• Dollar Wins Critical Break Only to be Knocked Back in Greek Churn
• Euro: So When is the Second Greek Bailout Vote Happening?
• British Pound Traders Ready to React to Labor Data, BoE Inflation Report
• Japanese Yen Mixes BoJ Stimulus and Risk Appetite for Effective Decline
• Australian Dollar Finds Asian Session Strength as PBoC Talks EU Crisis
• New Zealand Dollar Jumps after Retail Sales Figure, Continues with Risk
• Gold: The Only Thing Not Moving on a Tense, Volatile Day

Dollar Wins Critical Break Only to be Knocked Back in Greek Churn

The dollar looks as if it is manic-depressive. Through the first half of the US session the currency forged significant gains against most of its most liquid counterparts (European and high-risk currencies alike). Yet, by the end of the New York session heading into Asian trading hours, the greenback retreated sharply. The indecisiveness is the work of underlying risk trends which are taking a greater interest in what happens with the Euro Zone's financial crisis (Greece). Where the Euro and S&P 500 head, expect the dollar to be moving in the opposite direction.

Euro: So When is the Second Greek Bailout Vote Happening?

The fundamental compass on the euro has gone haywire and we have paid for it in volatility. The shared currency suffered multiple reversals over the past 24 hours as the read on the region's financial crisis improved, deteriorated and improved again. We were heading into Tuesday's trading session equipped with the knowledge that the Greek Parliament had approved what it believed were the necessary requirements from the EU to secure the second bailout package. That relief didn't last long, however, as the region's ministers determined 'not all the paperwork was done' and therefore, the meeting would be postponed until next week. It non-political speak, this translates into: 'we haven't heard a unanimous agreement from Greece's political leadership to stay the course after they win the €130 billion package.' The impact on the euro and general risk trends was clear and severe (relative to recent trading conditions). That wasn't the final word as unnamed Greek officials said conservative party leader Samaras (most likely the next Prime Minister) would sign a letter of commitment and the PBoC vowed support. Yet, there has been nothing to suggest Wednesday's originally-scheduled meeting would be back on. Yet another monkey wrench in a mechanism that has been harangued by problems. How long does the market tolerate this spectacle is a real concern. In the meantime, we'll see how euro sentiment settles in the upcoming session and see if the big-ticket Euro Zone, German, French and Italian 4Q GDP figures add to the equation.

British Pound Traders Ready to React to Labor Data, BoE Inflation Report

If there was any doubt as to the sterling's connection to the euro's bearing, the 20-day rolling correlation between EURUSD and GBPUSD is currently 0.84 (1.00 being perfect and 0.00 representing complete randomness). On a shorter time frame, the connection is even stronger (the 5-day or one-week link is a remarkable 0.96). As such, those looking for the pound's trend should keep a close eye on how the Euro-area financial situation progresses. That said, there is plenty of room for short-term divergence in the form of scheduled event risk. We'd reserve expectations of separation from dominant theme only through meaningful developments, but the upcoming docket fulfills that requirement. With the focus still firmly fixed on the balance between economic activity and austerity in the UK, we come upon the jobless claims figures and BoE Inflation Report. What should we look for? A strong employment figure and outlook for more stimulus would fit nicely with the current 'risk-on' theme.

Japanese Yen Mixes BoJ Stimulus and Risk Appetite for Effective Decline

I had set my expectations for a reaction from the Japanese yen to the Bank of Japan's policy decision yesterday low – perhaps too low. In the aftermath of the central bank's changes, the USDJPY surged another 100-plus points while other yen-based crosses carved out rallies of their own. Where is this strength coming from? In the policy decision itself, the ¥10 trillion increase in the asset purchasing program to ¥30 trillion total represents a significant bid for the region. Yet, does it really differ that much from the previous steps taken at previous meetings? Alternatively, setting an inflation goal of 1 percent merely offers a target without means to reach it. Plenty of people have speculated that this is a sign of 'stealth intervention' which presents a temptingly simple explanation. Yet, there is perhaps a more reasonable explanation: risk appetite trends. Though both the dollar and yen are safe haven currencies, USDJPY has shown positive risk correlations when major themes are stable.

Australian Dollar Finds Asian Session Strength as PBoC Talks EU Crisis

Consumer Confidence survey figures for February posted an unexpectedly strong 4.2 percent increase through the Westpac's index. This would have matched the previous reading's five-year high had it not been revised higher. Regardless of this historical performance, the data itself would generate little response from the market. Fundamentally, domestic consumption expectations matter relatively little to a currency that is basing much of its strength on the foreign demand for its raw materials and the inflow of capital seeking yield. Therefore, with an eye on risk appetite trends, we could spot the meaningful correlation between AUDUSD and the S&P 500 futures or the Nikkei 225 future. The session-end rally in risk through the New York market offered a boost, but this run through the Asian session following the PBoC's open promise to help the EU through its difficulties is proving more fruitful.

New Zealand Dollar Jumps after Retail Sales Figure, Continues with Risk

Where goes risk, so does the New Zealand dollar. As surely as the Aussie currency has taken higher alongside equities in the Asian session; the kiwi will be making a similar advance. That said, the currency received an additional boost from its own scheduled event risk in the form of a 4Q retail sales report that handily bested expectations with a 2.2 percent climb. For consistent influence though, just in case sentiment returns in a meaningful way, we should be aware of the yield that the New Zealand dollar will be working with to whet the appetites of carry traders. The benchmark yield may be 2.50 percent, but the money market rate is running 2.95 percent while the 10-year bond rate is currently 3.98 percent. In fact, when adjusted for 4Q inflation figures, the real rate return (yield minus inflation) on the New Zealand government bond is significantly better at 2.18 percent versus the Australian 0.9 percent equivalent.

Gold: The Only Thing Not Moving on a Tense, Volatile Day

Volatility has notably picked up for the FX and capital markets over the past 12 hours; and yet, gold is still working its way deeper into congestion. As a safe haven asset, it isn't difficult to generate activity for the metal; yet this is not a freely associated alternative to a currency (the greenback is a preferred FX alternative to something like the Aussie dollar) or equities (bonds or cash have been generally preferable on this front). To rouse gold to life, we need underlying sentiment with drive behind it. In the meantime, we find the average five-day daily range through Tuesday's close was $16.95 (the lowest since July 18th), the CBOE's volatility measure for gold is just off seven month lows and futures volume is still exceptionally light. If the dollar maintain a clear trend (bullish or bearish), gold will find greater charge for a counter-run.

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

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