volatility as SNB Jordan Talks Options Japanese Yen Struggling as Risk Aversion Cools, BoJ Says More Easing Ahead Australian Dollar: RBA’s Stevens Says Chinese Slowdown a Concern to Watch Gold Climbs a Second Day as ‘Safety without Crisis’ Diverts Dollar Flows Dollar Suffers Biggest Drop in Four Weeks on Quiet Day?
The 20-day (1-month) rolling correlation between the US dollar and aggregate currency market volatility index currently stands at 0.93. Considering implied (expected) volatility is essentially a measure of risk or fear, the greenback is currently locked in to sentiment trends. That means that any financial tremor will give the benchmark currency a sudden boost; but by the same token, a pullback in volatility translates into a diminished appetite for the dollar. Naturally, with the US market’s closed for the Memorial holiday, the activity levels would drop and the currency in turn would take a hit.
It is interesting to note that while US equity markets (buoyed by the expectation that the Fed lies in wait for any sign of investor losses to swoop in with another stimulus injection) consolidated throughout last week, the greenback extended its advance to a four day advance. That outperformance ended Monday, however, as the Dow Jones FXCM Dollar Index dropped 0.38 percent – the biggest one-day decline since the exhaustion move on April 27. We were expecting US speculators to be absent through the opening 24 hours, but the damper on liquidity this one country’s absence would have on other regions was a something of a surprise. Volume on the European benchmark DAX (German) and FTSE 100 (UK) indexes reflected the weakest levels of trading volume we have seen all year. Asian market turnover was the lowest seen in over a month for many of the key composites. With the greenback already overstepping its bounds on its safe haven position and the liquidity drain doing little to incite risk-adverse volatility, a correction found a strong fundamental pull.
The real tone of the week will be reflected, though, in how the currency performance as participation levels top off. In the early hours of the Asian trading session, we have seen regional shares drop while US equity futures slide on the open. The immediate shift to risk aversion comes without a definable catalyst to underlying sentiment – but that will likely be the tempo for the week. For risk-based fundamental sparks this week, there are few scheduled events or releases that look to hold the necessary impetus to single-handedly unite all the capital and credit markets to the same bearing. We can wait for an off-chance that the NFPs can stir unrest for a pre-existing lean or keep a watchful eye on the headlines.
Euro Fundamentals Worsen, Though Markets Lose Interest
Over the past few weeks, we have seen repetitious or completely unsurprising headlines lead to the euro to a substantial decline. Monday, we would see substantive developments for sentiment meet a completely unresponsive currency. Such is the importance of a pre-established bearing on the markets and risk trends to forging progress. Carrying over the newswire chatter from the weekend and opening 24 hours of active trading, we learned that Spain’s Bankia not only requested a €19 billion bailout, but the country was contemplating a loan of government debt which could be used as collateral for ECB funds rather than outright cash. Spanish Prime Minister Rajoy’s please for the ECB to revive its purchases of government bonds (through the SMP) rings in our ears, yet the ECB reported no new purchases for an 11th week. That’s concerning considering the Spanish yield spread (over the German 10-year) is at a record high and credit default premiums are rising quickly.
British Pound: BoE Discusses the UK’s Greatest Problem – The Euro Zone
Members of the both the British government and central bank reportedly met Monday, and the topic of conversation was how best to stabilize the Kingdom’s economy and financial markets. From the commentary that was read after the discussion, it was clear that there is a common problem that the officials are coming to: the Euro Zone’s financial crisis. Given Prime Minister’s drive to complete the austerity effort, it was likely the discussion included calls for more BoE stimulus. MPC member Broadbent noted that further rate cuts would likely be ineffective, but that isn’t what we would expect from the group regardless. The FX market is pricing in the possibility of further bond purchases.
Swiss Franc Maintains its Elevated Volatility as SNB Jordan Talks Options
Though we haven’t seen any meaningful trend spring out of EURCHF since Thursday’s fireworks, there is still an afterglow of volatility for the pair. And, when you can get the market paying attention, there is a greater sensitivity to event risk (even the mundane) for a short period afterwards. This is where SNB President Jordan’s comments come into play. The central banker remarked over the weekend, that officials were mulling options of capital curbs and negative rates. This isn’t particularly new, but it sounds dramatic when people are paying attention.
Japanese Yen Struggling as Risk Aversion Cools, BoJ Says More Easing Ahead
Capital markets were a mixed back on Monday – Asian shares were rising and the European markets were generally on the lam. This would present a confusing picture for the safe haven Japanese yen, but the addition of tame volatility levels would help bolster carry interests. Yet, heading back into a deeper pool, we have seen activity levels pick up and negative risk sentiment kick back in. Data this morning offered little influence despite the clout of employment, spending and retail sales figures. A bigger headline though is direct yen-to-yuan trade come Friday.
Australian Dollar: RBA’s Stevens Says Chinese Slowdown a Concern to Watch
RBA Governor Glenn Stevens made it a point not to speak on monetary policy at his speech on Monday, but he did touch upon one of the currency’s top three catalysts: China. Having been distracted by risk trends and interest rate expectations these past weeks, China has fallen somewhat to the wayside, but Stevens brought it back when he suggested the softer Chinese economy data was a concern to watch. In the meantime, risk seems to have leveled off last week and the probability of a 50bp RBA rate cut at the next meeting has been cut in half.
Gold Climbs a Second Day as ‘Safety without Crisis’ Diverts Dollar Flows
Gold managed a second consecutive advance against the US dollar through Monday’s dampened trade conditions, but that is about the only relevant development we can pull from the recent set up on congestion. Between metal and reserve currency we have two safe havens separated by liquidity position. With volatility off, the level of fear that drives liquidity isn’t active, but that doesn’t mean it reverses course.
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**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar
ECONOMIC DATA
Next 24 Hours
Household Spending (YoY) (APR)
HIA New Home Sales (MoM) (APR)
Small Business Confidence (MAY)
German Import Price Index (MoM) (APR)
German Import Price Index (YoY) (APR)
UBS Consumption Indicator (APR)
German CPI Index (MoM) (MAY P)
German CPI Index (YoY) (MAY P)
German CPI - EU Harmonised (MoM) (MAY P)
German CPI - EU Harmonised (YoY) (MAY P)
S&P/Case-Shiller Composite-20 s.a. (MoM) (MAR)
S&P/Case-Shiller Composite-20 (YoY) (MAR)
S&P/Case-Shiller Home Price Index (MAR)
S&P/Case-Shiller US Home Price Index (YoY) (1Q)
S&P/Case-Shiller US Home Price Index (1Q)
Dallas Fed Manufacturing Activity (MAY)
Bank of Portugal Releases Financial Stability Report
|| Italy to Sell €8.5Bln in 6-Month Bills
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
INTRA-DAY PROBABILITY BANDS 18:00 GMT

$ Dollar Suffers Biggest Hit Since in Seven Weeks as Risk Perks Up

Dollar Suffers Biggest Hit Since in Seven Weeks as Risk Perks Up Australian Dollar Rallies after Employment Boost, Awaits Chinese GDP Japanese Yen Volatility Belongs to Carry, Trend to BoJ Stimulus Pressure Euro: With Global Sentiment Steadying, EU Crisis Fears Subside British Pound Strength Should be Monitored Through EURGBP Swiss Franc: SNB has a Distinct Interest in Risk Trends, Global Stimulus Gold Gains Serious Traction Against Dollar, Struggles Against Aussie Dollar Dollar Suffers Biggest Hit Since in Seven Weeks as Risk Perks Up

Though the dollar didn’t stick to its correlation with risk trends while sentiment waned through the first half of this week, it certainly did react as capital markets came roaring back these past 48 hours. The Dow Jones FXCM Dollar Index put in for its worst one-day tumble (0.57 percent) since February 23rd and subsequently found itself at the threshold of a new bear trend. This is a concerning position for the benchmark currency to be in considering its propensity to leverage its reaction to ‘risk off’ scenarios and the notable trouble it had in overtaking its 10,100 range high over the past six months. Now that we find the dollar has discounted much of the very early, hawkish Fed policy expectations that were priced in through previous weeks, the rebound in the currency’s safe haven role looks perfectly timed to cause more trouble than benefit.

Monitoring risk trends should be a primary concern for all traders regardless of their market, and especially so for those involved with the majors. For risk guidance, we saw the S&P 500 reverse half of the loses over its five-day decline through Tuesday that set the tone for an underlying trend change. Through the past session, the catalysts for ‘risk on’ came through multiple sources. Heading into this week, concerns had built up that US corporate earnings would slow to their weakest levels since 2009 – though they would generally expand to new highs. This seems to have set the bar remarkably low, and the better-than-expected reports from Alcoa and Google have helped to retrace some of those negative expectations. Another outside catalyst is the moderation of fear surrounding the Euro Zone financial troubles. Fundamentally, the situation has not changed dramatically, but the drop in important sovereign debt yields (Spain and Italy) helps set the speculative tone.

The catalyst with potentially the most far-reaching and persistent influence on sentiment, however, are stimulus expectations. There were mild murmurs through the past trading day about QE3 looking more likely (likely in the wake of comments made by Fed members Yellen and Dudley), but the consensus seems generally set in winding down the expansive stimulus belief. If there were a means to boost support, it would likely come through a program more like the recent ‘Operation Twist’-style effort where the balance sheet is held steady but the portfolio composition is changed. That said, the focus has seemed to move beyond a mere reaction to Fed efforts only. In the absence of support from the world’s largest central bank, support from the Chinese, Euro Zone and Japanese groups have stepped in. Whose devaluing the currency now…

Australian Dollar Rallies after Employment Boost, Awaits Chinese GDP

The Aussie dollar was the stand out performer Thursday against the backdrop of strong risk appetite sentiment. Positive risk trends plays an influential role for this currency in particular as its sensitivity to rate changes has been leveraged through a deteriorating interest rate forecast. We would surprisingly see an improvement on that front as well however this past session. Following the surprising jump in employment growth for the month of March (44,000 jobs added), the 12-month rate forecast jumped 10 bps up from the two-month low (94 bps) set just the previous day. Further for risk trends, the strong Chinese lending figures would also boost the positive sentiment towards the currency. As a guide for those looking for the fundamental catalysts for the Aussie dollar, there are three themes that can be followed through three different pairs. The risk trends are best seen in AUDJPY. The Chinese economic influence shows through better in AUDUSD. And, rate forecasts show in AUDNZD.

Japanese Yen Volatility Belongs to Carry, Trend to BoJ Stimulus Pressure

Policy officials in Japan continue to do their best to taking the currency down – though this has very little influence on price action. Where the yen has found relief is through risk appetite trends itself. With the rebound in speculative interests over the past 48 hours, the carry trade interest has firmed up. Of course, those pairs with the larger carry differential (AUDJPY, NZDJPY) have enjoyed the larger upside swing; yet they will also be the most sensitive to big swings back and forth. If this risk rebound proves solid and progressive, the BoJ will find relief in the pressure to further expand stimulus. Yet, if we fall back into a ‘risk off’ scenario, the central bank will be scrambling again.

Euro: With Global Sentiment Steadying, EU Crisis Fears Subside

Have fundamentals improved for the Euro? Not really. However, as we have seen many times before, a positive turn in sentiment tends to cast the shared currency in a positive light and overshadows the fears that the FX market would otherwise dwell on. For an objective review of the developments that matter to the region’s underlying fundamental health, we start off on the government bond front. Italy sold €4.88 billion in debt (below the €5 billion maximum and with some maturities that fall outside the LTRO coverage), to relatively modest increases in yields – modest compared to the pained Spanish auction earlier this week. Meanwhile IMF head Lagarde stated that Spain shouldn’t be compared to any of the other periphery EZ countries that have sought bailouts and ECB member Paramo further charged speculation the SMP program is revived.

British Pound Strength Should be Monitored Through EURGBP

We’ve seen a lot of volatility in the sterling pairs, but much of this activity can be attributed to the cross currency rather than the pound. While the pound can take the role of a safe haven or yield currency given its middle-of-the-road benchmark, its intrinsic strength has been relatively unmoved recently. To see a true representation of strength for this currency specifically, a good read is EURGBP to monitor crisis spread.

Swiss Franc: SNB has a Distinct Interest in Risk Trends, Global Stimulus

The Swiss franc has appreciated alongside the Euro when we measure its performance against the yen or US dollar. But the focus for traders and policy officials when it comes to this pair remains on EURCHF. And, on that front, we have seen no meaningful progress to offer relief for SNB officials looking to maintain the integrity of the 1.2000 level they vowed to defend. In the changing seas of risk appetite trends, we see a lot of activity for yen crosses and dollar-based pairs; but the SNB is no doubt carrying high hopes for a risk recovery to usher the euro higher.

Gold Gains Serious Traction Against Dollar, Struggles Against Aussie Dollar

That test of the multi-year rising trendline proved influential for gold. The metal has put in for another impressive rally this past session to expand on raise the tally to a 68 point run. However, what has helped drive the commodity higher? A prime factor here is the US dollar’s remarkable weakness. However, outside of that drive, the drive has been relatively weak. In fact, if we look at gold in Australian dollar terms (which itself has capitalized on positive risk trends), we find that gold actually closed slightly lower on the day.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

Industrial Production YTD (YoY) (MAR)

Stable rate of industrial production showing that China could see soft landing

Industrial Production (YoY) (MAR)

Fixed Assets Inv Excl. Rural YTD (YoY) (MAR)

GDP falling towards 7.0% target as economy cools

Domestic consumers still spending, though government still targeting inflation

German inflation may give more scope for easing, monetary support

German CPI - EU Harmonised (MoM) (MAR F)

German CPI - EU Harmonised (YoY) (MAR F)

British input prices dropping, may put less pressures on consumer prices

PPI Output Core n.s.a. (MoM) (MAR)

PPI Output Core n.s.a. (YoY) (MAR)

Italian CPI NIC Incl Tobacco (YoY) (MAR F)

Italian inflation expected stable, data may not move markets

Italian CPI NIC Incl Tobacco (MoM)(MAR F)

Italian CPI EU Harmonized (MoM) (MAR F)

Italian CPI EU Harmonized (YoY) (MAR F)

CPI Ex Food & Energy (MoM) (MAR)

US headline inflation expected to weaken somewhat on drop in energy prices, could allow for easing

CPI Ex Food & Energy (YoY) (MAR)

U. of Michigan Confidence (APR P)

Preliminary April number still showing improvement, though Fed still focused on labor

SUPPORT AND RESISTANCE LEVELS

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

INTRA-DAY PROBABILITY BANDS 18:00 GMT