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Dollar, Yen Vulnerable as Markets Absorb Greece-Linked News Flow

By , Currency Strategist
17 May 2012 06:33 GMT

Talking Points

  • Dollar and Yen Correct Lower in Asia, More of the Same Likely Ahead
  • Confirmation of Spain’s Q1 GDP Slump, Bond Auction Unlikely to Surprise
  • US Economic Data Set Has Potential to Boost Risk Sentiment Recovery
  • Japan’s Economic Growth Tops Forecasts, Q4 Contraction Revised Away

The US Dollar and Japanese Yen corrected lower overnight as stocks rose in Asian trade, denting demand for the go-to safe haven currencies. The MSCI Asia Pacific regional benchmark equities index rose 1 percent after Japanese GDP figures topped expectations, revealing output grew 1 percent in the first quarter. The fourth-quarter result was also revised higher to erase the 0.7 contraction initially reported to show a modest 0.1 percent increase instead. Japan is the second-largest Asian economy after China and better performance there buoyed the regional outlook at large.

Looking ahead, S&P 500 stock index futures are pointing firmly higher, hinting risk appetite may continue to recover to the detriment of the Dollar and the Yen in the coming hours. A corrective bounce seems reasonable. The prospect of Greece exiting the Eurozone – the catalyst behind the latest rout across the spectrum of risky assets – appears to have run out of shocking power for the time being as traders wait for a repeat of the general election on June 15 to get their cues on the situation. In the meantime, the negative news-flow already out there has likely entered prices already, encouraging a period of profit-taking.

The economic calendar is relatively quiet, with a final revision of Spanish GDP figures amounting to the only bit of significant event risk. Expectations call for the initial result showing a 0.3 percent quarter-on-quarter contraction to be confirmed. Madrid is also due to issue a tranche of 2015 and 2016 bonds. Traders will be keeping an eye on average yield and bid-to-cover readings but an increase in borrowing costs seems unlikely to stir fireworks after the rates spread between benchmark German and Spanish 10-year bonds hit a record-high 487.7bps yesterday.

Later in the day, the US economic docket may help drive sentiment higher. Initial and continuing Jobless Claims are expected to print lower, with the former hitting the lowest in six weeks at 365K while the latter sets another four-year low at 3225K. Separately, the Philadelphia Fed business confidence gauge is forecast to rebound in May after hitting a three-month low in April. Finally, the Leading Indicators composite is seen rising 0.1 percent in April, marking the seventh-consecutive increase and hitting the highest level since June 2008.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:00

NZD

ANZ NZ Job Ads (MoM) (APR)

-2.0%

-0.9% (R+)

22:45

NZD

Producer Prices - Inputs (QoQ) (1Q)

0.3%

0.0%

0.5%

22:45

NZD

Producer Prices - Outputs (QoQ) (1Q)

-0.1%

0.0%

0.1%

23:50

JPY

GDP (QoQ) (1Q P)

1.0%

0.9%

0.0% (R+)

23:50

JPY

GDP Annualized (1Q P)

4.1%

3.5%

0.1% (R+)

23:50

JPY

GDP Deflator (YoY) (1Q P)

-1.2%

-1.5%

-1.9% (R-)

23:50

JPY

Nominal GDP (QoQ) (1Q P)

1.0%

1.0%

-0.3% (R+)

23:50

JPY

Housing Loans (YoY) (1Q)

2.4%

-

2.2%

1:00

AUD

Consumer Inflation Expectation (MAY)

3.1%

-

3.3%

1:00

NZD

ANZ Consumer Confidence Index (MAY)

113.9

-

114

1:00

NZD

ANZ Consumer Confidence (MoM) (MAY)

-0.1%

-

3.4%

1:30

AUD

RBA FX Transaction (A$) (APR)

366M

-

944M

1:30

AUD

Average Weekly Wages (QoQ) (FEB)

1.1%

1.0%

0.5%

1:30

AUD

Average Weekly Wages (YoY) (FEB)

4.4%

4.1%

4.3%

4:00

JPY

Tokyo Condominium Sales (YoY) (APR)

81.7%

-

-6.1%

4:30

JPY

Industrial Production (MoM) (MAR F)

1.3%

-

1.0%

4:30

JPY

Industrial Production (YoY) (MAR F)

14.2%

-

13.9%

4:30

JPY

Capacity Utilization (MoM) (MAR F)

1.3%

-

-1.7%

6:00

JPY

Machine Tool Orders (YoY) (APR F)

0.4%

-

0.5%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

Spain GDP (QoQ) (1Q F)

-0.3%

-0.3%

High

7:00

EUR

Spain GDP (YoY) (1Q F)

-0.4%

-0.4%

High

8:30

EUR

Spain to Sell 2015-2016 Bonds

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2678

1.2797

GBPUSD

1.5822

1.5977

--- 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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17 May 2012 06:33 GMT