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FOREX: Is the British Pound Replacing Swiss Franc as the Anti-Euro?

By , Currency Strategist
26 September 2011 06:51 GMT

Talking Points

  • US Dollar, Japanese Yen Ride Safety Demand as Stocks Slump in Asia
  • British Pound Appears to be Replacing Swiss Franc as the Anti-Euro
  • German IFO Report to Pass Unnoticed Barring Surprise to the Upside
  • US Data May Offer Hope to Risky Assets, Dallas Fed Gauge in Focus

The US Dollar and Japanese Yen continued to outperform on the back of safe-haven demand as stocks slumped in overnight trade, with the MSCI Asia Pacific regional equity index down over 2 percent to the lowest level in over a year. News wires cited lingering EU debt crisis fears as the key driver of the selloff, but we suspect the intensity of the move lower had at least as much to do with the reopening of Japanese exchanges that were closed for the Autumn Equinox on Friday and so didn’t give traders a chance to price in Thursday’s sharp Wall Street slump until today. Curiously, the British Pound is following safety-linked currencies higher, suggesting traders are turning to Sterling as a replacement for the Swiss Franc in the role of regional alternative to the Euro.

The German IFO Survey of business confidence headlines the economic calendar in European hours, with expectations calling for sentiment to sour for the seventh consecutive month to hit the lowest level since July 2009. While the reading is far from encouraging, the down trend in the IFO gauge is certainly nothing new or surprising for market participants. With this in mind, the report’s identifiable near-term market-moving potential seems to rest in its ability to surprise to the upside. Otherwise, with the Euro already on the defensive amid renewed risk aversion heading into the European session, the data may pass largely unnoticed.

Indeed, S&P 500 stock index futures have erased earlier gains to trade down by nearly a full percentage point ahead of the opening bell on European exchanges, hinting that the US Dollar and Japanese Yen are likely to continue to advance against their major counterparts. If the sellers’ focus remains on Euro Zone debt troubles, the same probably holds true for the British Pound. The spotlight will turn to leading US economic data in the afternoon, with the Chicago Fed National Activity Index and the Dallas Fed Manufacturing Activity Survey on tap. The latter gauge is more timely – reporting on September data while the former gives a reading for August – and so seems likely to generate more attention. This seems to suggest that risky assets may get a bit of a respite in North American trade considering the Dallas Fed reading is expected to improve a bit having slumped in the previous month.

Related: New Zealand Dollar Higher on Risk Appetite Despite Wider Trade Deficit

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Trade Balance (NZ$) (AUG)

-641M

-321M

111M (R-)

21:45

NZD

Exports (NZ$) (AUG)

3.44B

3.44B

3.72B

21:45

NZD

Imports (NZ$) (AUG)

4.08B

3.78B

3.61B (R+)

21:45

NZD

Total Trade Balance YTD (NZ$) (AUG)

1084M

1400M

1295M (R-)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:00

EUR

German IFO - Business Climate (SEP)

106.5

108.7

Medium

8:00

EUR

German IFO - Current Assessment (SEP)

115.7

118.1

Medium

8:00

EUR

German IFO – Expectations (SEP)

97.3

100.1

Medium

8:00

EUR

Italian Consumer Confidence Index s.a. (SEP)

98.5

100.3

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3199

1.3535

GBPUSD

1.5358

1.5517

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26 September 2011 06:51 GMT