FOREX: Dollar Making Slow Progress on a Recovery as Capital Markets Slip through Data Low

Where the dollar was struggling to curb its consistent losses and post that desperately needed bullish close Monday, the currency would post a more comfortable gain through this past trading session.

• Dollar Making Slow Progress on a Recovery as Capital Markets Slip through Data Low
• British Pound Tumbles after Manufacturing, Sales Data Adds to Diminished Rate Outlook
• Euro Attempts to Hold back the Dollar Tide with News of Portugal's Accepted Bailout
• Australian Dollar Tumbles as the RBA Waxes Dovish and Sentiment Trends Dive
• Canadian Dollar Finds Limited Encouragement in Conservative Election Win
• Japanese Yen: What Effect do Japanese Holidays Have on the Yen and Risk Trends?
• Gold Follows Up on Monday's Sharp Correction, What would it take to Trigger a Reversal?

Dollar Making Slow Progress on a Recovery as Capital Markets Slip through Data Low

Where the dollar was struggling to curb its consistent losses and post that desperately needed bullish close Monday, the currency would post a more comfortable gain through this past trading session. However, there is a notable lack of conviction in this effort – and well there should be considering the hurdles the greenback needs to clear before it is considered an attractive currency. Taking stock of performance, the currency's progress was generally mixed through Tuesday's active trading hours. Looking at those majors on both sides of the spectrum, it isn't difficult to establish what the market's primary fundamental concern was for the day. The dollar's best run was seen against the British pound (1.01 percent); but the New Zealand (0.95 percent) and Australia dollar (0.9 percent) based majors weren't far behind. On the other end of the scale, the Japanese yen actually gained 0.36 percent while the Swiss franc gained 0.45 percent. If the high-yield currencies are losing ground against the benchmark currency while the competing safe haven / funding units are gaining ground; it is a good sign that risk aversion is at work.

Indeed, if we look at sentiment trends for the day, we note that the S&P 500 (our favored barometer for investor confidence) marked its second daily decline – the first back-to-back decline since April 13th. Furthermore, US-based oil suffered its largest correction in three weeks while gold retreated for second session from its record highs. Considering risk trends is the initial catalyst for the move, a meaningful extension of this dollar recovery effort will most likely depend on how confidence trends develop going forward. If we were to fall back on the influence of data or yield appeal of the dollar, we would be following the wrong path. For data, March factory orders printed a better-than-expected 3.0 percent increase; but durable orders were revised down from 2.9 percent to 2.5 percent. More remarkable though was the situation with US yields. Rates (essentially the foundation for return to be made on US investments) have dropped across the board; but the short-end of the curve has shown the yield on six-month bills have dropped to a record low. All trades are a balance between risk/reward; and the greenback is offering little return.

Looking ahead to the upcoming trading session, the data fills for the US docket; but we should remain focused on the true fundamental influence. The ISM non-manufacturing survey report for April will reflect on the health of the economy's largest sector (services); while the ADP employment change will be a good foundation for speculation heading into Friday's NFPs. Yet, we should look at these data points not as a direct measure of the dollar's strength; but rather its impact on sentiment. It would offer a bigger boost if the data undermines sentiment.

Related:Discuss the Dollar in the DailyFX Forum, John's Picks: GBPUSD a Good ‘Risk On', NZDUSD and EURUSD for ‘Risk Off'

British Pound Tumbles after Manufacturing, Sales Data Adds to Diminished Rate Outlook

The sterling was the most active major currency through Tuesday's trading session; and that performance was certainly not an encouraging one. Already trading back through the Asian and early European sessions, the pound pitched into a true sell-off after the release of the PMI manufacturing activity report. The April reading printed a sharper-than-expected decline for the month (2.1 points to 54.6), the biggest drop in seven months. Why would this particular indicator spark a more-than 150 point drop? There is a fine balance in the pound's health between hope that the UK economy will be able to weather the government's austerity efforts and the Bank of England will soon be spurred on to rate hikes in the near-future. This equilibrium seems to have been pushed askew with this data threatening one of the economy's best performing sectors while BoE Governor Mervyn King's testimony the previous day more than confirms the central bank will disappoint hawks Thursday.

Euro Attempts to Hold back the Dollar Tide with News of Portugal's Accepted Bailout

For weeks, the euro has run on rate expectations that have receded and risk appetite that has itself ebbed. These tempered prospects could have finally overwhelmed the shared currency Tuesday had the FX crowd not put major trades on hold in difference to the upcoming ECB rate decision and the outcome for Portugal's bailout negations. It was announced late in the European day that Portugal and agreed to a 78 billion euro bailout package that wouldn't led to wage cuts. Yet, does this really offset the risk of a Greek restructuring and building Spain problems?

Australian Dollar Tumbles as the RBA Waxes Dovish and Sentiment Trends Dive

The RBA's rate decision shook the Australian dollar early in Tuesday's trading session. Though the group left the benchmark lending rate unchanged, the statement that followed reflected a more heightened concern about the Australian dollar's influence on activity levels – a guaranteed threat to further gains. And, making sure the neutral take truly hurt the Aussie, the drop in risk appetite lowered the yield appeal.

Canadian Dollar Finds Limited Encouragement in Conservative Election Win

The vote is in; and Canada voted Prime Minister Harper's conservatives to a majority in parliament. There are many who believe the potential for tax and government spending cuts that will result from this modest shift in power will benefit the loonie. However, when FX traders are showing greater concern over interest rates and market-wide investor confidence; how much of an impact do these elections really have? Little.

Japanese Yen: What Effect do Japanese Holidays Have on the Yen and Risk Trends?

What impact does the Golden Week holiday period have on the Japanese yen? When the US or European markets are offline, the impact on liquidity is noticeable. However, it is a different case with the yen. As the market's favorite, perennial funding currency in the carry trade; when there is a concerted effort to unwind risky positioning or build it up, the Japanese unit will be put into action. Don't bank on a uniquely quiet yen.

Gold Follows Up on Monday's Sharp Correction, What would it take to Trigger a Reversal?

Gold has retreated for a second consecutive session – not a small feat considering this metal's remarkable strength these past months – but what would it take to turn this pullback into a true reversal. Considering gold has weathered temporary corrections in risk trends (compare to the S&P 500), we need to see the kind of capital shift that revives the dollar. Such a move comes when liquidity is in doubt.

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ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
1:00	AUD	HIA New Home Sales (MoM) (MAR)		0.6%	Slower growth expected in March
6:00	GBP	Nationwide House Prices n.s.a. (YoY) (APR)	-0.7%	0.1%	Domestic real estate prices will show impact of slower UK economy
6:00	GBP	Nationwide House Prices s.a. (MoM) (APR)	0.1%	0.5%
7:15	EUR	French PMI Services (APR)	63.4	63.4	PMI across the Eurozone expected to stay stable, may take ammunition away from rate hawks in ECB
7:45	EUR	Italian PMI Services (APR)	53	53.3
7:55	EUR	German PMI Services (APR)	57.7	57.7
8:00	EUR	Euro-Zone PMI Services (APR)	56.9	56.9
8:00	EUR	Euro-Zone PMI Composite (APR)	57.8	57.8
8:30	GBP	Net Lending Sec. on Dwellings (MAR)	1.3B	1.2B	Lending figures suggest housing price decline only small blip
8:30	GBP	M4 Ex OFCs 3M Annualised (MAR)		0.5%	M4 expected to grow slightly as BoE keeps interest rates, purchasing programs in place
8:30	GBP	M4 Money Supply (YoY) (MAR)		-1.5%
8:30	GBP	M4 Money Supply (MoM) (MAR)		-0.3%
8:30	GBP	Net Consumer Credit (MAR)	0.6B	0.8B	Borrowing amount drop may suggest slower economy
8:30	GBP	Mortgage Approvals (MAR)	48.0K	47.0K	Matches growth in dwelling lending
8:30	GBP	Purchasing Manager Index Construction (APR)	55.9	56.4	Construction may follow manufacturing PMI lower
9:00	EUR	Euro-Zone Retail Sales (MoM) (MAR)	-0.1%	0.3%	Expected flat as sales for February revised upwards twice
9:00	EUR	Euro-Zone Retail Sales (YoY) (MAR)	0.0%	1.3%
11:00	USD	MBA Mortgage Applications (APR 29)		-5.6%	Early indicator of consumer market
11:30	USD	Challenger Job Cuts (YoY) (APR)		-38.6%	Trend of lower unemployment levels may be confirmed by prelim reports
12:15	USD	ADP Employment Change (APR)	195K	201K
14:00	USD	ISM Non-Manufacturing Composite (APR)	57.5	57.3	Index slightly off from all time highs
14:30	USD	DOE U.S. Refinery Utilization (APR 29)	0.5%	0.2%	Energy inventories may fall as recover in US manufacturing, durable goods industries rising
14:30	USD	DOE Cushing OK Crude Inventory (APR 29)		-738K
14:30	USD	DOE U.S. Crude Oil Inventories (APR 29)	2000K	6156K
14:30	USD	DOE U.S. Distillate Inventory (APR 29)	500K	-1805K
14:30	USD	DOE U.S. Gasoline Inventories (APR 29)	-500K	-2508K
22:45	NZD	Unemployment Rate (1Q)	6.7%	6.8%	First quarter unemployment data expected to stay stable, attesting to reduced impact of earthquake, quick recovery
22:45	NZD	Participation Rate (QoQ) (1Q)	68.1%	67.9%
22:45	NZD	Employment Change (YoY) (1Q)	0.8%	1.3%
22:45	NZD	Employment Change (QoQ) (1Q)	0.6%	-0.5%

GMT	Currency	Upcoming Events & Speeches
12:00	USD	Fed's Rosengren to Speak at Real Estate Conference in Boston
19:30	USD	Fed's Williams Makes First Policy Speech
23:00	USD	Fed's Lockhart Speaks on U.S. Economic Outlook in Atlanta

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	1.4829	1.6486	81.03	0.8614	0.9527	1.0861	0.7996	120.14	133.58
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	11.5686	1.5341	6.6385	7.7654	1.2280		Spot	6.0519	5.0290	5.2792
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	1.4960	1.6734	81.58	0.8706	0.9592	1.0999	0.8106	121.36	136.40
Resist 1	1.4894	1.6610	81.31	0.8660	0.9560	1.0930	0.8051	120.75	134.99
Pivot	1.4825	1.6537	81.00	0.8628	0.9509	1.0884	0.8011	119.98	133.97
Support 1	1.4759	1.6413	80.73	0.8582	0.9477	1.0815	0.7956	119.37	132.56
Support 2	1.4690	1.6340	80.42	0.8550	0.9426	1.0769	0.7916	118.60	131.54

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	1.5015	1.6647	81.99	0.8723	0.9618	1.1009	0.8108	121.96	135.58
Resist. 2	1.4969	1.6607	81.75	0.8695	0.9595	1.0972	0.8080	121.50	135.08
Resist. 1	1.4922	1.6567	81.51	0.8668	0.9572	1.0935	0.8052	121.05	134.58
Spot	1.4829	1.6486	81.03	0.8614	0.9527	1.0861	0.7996	120.14	133.58
Support 1	1.4736	1.6405	80.55	0.8560	0.9482	1.0787	0.7940	119.23	132.58
Support 2	1.4689	1.6365	80.31	0.8533	0.9459	1.0750	0.7912	118.78	132.08
Support 3	1.4643	1.6325	80.07	0.8505	0.9436	1.0713	0.7884	118.32	131.58

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

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