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Yen Selling Continues, Euro May Rise on PMI, Pound Eyes BOE Minutes

By , Currency Strategist
22 February 2012 08:09 GMT

Talking Points

  • Japanese Yen Selloff Continues as US Treasury Bond Yields Rise
  • Euro May See Brief Gains as PMI Data Shows Mild Improvement
  • British Pound Focused on BOE Minutes as Traders Shape QE Bets

Major currencies stand little changed against the US Dollar in late Asian trade, with markets apparently taking a breather after yesterday’s Greek bailout deal closed the book on a theme that preoccupied sentiment trends over several weeks. The Japanese Yen underperformed, sliding as much as 0.4 percent against its leading counterparts after US Treasury bond yields advanced as economic data in the world’s top economy continued to outperform expectations, denting QE3 expectations. Reduced demand at a 2-year Treasury note auction likewise helped push yields higher. Correlation studies show the Yen tracks closely with US bond yields.

Looking ahead, the spotlight shifts to a busy European economic calendar. First up, the preliminary set of Eurozone PMI figures is expected to show manufacturing- and service-sector activity continued to cautiously improve in February. The region-wide composite gauge is expected to rise to 50.5 compared with 50.4 in January, hovering just a hair above the 50 “boom-bust” threshold that separates contraction from expansion.

In the aftermath of the Greek bailout fiasco, the focus for the Euro has shifted to the monetary policy, underscored by a firming correlation between EURUSD and German 2-year bond yields. In this context, the mild pickup activity may offer a bit of a lift to the single currency. Importantly, PMI readings are set to remain significantly below their post-Great Recession averages, much less the peak readings recorded a year ago. This means they will almost certainly fall short of meaningfully dismissing 2012 Eurozone recession expectations, making any Euro gains a short-lived affair.

Next, the spotlight turns to the UK as the Bank of England releases minutes from its February monetary policy meeting. As usual, the vote tally will be of greatest interest as traders gauge conviction in favor of additional QE based on the number of voices in favor of the latest expansion of asset purchases on the rate-setting MPC committee. A strongly dovish bias is likely to weigh on Sterling, and vice versa.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:00

AUD

Conference Board Leading Index (DEC)

0.2%

-

-0.3%

23:30

AUD

Westpac Leading Index (MoM) (DEC)

0.5%

-

-0.1% (R+)

0:00

AUD

DEWR Internet Skilled Vacancies MoM (JAN)

-0.6%

-

-0.7% (R+)

0:30

AUD

Wage Cost Index (QoQ) (4Q)

1.0%

0.8%

0.7%

0:30

AUD

Wage Cost Index (YoY) (4Q)

3.6%

3.4%

3.6%

2:00

NZD

Credit Card Spending SA (MoM) (JAN)

0.8%

-

0.9%

2:00

NZD

Credit Card Spending (YoY) (JAN)

3.1%

-

5.9%

2:30

CNY

HSBC Flash China Manufacturing PMI (FEB)

49.7

-

48.8

5:00

JPY

Supermarket Sales (YoY) (JAN)

-1.2%

-

-0.6%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French CPI (MoM) (JAN)

-0.1%

0.4%

Low

6:30

EUR

French CPI (YoY) (JAN)

2.6%

2.5%

Low

6:30

EUR

French CPI - EU Harmonized (MoM) (JAN)

-0.2%

0.4%

Low

6:30

EUR

French CPI - EU Harmonized (YoY) (JAN)

2.8%

2.7%

Low

6:30

EUR

French CPI ex Tobacco Index (JAN)

123.49

123.51

Low

8:00

EUR

French PMI Manufacturing (FEB P)

49.0

48.5

Low

8:00

EUR

French PMI Services (FEB P)

52.0

52.3

Low

8:30

EUR

German PMI Manufacturing (FEB A)

51.5

51.0

Medium

8:30

EUR

German PMI Services (FEB A)

53.9

53.7

Medium

9:00

EUR

Euro-Zone PMI Composite (FEB A)

50.5

50.4

Medium

9:00

EUR

Euro-Zone PMI Manufacturing (FEB A)

49.4

48.8

Medium

9:00

EUR

Euro-Zone PMI Services (FEB A)

50.6

50.4

Medium

9:00

EUR

Italian CPI (MoM) (JAN F)

0.3%

0.3%

Low

9:00

EUR

Italian CPI (YoY) (JAN F)

3.2%

3.2%

Low

9:00

EUR

Italian CPI - EU Harmonized (MoM) (JAN F)

-1.8%

-1.8%

Low

9:00

EUR

Italian CPI - EU Harmonized (YoY) (JAN F)

3.4%

3.4%

Low

9:30

GBP

Bank of England Minutes of Feb 9 Meeting

-

-

High

10:00

EUR

Euro-Zone Industrial New Orders (YoY) (DEC)

-2.8%

-2.7%

Low

10:00

EUR

Euro-Zone Industrial New Orders s.a. (MoM) (DEC)

0.5%

-1.1%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3183

1.3344

GBPUSD

1.5746

1.5897

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

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

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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22 February 2012 08:09 GMT