FOREX: Dollar Maintains Congestion Between Positive Risk Trends and Disappointing Data

Through the past week, the dollar has essentially gone nowhere – yet that is better than suffering the continued pain of a selloff that has already driven the pair the currency down for months. Looking at the Dow Jones FXCM Dollar Index, we see that the currency has moved little more than 100 points since last Wednesday (now at 9418).

• Dollar Maintains Congestion Between Positive Risk Trends and Disappointing Data
• Euro Faces a High Risk Breakout with the Decision and Commentary from the ECB
• British Pound: What Should We Expect from the Bank of England Rate Decision?
• Australian Dollar Pushed down by Risk Trends, Extends Declines after Retail Sales Data
• Canadian Dollar Shows No Progress on Post-Election Promises
• Japanese Yen: When will the G7 Start Threatening Intervention Again?
• Gold Decline Accelerates as Margin Requirement Hikes in Silver Unnerves Speculators

Dollar Maintains Congestion Between Positive Risk Trends and Disappointing Data

Through the past week, the dollar has essentially gone nowhere – yet that is better than suffering the continued pain of a selloff that has already driven the pair the currency down for months. Looking at the Dow Jones FXCM Dollar Index, we see that the currency has moved little more than 100 points since last Wednesday (now at 9418). This is a disappointing performance considering one of the greenback's two primary sources for strength – risk appetite – should be helping the currency higher. Indeed, the third consecutive drop in the S&P 500 along with the sharp decline in crude has helped out the dollar gain ground against high-yielding currencies; but no progress has been made against the euro and pound. The unexpected drop in the ISM service sector report and disappointing ADP payrolls figure were fought this positive bearing; but the greater pressure comes through the other major driver – rate expectations – as the dollar bows to the upcoming ECB decision.

Related:Discuss the Dollar in the DailyFX Forum, John's Picks: The Best Euro and Pound Trade Setups for the ECB/BoE Combo

Euro Faces a High Risk Breakout with the Decision and Commentary from the ECB

Top, scheduled event risk in this trading session is the European Central Bank's rate decision. Looking at market expectations and EURUSD, it may seem that the market is wholly uninterested in the monetary policy group's efforts; but these seemingly tepid measures belie the true threat this event posses. First we look at the market's most liquid currency pair which has carved a 150-point range for the past week. Congestion following the aggressive rally that has dominated so far this year may seem a sign that the market has suddenly lost interest in the euro; but in reality, the focus has in fact intensified. Considering the fundamental uncertainties surrounding the shared currency; the euro should be exceptionally sensitive to risk appetite trends. However, despite the pullback in equities markets and sharp declines from the high-yield currenciesthe past three days; the euro has instead held its ground. The very fact that the euro is stationary with this fundamental headwind suggests there is a significant counterbalance. The offset to risk is usually the potential reward that can compensate us.

Looking at the consensus forecast for the ECB decision, there is very little speculation that the central bank will lift its benchmark lending rate a second time in a row (if it does, expect an aggressive rally). Instead, traders' interests rest in the nuance of President Jean Claude Trichet's post meeting press conference. Should his follow up statement and the answers to the crowds statement indicate to the market that the central bank could move to hike at the very next meeting; leveraged expectations for a steady rise in yields through the year will be vindicated and the currency will rally. Looking at the rate bias from the market, we note that the 12-month forecast has recovered 19 basis points to price in nearly 92 bps worth of hikes through this time next year. Alternatively, should the European policy authority decide to show greater deference for growing sovereign debt issues and ease its expectations; that recent pull back in rate expectations that the euro simply rallied through will pull the rug out from under the currency. The most likely outcome is the middle-of-the-way scenario where the Trichet said the group makes no commitments ahead of time and that pressures are balanced by slightly skewed towards future rates. For that, we will need to watch the market closely to see exactly how they are interpreting the commentary and how it fits prevailing risk appetite trends.

British Pound: What Should We Expect from the Bank of England Rate Decision?

The sterling tried to recover Wednesday from its sharp selloff; but all it could muster was stabilization. The data through the previous session was notable; but wholly lacking for market impact. Construction activity (slowing faster than expected), consumer credit (showing a smaller increase than expected) and the first drop in Nationwide's housing price indicator in three months (a 0.2 percent contraction) does little to help a recovery effort. Data aside, market participants were far more interested in the upcoming BoE rate decision and its implications for the currency. It is interesting to note that the most likely outcome for this event (and this is a outlook that economists and the markets seem to share) is for the central bank to hold rates and its bond purchasing program while remaining mum on its expectations going forward. Yet, speculation of that potential rate hike is still factored in there. Any surprises from the event will almost certainly be bullish; but status quo will likely come off bearish.

Australian Dollar Pushed down by Risk Trends, Extends Declines after Retail Sales Data

The Australian dollar was already struggling through Thursday's session as soured risk appetite was turning investors away from risky returns to instead look to book profit. However, with the Aussie's yield, we need a meaningful effort to unwind risk exposure to keep the currency down; so already the momentum was looking like it was easing. That was until retail sales for March unexpectedly dropped for the first time in five months.

Canadian Dollar Shows No Progress on Post-Election Promises

It is difficult to identify a major, developed economy that is showing both encouraging economic prospects and a healthy fiscal position. Canada happens to fit that bill; and the investor appeal of the region only seems to have improved with the elections providing a majority government to a party intent on cutting taxes and spending while aiming to wipe out the nation's budget deficit. And, yet the loonie is more interest in risk trends…

Japanese Yen: When will the G7 Start Threatening Intervention Again?

At what point will the G7 live up to its open-ended threat of intervention should the yen ‘undue price action'? Though this is a broad definition, many speculators take it to mean action should the yen advance too far. There is a problem here though. The collective will to intervene is weak; and their means are modest. More importantly, if carry unwinding is taking place; it be a heavy buying pressure on the yen regardless of threat.

Gold Decline Accelerates as Margin Requirement Hikes in Silver Unnerves Speculators

The level of the dollar is still at the top of the list for fundamental influence over the strength of gold; but there is another way to shake any market that has a sharp fundamental focus – threaten is underlying structure. Though we haven't seen much in the way of increased costs for trading in the gold market (beyond price itself), the concern that four margin hikes in silver in 8 days certainly has metals traders' attention.

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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

GMT	Currency	Release	Survey	Previous	Comments
1:30	AUD	Building Approvals (MoM) (MAR)	5.0%	-7.4%	Falling quarterly approval rate complement decline in prices
1:30	AUD	Building Approvals (YoY) (1Q)	-25.2%	-21.8%
1:30	AUD	Retail Sales s.a. (MoM) (MAR)	0.5%	0.5%	Will a 5th higher sales level prompt the RBA to reconsider its wait and see approach with cash rates?
1:30	AUD	Retail Sales Ex Inflation(QoQ) (MAR)	0.6%	-0.3%
2:30	CNY	China HSBC Services PMI (APR)		51.7	Expected fall following official data
6:30	AUD	Foreign Reserves (Australian dollar) (APR)		35.7B	Reserves rise as purchases of Australian dollars push exchange rate to record highs
7:00	CHF	Foreign Currency Reserves (APR)		206.2B	Currently near record highs
8:30	GBP	Purchasing Manager Index Services (APR)	56	57.1	Decline seen as result of decreasing government spending
8:30	GBP	Official Reserves (Changes) (APR)		$2253M	Reserves to increase from tightening
10:00	EUR	German Factory Orders n.s.a. (YoY) (MAR)	15.4%	20.1%	Decline in factory orders likely impact of stronger Euro, lower export orders
10:00	EUR	German Factory Orders s.a. (MoM) (MAR)	0.4%	2.4%
11:00	GBP	Bank of England Rate Decision (MAY)	0.5%	0.5%	Governor King likely to keep plan stable to counteract austerity effects
11:00	GBP	BoE Asset Purchase Target (MAY 5)	200B	200B
11:45	EUR	ECB Rate Decision (MAY 5)	1.25%	1.25%	Rate expected unchanged as price indices hold stable
12:00	USD	RBC Consumer Outlook Index (MAY)		44.8	Early confidence indicator
12:30	CAD	Building Permits (MoM) (MAR)	-2.5%	9.9%	Decline in permits may suggest turning real estate market
12:30	USD	Unit Labor Costs (1Q)	0.8%	-0.6%	Worse jobs data will confirm Fed's view on slowing recovery, may give more ammunition for prolonged rate hold
12:30	USD	Non-Farm Productivity (1Q)	1.1%	2.6%
12:30	USD	Continuing Claims (APR 23)	3649K	3641K
12:30	USD	Initial Jobless Claims (APR 30)	410K	429K
13:45	USD	Bloomberg Consumer Comfort (MAY 1)	-45	-45.1	Index suggests slight improvement
14:00	CAD	Ivey Purchasing Managers Index SA (APR)	65.5	73.2	Preliminary PMI slows decline from previous month, cooling growth
14:00	CAD	Ivey Purchasing Managers Index (APR)	65.1	73.2
23:30	AUD	AiG Performance of Construction Index (APR)		39.4	May suggest weaker construction sector following housing market
23:50	JPY	Monetary Base (YoY) (APR)		16.9%	Showing increase as BoJ continues cash injection for recovery

GMT	Currency	Upcoming Events & Speeches
13:15	USD	Fed's Evans Gives Welcome Remarks in Chicago
13:30	USD	Bernanke Speaks at Chicago Fed Banking Conference
17:15	USD	Fed's Kocherlakota Speaks on Monetary Policy in California

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.5160	1.6750	89.00	0.9345	1.0275	1.1800	0.8400	127.60	146.05
Resist 1	1.5000	1.6600	86.00	0.8900	1.0000	1.1000	0.8215	125.90	140.00
Spot	1.4865	1.6525	80.50	0.8604	0.9581	1.0742	0.7925	119.66	133.02
Support 1	1.4000	1.6200	80.00	0.8600	0.9500	1.0400	0.7825	115.70	125.00
Support 2	1.3700	1.5750	75.00	0.8500	0.9055	1.0200	0.6850	105.50	119.00

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	13.8500	1.6575	7.4025	7.8165	1.3650		Resist 2	7.5800	5.6625	6.1150
Resist 1	12.5000	1.6300	7.3500	7.8075	1.3250		Resist 1	6.5175	5.3100	5.7075
Spot	11.6473	1.5471	6.6728	7.7721	1.2306		Spot	6.0818	5.0163	5.3104
Support 1	11.5200	1.5040	6.5575	7.7490	1.2145		Support 1	6.0800	5.1050	5.3040
Support 2	11.4400	1.4725	6.4295	7.7450	1.2000		Support 2	5.8085	4.9115	4.9410

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.4886	1.6535	80.97	0.8653	0.9590	1.0852	0.7994	120.25	133.65
Resist 1	1.4858	1.6510	81.00	0.8634	0.9558	1.0857	0.7995	120.20	133.61
Pivot	1.4832	1.6497	80.72	0.8611	0.9564	1.0775	0.7944	119.73	133.17
Support 1	1.4804	1.6472	80.75	0.8592	0.9532	1.0780	0.7945	119.68	133.14
Support 2	1.4778	1.6459	80.47	0.8569	0.9538	1.0698	0.7894	119.21	132.70

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	1.5053	1.6690	81.46	0.8714	0.9675	1.0894	0.8041	121.49	135.04
Resist. 2	1.5006	1.6649	81.22	0.8687	0.9651	1.0856	0.8012	121.03	134.53
Resist. 1	1.4959	1.6608	80.98	0.8659	0.9628	1.0818	0.7983	120.58	134.03
Spot	1.4865	1.6525	80.50	0.8604	0.9581	1.0742	0.7925	119.66	133.02
Support 1	1.4771	1.6442	80.02	0.8549	0.9534	1.0666	0.7867	118.74	132.01
Support 2	1.4724	1.6401	79.78	0.8521	0.9511	1.0628	0.7838	118.29	131.51
Support 3	1.4677	1.6360	79.54	0.8494	0.9487	1.0590	0.7809	117.83	131.01

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Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

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