Dollar Aims to Extend Gains as Stock Index Futures Signal Risk Aversion

Talking Points

• Dollar Poised to Extend Gains as Index Futures Signal Risk Aversion
• Euro Leads Majors Lower in the Wake of French, Greek Elections
• German Factory Orders, Swiss CPI Unlikely to Stir Strong Response

The US Dollar (ticker: USDollar) pushed aggressively higher overnight as risk aversion gripped financial markets, driving demand for the go-to safe haven currency. The MSCI Asia Pacific regional benchmark stock index dove 2.5 percent and growth-geared commodities like crude oil and copper chalked up sharp losses as markets responded to over-the-weekend news that Socialist candidate Francois Hollande beat incumbent Nicolas Sarkozy to become the next President of France. Stock index futures tracking key European and US benchmarks are trading sharply lower, hinting more of the same is likely ahead.

Traders are worried that the anti-austerity Hollande will unravel Eurozone debt crisis relief efforts, which like most EU policy have heavily relied on the Franco-German axis. A failure by the mainstream pro-austerity Pasok and New Democracy (ND) parties – which pledged to form a coalition with one another – to secure a joint parliamentary majority in Greek elections also held this weekend compounded sovereign risk fears.

German Factory Orders and Swiss CPI data headline a relatively lackluster European calendar. The former is expected to show a narrow pickup in March but the result seems unlikely to mean much for the Euro given the dismal run of recent manufacturing PMI figures. The latter is forecast to show continued deflation, albeit at a slightly slower pace, which would not materially change the existing fundamental profile of the Swiss Franc and so ought to pass with little fanfare.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

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

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