FOREX: US Dollar Rebounds in Asia, S&P Futures Hint More Gains Ahead

Talking Points

• US Dollar, Yen Correct Higher vs. Risk-Linked Currencies in Asian Trade
• Japanese Industrial Production and Inflation Disappoint, Jobless Rate Falls
• S&P 500 Futures Hint Stocks-Linked Currencies to Trim Gains into Weekend
• US Personal Income and Saving, Consumer Confidence Headline Calendar

The US Dollar and Japanese Yen corrected higher against their major counterparts overnight as markets digested aggressive selling of the two safe-haven currencies over the preceding 24 hours. The Australian and New Zealand Dollars bore the brunt of selling, down as much as 0.7 and 0.6 percent against their US namesake, having added 3.2 and 2.7 percent respectively yesterday as an encouraging outcome to the EU debt crisis summit and a supportive US GDP report stoked risk appetite and bid up the sentiment-linked currencies.

Japanese economic data returned mixed results. The Jobless Rate edged downward to 4.1 percent in September, the lowest in nearly three years, but Industrial Production slumped 4 percent and Consumer Price Index figures showed the annual inflation rate unexpectedly printed flat over the same period. The latter outcomes seem to at least in part reflect the impact of a stronger Yen on the export sector and relative price levels. The currency tapped a decade high this month and now trades up 4.5 percent since the beginning of the year.

Looking ahead, S&P 500 stock index futures are pointing lower, down as much as 0.5 percent in Asia, hinting the greenback is likely to extend its rebound amid a deeper downward correction in risk-correlated currencies. The European economic calendar is lackluster, with traders looking ahead to the US data docket. Personal Income and Spending figures are on tap, with expectations calling for both to improve in September (the former yielding the largest increase in four months).

The final revision of October’s University of Michigan Consumer Confidence gauge is also due to cross the wires, with forecasts calling for a slight upgrade from flash estimates. It remains to be seen whether such outcomes are potent enough to meaningfully refuel the rally in risky assets into the weekend or if investors have sufficiently priced in the rosier near-term outlook for US growth after yesterday’s GDP reading, allowing profit-taking to prolong the current correction into the closing bell.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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