British Pound More Likely to See Rate Speculation in Today’s Data than Later BoE

Talking Points:

• Dollar Drops Despite S&P 500’s Biggest Back-to-Back Decline in 10 Months
• British Pound More Likely to See Rate Speculation in Today’s Data than Later BoE
• Japanese Yen Indecisive After BoJ Hold, Kuroda Not Scheduled to Speak

Dollar Drops Despite S&P 500’s Biggest Back-to-Back Decline in 10 Months

The correlation between the dollar and favored risk-measure S&P 500 drifted away from its academic ‘safe haven versus risky asset’ relationship some time ago. Nevertheless, it is still surprising to see the greenback drop against nearly every one of its counterparts at the same time the equity index posts its first back-to-back loss of more than 1.0 percent since June – there have only been four such instances of this in the past two years. Which is better reflects conviction?

Evaluating speculative appetites, there was a notable disparity in the performance of equities and other markets sensitive to the theme. Yen crosses were little changed through Monday, Emerging Markets closed modestly higher and high-yield bonds ticked only modestly lower. As the standout asset class, stocks’ inordinate move may reflect a feedback loop from this past Friday’s sharp S&P 500 drop. That abrupt tumble late last week was notably absent from both Asian and European markets. Therefore, we may have experienced a ‘catch up’ move to conform risk themes across financial time zones over the weekend. Otherwise, the docket was light for event risk that carries the necessary weight to alter the balance between yield and volatility. The same is true of the upcoming calendar items.

Turning the focus back on the dollar, yields paint an unflattering picture. US market-based rates and Treasury yields – the same barometers that have paced growing Fed rate projections – were receding quickly Monday. The two-year Treasury yield that has become a preferential measure of policy plans over the central bank’s ‘medium time frame’ extended its slump and is now (at 0.395 percent) over 15 percent below March’s six month high. Of further concern, the three-month US Libor rate is standing less than a basis point from its record low. The hope for a competitive time frame for US yields is fading, and the currency is suffering for it. Today, a few Fed officials’ speeches (Plosser and Kocherlakota), small business sentiment index and three-year Treasury auction will weigh in on this theme.

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British Pound More Likely to See Rate Speculation in Today’s Data than Later BoE

The sterling’s interest rate premium will be put to the test in the upcoming session. To open the week, the pound posted a modest gain against most of its counterparts – though there was a notable lack of momentum to the move without a tangible catalyst. Perhaps more notable on the day was the slip in two-year gilts which are retreating from two-and-a-half year highs. The hawkishness and timing this yield strength reflects for the BoE is key to the currency maintaining its buoyancy – particularly against its liquid counterparts. Ahead, we have data that is noteworthy, that covers growth expectations and offers an inflation update. The industrial production statistics (for February) are in the same category as other tier one indicators that can meaningfully upgrade or downgrade rate expectations. For scope, however, the NIESR GDP Estimate and BRC Shop Price Index for March are much more interest. Both have a high correlation to their respective government counterparts – something FX and rate traders may pick up on if there is a substantial development from either or both.

Japanese Yen Indecisive After BoJ Hold, Kuroda Not Scheduled to Speak

The Bank of Japan (BoJ) maintained its policy bearings this morning by keeping its benchmark rate unchanged and its open-ended QE parameters – to increase its monetary base by ¥60-70 trillion per year. This was in-line with expectations derived from market rates and polls (100 percent of economists in Bloomberg’s poll expected this outcome) so the need for markets to adjust to this event is low. That being said, there was something notably missing in this policy announcement – clues of any plans for an upgrade of support in the future. There is still a consensus for more BoJ stimulus later in the year, but policy officials are offering little prelude to such a move.

Euro: ECB Members Increase QE Talk, Market Rate Hits 20-Month High

There were quite a few ECB officials speaking – intentionally or not – on monetary policy Monday. Vice President Constancio noted March’s inflation figures were a surprise to the central bank and suggested April would be important to gauge deflationary pressure. Elsewhere, Nowotny said further cuts could not be ruled out, Coeure said lower rates may be needed and QE was an option (though different from the US-type), and Mersch stated unconventional measures were being prepared. Despite these verbal threats, Eurozone 3-month rates are at 20-month highs.

Canadian Dollar Holds Firm Against USD Despite Drop in Business Confidence

A Canadian business sentiment survey from the Bank of Canada unexpectedly cooled through its first quarter review period. The survey for future sales growth offered a balance of 27 expecting sales growth over the coming 12 months – an unexpected slip from the previous update. For those focused on the loonie’s tumble in the interest rate forecast standings, the survey breakdown would also show a substantial jump in both input and output inflation measures. This is hardly a foundation for a return to hikes, but it does cool rate cut talks somewhat.

Australian Dollar’s Carry Trade Return Curbed by Drop in 10-Year Yields

The Australian dollar was uniformly lower to start the week – perhaps an early indication that its risk sensitivities are returning. Looking at the two-year time frame for competitive yield speculation for most majors, the Aussie government paper’s rate fell 1.9 percent Monday. The retreat from 12-month highs for 10-year yields is a serious damper for this carry currency’s return.

Emerging Markets Level Out After Friday’s Exceptional Volatility

Following Friday’s exceptional volatility, 0.3 percent slip and biggest swell in volume in two months; the MSCI Emerging Market ETF made a bid for quiet stability Monday. On the newswires, stories of pro-Russia protests in different regions of Ukraine have drawn out threats of new sanctions on Russia by the US. On the docket, an Indonesian central bank decision and South Korea employment report are top listings.

Gold Net Long Speculative Positioning Drops Sharply a Second Week

Speculative appetite for gold has been ravaged in recent weeks according to the CFTC’s COT figures from last week. The Friday update showed the net long futures positioning amongst the speculative crowd dropped another 15 percent (following a 14 percent drop the week before). In another measure, ETF holdings dropped 0.9 percent over the same week. With a heftier dollar drop, this metal is facing unfavorable pressure.**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT	Currency	Release	Survey	Previous	Comments
	JPY	Bank of Japan Interest Rate Decision	0.10%	0.10%	For the past 3 months, the Japanese CPI (YoY) has steadily advanced towards the BoJ’s inflationary target of 2%, but a significant margin remains (0.5%) between current price levels and the BoJ’s target range promoting sentiment of delayed rate hikes
	JPY	Bank of Japan Monetary Base Target	¥270T	¥270T
1:30	AUD	NAB Business Confidence (MAR)		7	Business Confidence in Australia has improved quite significantly since July of 2014 (-4.5) leveling off around 8 since last Sept.
1:30	AUD	NAB Business Conditions (MAR)		0
5:00	JPY	Eco Watchers Survey: Current (MAR)	53.3	53.0	The Actual figures for the Japanese Economy Watchers Current Conditions Survey has fallen below expectations for the past two months
5:00	JPY	Eco Watchers Survey: Outlook (MAR)	39.5	40.0
5:45	CHF	Swiss Unemployment Rate s.a. (MAR)	3.2%	3.2%	Swiss Unemployment has held relatively constant from Jun. 2013 to present. A slight improvement against the average is expected
5:45	CHF	Swiss Unemployment Rate (MAR)	3.3%	3.5%
7:15	CHF	Swiss Retail Sales (Real) (YoY) (FEB)		0.3%
8:30	GBP	UK Industrial Production (MoM) (FEB)	0.3%	0.1%	Growth within the Manufacturing industry in the UK has been sluggish at best and is struggling to maintain growth. This data will likely reinforce The BoE’s current stance on maintaining historically low interest rates.
8:30	GBP	UK Industrial Production (YoY) (FEB)	2.2%	2.9%
8:30	GBP	UK Manufacturing Production (MoM) (FEB)	0.3%	0.4%
8:30	GBP	UK Manufacturing Production (YoY) (FEB)	3.1%	3.3%
11:30	USD	US NFIB Small Business Optimism (MAR)	92.3	91.4	Small businesses account for the major if US jobs
12:15	CAD	Canadian Housing Starts (MAR)		192.1K	Canadian Housing Starts rebounded in February increasing by roughly 11K
12:30	CAD	Canadian Building Permits (MoM) (FEB)		8.5%
14:00	GBP	UK NIESR GDP Estimate (MAR)		0.8%	Correlation to official GDP figures has been particularly strong over the years
22:45	NZD	NZ Card Spending Retail (MoM) (MAR)	0.4%	0.9%	The highly volatile NZ Card Spending Index (MoM) rebounded in February to slightly overtake its historical average at 0.4. A slight decline is expected.
22:45	NZD	NZ Card Spending (MoM) (MAR)		0.6%
23:01	GBP	BRC Shop Price Index (YoY) (MAR)	-1.5%	-1.4%	Though not the official government figure, this inflation figure adds to speculation surrounding BoE rate expectations

GMT	Currency	Upcoming Events & Speeches
	JPY	Bank of Japan Monetary Policy Statement
9:00	EUR	Greece to Sell €1 Bln in 6-Month Bills
9:30	EUR	Germany to Sell €2 Bln in 16-Year Index-Linked Bonds
9:30	GBP	UK to Sell £1.3 Bln in 20-Year Index-Linked Bonds
17:30	USD	Fed's Narayana Kocherlakota Speaks on U.S. Economy
18:45	USD	Fed's Charles Plosser Speaks on Bank Regulation
20:00	USD	Fed Board Open Meeting on Rulemakings on Leverage Ratios

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 GMT							SCANDIES CURRENCIES 18:00 GMT
Currency	USD/MXN	USD/TRY	USD/ZAR	USD/HKD	USD/SGD		Currency	USD/SEK	USD/DKK	USD/NOK
Resist 2	14.0200	2.3800	12.7000	7.8165	1.3650		Resist 2	7.5800	5.8950	6.5135
Resist 1	13.5800	2.3000	11.8750	7.8075	1.3250		Resist 1	6.8155	5.8475	6.2660
Spot	13.0131	2.1118	10.5184	7.7558	1.2599		Spot	6.5263	5.4322	5.9903
Support 1	13.0000	2.1000	10.2500	7.7490	1.2000		Support 1	6.0800	5.3350	5.7450
Support 2	12.6000	1.7500	9.3700	7.7450	1.1800		Support 2	5.8085	5.2715	5.5655

INTRA-DAY PROBABILITY BANDS 18:00 GMT

CCY	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	Gold
Res 3	1.3832	1.6711	103.71	0.8942	1.1044	0.9352	0.8702	142.69	1321.72
Res 2	1.3810	1.6687	103.50	0.8926	1.1026	0.9332	0.8683	142.35	1316.29
Res 1	1.3788	1.6663	103.28	0.8909	1.1008	0.9313	0.8663	142.02	1310.86
Spot	1.3744	1.6615	102.85	0.8877	1.0972	0.9274	0.8625	141.35	1300.01
Supp 1	1.3700	1.6567	102.42	0.8845	1.0936	0.9235	0.8587	140.68	1289.16
Supp 2	1.3678	1.6543	102.20	0.8828	1.0918	0.9216	0.8567	140.35	1283.73
Supp 3	1.3656	1.6519	101.99	0.8812	1.0900	0.9196	0.8548	140.01	1278.30

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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

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