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FOREX: US Dollar Weakness Likely as Stocks Extend Year-End Recovery

By , Currency Strategist
27 December 2011 06:41 GMT

Talking Points

  • Australian Dollar Underperforms in Quiet Overnight Trade
  • US Economic Data in Focus as FX Markets Look for Catalyst

Most major currencies were little changed against the US Dollar in thin overnight trade. The sentiment-linked Australian Dollar underperformed, down as much as 0.3 percent against its leading counterparts, as economic news-flow underscored expectations that Asian growth will slow in 2012 and weighed on regional share prices. The MSCI Asia Pacific regional benchmark stock index fell 0.3 percent.

A gauge of Chinese Industrial Profits fell to the lowest since August 2009 while the minutes from November’s Bank of Japan policy meeting revealed the bank saw increased downside risks for the world’s third-largest economy, saying a softening outlook for global activity at large as well as the strong Yen exchange rate are poised to hurt capital investment and employment. A survey of economists polled by Bloomberg suggests overall Asian GDP will add 7.2 percent in 2012, the weakest outcome since the 2009 increase of 6.1 percent recorded in the wake of the Great Recession.

Looking ahead, a virtually empty European calendar is likely to keep traders’ attention on the US data docket set to cross the wires in the afternoon. Expectations point to nominal improvements in the Consumer Confidence as well as the Richmond and Dallas Federal Reserves’ measures of manufacturing activity (released independently of one another). While such outcomes do not present anything materially game-changing considering the tone of US economic data has been quietly but steadily improving since June, they may certainly prove sufficient to support continuation of the rebound in risky assets amid seasonal profit-taking witnessed last week. Needless to say, such an outcome bodes ill for the safe-haven US Dollar, although a clear lack of liquidity behind current moves suggests their implications for larger trends are questionable.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Corporate Service Price (YoY) (NOV)

-0.2%

0.0%

0.1%

23:50

JPY

Bank of Japan Nov 15-16 Meeting Minutes

-

-

-

2:00

CNY

Industrial Profits YTD (YoY) (NOV)

24.4%

-

25.3%

4:00

JPY

Vehicle Production (YoY) (NOV)

4.5%

-

20.3%

5:00

JPY

Construction Orders (YoY) (NOV)

21.0%

-

24.3%

5:00

JPY

Annualized Housing Starts (NOV)

0.845M

0.802M

0.774M

5:00

JPY

Housing Starts (YoY) (NOV)

-0.3%

-4.9%

-5.8%

5:00

JPY

Small Business Confidence (DEC)

45.6

-

45.8

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

CHF

UBS Consumption Indicator (NOV)

-

0.91

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3037

1.3108

GBPUSD

1.5594

1.5749

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

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27 December 2011 06:41 GMT