FOREX: Dollar May Rise with Share Prices as US Economic Data Firms

Talking Points

• Dollar to Rise Alongside Stocks on Another Batch of Firm US Data
• Canadian Dollar Underperforms Before Manufacturing Sales Report
• Yen Lower on Treasury Yield Outlook Following US Economic News

The US Dollar (ticker: USDollar) was little changed in overnight trade as a lackluster economic calendar and muted price action across Asian stock exchanges left currency markets without clear direction cues. The Canadian Dollar narrowly underperformed, presumably ahead of the upcoming Manufacturing Sales report that is expected to show receipts growth slowed for a second month in January. The JapaneseYen also traded a bit heavy before a large dollop of US economic data crosses the wires, where stronger outcomes may put upward pressure on Treasury yields.

The relatively standstill appears likely to carry forward into early European hours, with a small helping of minor event risk on the docket unlikely to prove particularly market-moving. All eyes will be looking ahead to the US economic data set, where expectations point to supportive outcomes. Industrial Production is forecast to rise 0.4 percent in February after a flat print in January, the University of Michigan Consumer Confidence gauge is seen printing at the highest in 13 months, and month-on-month CPI is expected to accelerate for a second month.

Price action over the past week has been marked by an impossible-to-ignore breakdown in the inverse correlation between the US Dollar and share prices. Indeed, strong US economic data has produced gains for the S&P 500 and the greenback alike over recent sessions. This may reflect the impact of better economic news on the Fed’s posture, with this week’s FOMC outing clearly demonstrating that Ben Bernanke and company are responding to signs of firming recovery by downgrading dovish rhetoric. On balance, this suggests the buck is likely to end the week on a firm note if economists’ expectations prove telling.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

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

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