Dollar Rebuilds Inverse Stocks Link, Euro Looks to German Jobs Report

Talking Points

• German Jobs Data Needs Downside Surprise to Materially Impact Euro
• US Dollar Likely to Rise on Risk Aversion as Inverse Stocks Link Rebuilds
• Fed Officials’ Commentary in Focus as Traders Refine Growth Outlook

German Unemployment figures headline the economic calendar in European hours, with expectations calling for jobless ranks to shrink by 10,000 in March. The unemployment rate is expected to remain unchanged at a record-low 6.8 percent for a third consecutive month. On balance, a print in line with or reasonably better than economists’ forecasts is unlikely to prove materially market-moving considering the labor market in the Eurozone’s largest economy has steadily improving since September 2009. Traders are likely to be highly sensitive to a significant downside surprise however. This would suggest anemic performance is filtering from the periphery of the currency bloc into its core, boosting the ECB rate cut outlook and weighing on the Euro.

On the sentiment front, stock index futures tracking key European benchmarks are trading uniformly lower in late Asian hours. Short-term correlation studies suggest the US Dollar (ticker: USDollar) has markedly rebuild its inverse correlation with the MSCI World Stock Index over the past two weeks, hinting risk aversion is likely to benefit the greenback. US economic data flow remains a critical consideration on this front as investors establish their outlook for global growth in 2012 based on the perceived ability of a pickup in North America to offset a widely expected recession in Europe.

With this in mind, the spotlight will fall on the Federal Reserve speaking calendar. Remarks from Atlanta Fed President Dennis Lockhart and Philadelphia Fed President Charles Plosser ought to prove particularly interesting in that they will deal with hot-button issues for financial markets. Lockhart will discuss the impact of the Eurozone crisis on the US while Plosser will give his take on the outlook for economic growth. Fed Chairman Ben Bernanke will also deliver the last of his lectures on the central bank’s role in the 2008 crisis and beyond at George Washington University.

The US economic calendar is relatively quiet. A slight pickup to 350,000 on weekly Initial Jobless Claims will mean relatively little for the four-week average and so will probably have relatively muted implications for price action.Meanwhile, the Kansas City Fed manufacturing activitygaugeis forecast to remain unchanged in March from the eight-month high recorded in February. The final revision of fourth-quarter GDP figures is also on tap, but absent wild deviations from previously released numbers (a rather unlikely outcome) these numbers have long since factored into exchange rates and so should not generate much fireworks.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

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

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