Currencies: Euro trims losses after U.S. job-openings report

NEW YORK (MarketWatch) — The euro trimmed its earlier losses Tuesday after the Department of Labor said U.S. job openings rose to a 14-year high in February.

The euro EURUSD, -0.58%  was at $ 1.0875, compared with $ 1.0937 Monday evening, trimming its earlier losses after the Labor Department showed that job openings rose to 5.13 million in February from 4.97 million in January. The dollar was little-changed against its other rivals after the report.

The euro had moved lower against the dollar early Tuesday as traders in Europe returned to their desks after a four-day weekend that included market holidays on Friday and Monday.

The euro had surged against the dollar Friday after the U.S. Labor Department reported the weakest rate of jobs growth in 15 months, and it continued to trade above $ 1.09 during Monday’s session.

But swings in the euro-dollar exchange rate were likely exaggerated over the last two sessions amid thin trading volume, analysts said. That said, thin volumes don’t always affect currency price moves, according to RBC Capital Markets.

“We’re seeing liquidity return and prices start to normalize,” said John Doyle, director of markets at Tempus Inc.

Currency traders appeared to shrug off data showing the eurozone economy grew at its fastest pace in 11 months in March.

Earlier in the global day, the Reserve Bank of Australia defied the market’s expectations and left its cash target rate, its benchmark interest rate, unchanged, sending the Australian dollar to its highest level against the buck in eight days.

The aussie AUDUSD, +0.74%  hit a session-high of 77.13 cents, before falling to 76.55 cents in recent trade. It traded at 75.99 cents Monday evening.

Financial markets had been pricing in a 75% chance the benchmark interest rate would be trimmed by 0.25 percentage point to a record-low 2.0%.

Read: Australia keeps interest rates steady at 2.25%

In other Asia trade USDJPY, +0.70%  rose to ¥120.17, compared with ¥119.48 late Monday in North America.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, said that rising Treasury yields are attracting foreign flows to the U.S. dollar.

“In North America today the calendar is nearly barren so price action will likely be driven by equity and fixed income markets,” Schlossberg said in a note to clients.

The ICE U.S. Dollar Index DXY, +0.55% a measure of the dollar’s strength against a basket of six rivals, was up 0.7% to 97.4360.

Currencies: Dollar extends drop vs. euro after payrolls-inspired selloff

The euro edged higher versus the dollar Monday, extending gains scored Friday after weaker-than-expected nonfarm payrolls data saw investors push back expectations for a rate hike by the Federal Reserve.

The euro EURUSD, +0.55%  traded at $ 1.0991, up from $ 1.0972 in North American trade late Friday. The U.S. currency USDJPY, -0.04%  was up versus the Japanese yen at ¥119.07 compared with ¥118.93 late Friday in New York.

The ICE dollar index DXY, -0.16% a measure of the U.S. currency against a basket of six major rivals, was up 0.1% at 96.651.

Trading activity in Asia and Europe was subdued, with many traders still away from their desks for the Easter vacation and other public holidays. The dollar found downside support against the yen to stabilize above ¥119 following Friday’s losses.

Japanese importers and institutional investors were among the investors eager to buy the greenback on dips. Market participants also noted some indirect support for the dollar against the yen via selling of the Japanese currency against the euro.

Friday’s tumble in the dollar was the biggest fall in almost two weeks following U.S. labor data for March that showed nonfarm payrolls grew by 126,000, about half the increase forecast by economists in a Wall Street Journal survey.

Read: Poor jobs report blurs economic outlook

“There is speculation that the consensus about a U.S. rate increase is now being pushed back to December from September,” a change in views that could lower the dollar in currency trade, said Mizuho Securities FX strategist Kenji Yoshii.

Disappointing March jobs report: Will the Fed move?

The March jobs picture and how it relates to the broader U.S. economy.

Even so, Yoshii said he didn’t “get the impression that the USD is falling very much.” He added that larger falls in the dollar are likely being prevented by a cycle in which a weaker dollar causes U.S. stocks to rise, suggesting greater buoyancy in risk-taking sentiment that results in selling away from the perceived safety of the yen and a stronger dollar.

Read: Don’t fight the Fed; invest with it

IG Securities market analyst Juniichi Ishikawa said in a note that the dollar could fall below ¥118 if U.S. stocks soften this week. Mr. Ishikawa said the reaction of U.S. shares to Friday’s downbeat labor data could push the dollar down against the yen later Monday if the shares fall. U.S. indicators, including today’s ISM non-manufacturing business index, and U.S. corporate earnings will also be under the spotlight this week.

“We are going to have a week of closely monitoring the after effects of the lackluster U.S. data and the impact of (U.S.) quarterly earnings,” he said.

The WSJ Dollar Index BUXX, -0.35% a measure of the dollar against a basket of major currencies, was donw 0.1% at 86.54.

Dollar Weakens Further Against Rivals On Rate-hike Bets

The dollar traded lower against its rivals Monday after recording its largest weekly percentage decline against the euro since October 2011.

The euro traded at $ 1.0883, compared with $ 1.0821 Friday evening.

Several analysts, including Kit Juckes, said that traders are trimming bets that the dollar will strengthen against its rivals, driving further weakness in the buck as traders expect the Federal Reserve to raise interest rates later, and more gradually, than previously thought.

“I’m sure we’ll see positioning data over the next couple of weeks that will take the long-dollar position down by a significant hunk,” Juckes said.

According to data from the Commodity Futures Trading Commission, released on Friday, dollar-long positions declined to $ 40.5 billion in the week ended Tuesday, down from $ 44.7 billion the previous week. In November, net dollar-long positions hit $ 49.4 billion, its highest level since 2008.

A consumer-price index reading for February, expected Tuesday, and first-quarter gross domestic product data, due Friday, are likely to trigger volatility in the dollar in the coming days, said Jameel Ahmad, chief market analyst at FXTM.

“Unless the U.S. data is really bad, I think the euro-dollar is still firmly bearish,” Ahmad said. The ongoing standoff between German and Greek officials over the next installment of Greece’s bailout remains a risk, Ahmad added.

Traders will be awaiting news out of a meeting between German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras, scheduled for Monday. They will also be watching a speech by Federal Reserve Vice Chairman Stanley Fischer, set to begin 12:30 p.m. Eastern.

U.S. stocks started the session higher, with the S&P 500 up 0.18%, or 4 points to 2,111.6. The yield on the 10-year note weakened 1.4 basis points to 1.918%.

The dollar (USDJPY) traded at 119.71 yen, its lowest level against the Japanese currency in nearly a month. It traded at 120.04 Friday.

The ICE U.S. Dollar Index (DXY), a measure of the buck’s strength against a basket of six rival currencies, was down 0.76% to 97.1540.

The pound

The currency of the U.K. traded flat against the dollar Monday, but Juckes said it appears vulnerable, as the polls for May’s Parliamentary elections suggest the Scottish National Party could make huge gains in representation.

“A weak government, an expensive (vs the Euro) currency [and] outsize current account and budget deficits still make for longer-term concerns,” Juckes said in a research note.

The pound (GBPUSD) traded flat at $ 1.4933, compared with $ 1.4953 Friday. Meanwhile, one euro traded at 73.16 pence, compared with 72.36 pence Friday.

Currencies: Surprise China rate cut pushes dollar higher

LONDON (MarketWatch) — The dollar shrugged off a slate of weak economic data Monday to trade higher against the euro, yen and pound, benefiting from a surprise rate cut from the People’s Bank of China.

The central bank cut its benchmark lending and deposit rates by a quarter of a percentage point on Saturday, raising concerns about flagging growth in the world’s second-largest economy.

Th move highlighted the divergence between the U.S. economy and economies in Asia and Europe, said Jameel Ahmad, chief market analyst at FXTM.

“At a time when so many central banks are shifting stance and unexpectedly easing monetary policy, optimism that the Federal Reserve will still be raising US interest rates at some point this year is enough to support the USD uptrend,” Ahmad wrote.

The euro EURUSD, -0.12%  fell to $ 1.1195, flat compared with its Friday-afternoon value of $ 1.1198. The buck USDJPY, +0.38%  traded at 120.08 yen, its highest level in nearly three weeks. It traded at ¥119.63 Friday. The pound GBPUSD, -0.48%  traded at $ 1.53, compared with $ 1.54 Friday.

Personal spending declined more than expected in January, which could weigh on gross domestic product growth, if consumer spending doesn’t pick up in March, Ahmad wrote.

The dollar shrugged off a report from the Institute for Supply Management showing that its manufacturing index fell to 52.9% in February, a fourth monthly decline. Economists polled by MarketWatch expected a reading of 52.8%.

The ICE U.S. Dollar Index, a measure of the greenback’s strength against a trade-weighted basket of six rival currencies, DXY, -0.05%  rose 0.1% to 95.37.

The greenback finished February higher against the euro for the eighth straight month.

Euro Breakouts Hard to Avoid with Upcoming ECB Rate Decision??

Talking Points:

  • Dollar Stabilizes but Not Because of Yellen or Risk Trends
  • Euro Breakouts Hard to Avoid with Upcoming ECB Rate Decision
  • Yen Crosses Capable of Starting the Risk Run?

Dollar Stabilizes but Not Because of Yellen or Risk Trends

Though the recovery effort wasn’t as substantial as the tumble that preceded it, the US dollar put in for a rebound Wednesday. The Dow Jones FXCM Dollar Index (ticker = USDollar) put in for its biggest advance in two weeks, and the benchmark currency rose against all of its major counterparts by an average of 0.28 percent. Yet, in this advance, the index barely budged from its 14-month range low, EURUSD held above 1.3900, GBPUSD remains in reach of 5-year highs, and USDJPY is technically still in breach of a long-term bullish trendline. This lack of conviction in price is a solid reflection of the fundamental circumstances that underlie the environment.

With the rebound from the past session, many would latch on to the idea that Fed Chair Janet Yellen’s testimony before the Joint Economic Committee was a catalyst for the recovery effort. In her comments, the central banker reinforced the FOMC’s general optimism for growth and the path towards the return to a tightening regime. Adding a new phrase for speculators to chew on, she specifically noted that QE3 should be fully wound-down by the Fall if they maintain their current pace. That is on the earlier side of the range expected. How much would this really add to rate expectations and leverage a premium for the dollar though? Looking at shorter duration Treasuries – good barometers for the return to a hawkish regime – both the 2 and 5-year Treasury yields dropped.

So, what motivated the dollar this past session – and will subsequently guide it going forward unless something significant tips the market off its axis? Complacency. Short bursts of volatility will become more frequent as participation fades; but the moves will die well before developing into trends and retracements will follow close behind. Ahead, a wave of Fed speakers will test their influence over rate forecasts again.

Euro Breakouts Hard to Avoid with Upcoming ECB Rate Decision

EURUSD has a 250 range that it can traverse before the market starts to talk about trend development once again. EURJPY has less than 100 pips to cover before breaking out, while EURGBP is working with less than 50 pips. The Euro’s limited trading scope isn’t particularly remarkable given the general conditions of the FX and financial markets. However, those limitations turn into a dangerous liability when we face event risk that can generate volatility and event trend. That is the case with the upcoming ECB rate decision. The central bank has positioned itself into direct conflict with the market. Speculative appetite for higher yield has directed global capital into Eurozone periphery bonds while reserve diversification has raised the profile of the world’s second most liquid currency. These are motivated capital flows. When ECB President Draghi made the connection between a high Euro and inflation in charged commentary in March (13th) and April (24th), he set a psychological boundary around 1.4000. Yet, the warnings haven’t turned the market. If the ECB doesn’t escalate, it may very well break.

Yen Crosses Capable of Starting the Risk Run?

Though USDJPY’s bearish break Tuesday didn’t evolve into the lasting trend the technical pattern threatened it could, the hit was perceptible. In the upcoming session, if the ECB takes action; EURJPY may also find its way to a break. If EURJPY breaks, the Euro-Franc correlation is likely to pull CHFJPY into a similar move. This brings up the question: how much volume has to back individual yen moves before the currency itself is tipped into a new trend? There is considerable technical tension on the crosses and implied (expected) volatility reading for USDJPY is at record lows. The backdrop for a serious breakout is there. All that’s needed now is a catalyst – most likely, risk trends.

New Zealand Dollar: The Effectiveness of Exchange Rate Threats

RBNZ Governor Wheeler was not playing coy Wednesday morning when he said that the Kiwi dollar was overvalued and that further gains would lead him to reconsider his monetary policy bearings. The market seems to have taken him at his word as the local currency dropped between 0.7 and 0.9 percent against its primary counterparts. Yet, how much has this threat truly put off expectations for a steady pace of rate hikes in the market’s mind? Swaps currently show an 81 percent chance of a 25 bps increase next month – little changed from last week.

British Pound Will Find More Guidance from ECB than BoE

The ECB isn’t the only central bank policy meeting scheduled for tomorrow…but it’s the only one the market cares about. The Bank of England does not update the market with its reasoning or forecasts when it doesn’t change policy – and the consensus clearly believes that to be the outcome. A ‘European’ connection may very well carry more sway over the pound against pairs like USD and JPY via the ECB actions.

Chinese Yuan Rally Stalls as Stimulus Hold Necessitates FX Easing

April trade statistics were released by China this morning, and the data was a notable beat. A $ 18.5 billion surplus was 10 percent larger than the market consensus based on a 0.9 percent increase (year-over-year) in exports that was projected to contract 3.0 percent. This was a noteworthy release, but it hasn’t recharged the Yuan. With the PBoC on hold with stimulus, FX relief is essential.

Emerging Markets Firm Lead by Russian Rubble on De-escalation of Ukraine Tensions

The MSCI Emerging Market ETF advanced 0.5 percent while the Bloomberg EM Sovereign Bond Index advanced an eighth straight day to a 12-month high Wednesday fortified by the news that tensions in the Ukraine had eased. Russian President Vladimir Putin announced that his country’s army would pullback from Ukraine’s eastern border, while further calling for separatists in the country to call off the scheduled referendum. In the FX world, the Ruble surged 1.3 percent; while the next comparable performance was a 0.6 advance from Brazilian Real.

Gold Suffers Biggest Drop in 3-Weeks

Relief in geopolitical venues, a modest rebound for the US dollar and an eased sense of impending stimulus upgrades all contributed to gold’s 1.4 percent drop this past session. This was the biggest drop in three weeks and it would come on volume in the derivatives market, but we have not seen a trend secured. Meanwhile, the COT speculative positioning and three-year in ETF holdings will take on greater prominence. **Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

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

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

To contact John, email [email protected] Follow me on twitter at http://www.twitter.com/JohnKicklighter

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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Holding Euro Positions May Get Expensive as Overnight Rates Spike

What’s happening to Euro interest rates and why does it matter to traders?

The end of the trading quarter means that demand for borrowing some major currencies has risen sharply, and interbank lending rates have shifted dramatically—particularly for Yen and Euro pairs.

In fact forward rates show that holding a Euro/US Dollar short position may cost a trader nearly 30 times more than the same position held on Thursday. The end of the fiscal quarter in Japan will likewise make borrowing the Japanese Yen quite expensive. Why does this represent an important risk and how might we take advantage?

View photo

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forex-careful-holding-short-Euro-as-overnight-rates-spike_body_Chart_2.png, Holding Euro Positions May Get Expensive as Overnight Rates Spike

Source: Bloomberg Generic Price – “Consensus” Pricing

Understanding Forex Rollover

Trading forex on leverage involves borrowing one currency in order to purchase another. In effect this means traders will pay interest rates for the currency which they sell, while they receive interest rate payments for the currency which they buy. In FX terminology this is most often called “Rollover” or “Swaps”.

Overnight interest rates will guide whether the trader will ultimately pay to hold a position or earn interest on the trade, and any sharp changes in the supply or demand for a specific currency can shift overnight interest rates in a hurry.

This dynamic can be very seamless to the trader, and indeed the parent company of DailyFX in FXCM Inc. posts the Rollover rates for both “Buy” and “Sell” orders directly on their trading platform.

Read more on forex rollover on FXCM.com

End of the Quarter Means Euro Demand Surges, Japanese Fiscal Year End Makes JPY Expensive

We often see such sharp supply and demand imbalances at important dates in the calendar year—namely months, quarters, and years. These are the times in which many borrowers or lenders must settle major positions, which may involve buying back or selling significant amounts of a specific currency.

Traders should note that this means interest rate charges/credits will be far larger than normal for EUR and JPY pairs. This does represent a potential opportunity: traders may receive the higher Euro interest rate if they buy the currency into the New York close. For the JPY this means that those short the Yen (e.g. long USDJPY, GBPJPY) will receive lower interest rate payments than normal.

For those short Euro in particular they should note that said position may become quite expensive. Caution is urged ahead of the weekend as interbank lending rates spike.

Written by David Rodriguez, Quantitative Strategist for DailyFX.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.