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Currency Markets Look to G7 Summit to Guide Sentiment Trends

By , Currency Strategist
11 October 2012 06:05 GMT

Currency markets anxiously wait for the outcome a G7 finance ministers’ summit as officials look for solutions to Eurozone debt crisis and a global growth slump.

Talking Points

  • G7 FinMin Summit in Focus Amid Euro Crisis, Growth Slump Fears
  • European CPI Reports, ECB Monthly Report Sought for Stimulus Cues
  • Italian Bond Sale Results May Spark Eurozone Crisis Fears if Yields Rise
  • Q3 Earnings Docket Likely to Overshadow Quiet US Data Calendar
  • Australian Dollar Outperforms as Jobs Data Weighs on Rate Cut Bets

All eyes are on the G7 finance ministers’ summit underway in Tokyo. The gathering will have plenty of key issues on the agenda as the Eurozone debt crisis festers while fears about slowing global growth gain traction. Traders will scour the communiqué issued following the sit-down and any sideline commentary from top officials to guide expectations for global stabilization efforts.

On the data front, the final set of September’s German, French and Spanish CPI figures is in focus. Downside revisions may prove supportive for risk appetite and weigh on the safe-haven US Dollar as traders speculate that lower inflation will open the door for ECB stimulus, a critical consideration since the recession in the Eurozone is the most significant headwind facing global output. Needless to say, a revision higher may carry risk-averse implications. Such an outcome likely has lower market-moving potential however since early estimates already showed a strong CPI pickup in September.

The analogous dynamic is expected as the ECB Monthly Report crosses the wires. Italy will also sell a tranche of bonds spread across 2015, 2016, 2018 and 2025 maturities. A pickup in yields or particularly soft bid-to-cover readings may carry negative sentiment implications, and vice versa.

The US calendar is relatively quiet, with weekly Jobless Claims and Augusts’ Trade Balance report rounding out the docket. The third-quarter earnings docket may prove more significant with Fastenal and Safeway due to report results. Guidance from the former, a global seller of industrial and construction supplies, will help shape broad-based growth expectations. The latter, a supermarket chain operator, will help establish a reading on US consumption trends as investors continue to hope that a firmer recovery in North America will help to offset weakness elsewhere.

The Australian Dollar outperformed in overnight trade after September’s Employment report topped expectations, weighing against RBA interest rate cut expectations. The figures showed the economy added 14,500 jobs compared with the 5,000 increase penciled in by economists ahead of the report. The unemployment rate ticked higher to 5.4 percent, but the increase likely owed to an expansion of the labor force as job seekers stepped off the sidelines rather than layoffs. Indeed, the participation rate pushed higher to 65.2 percent.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:30

NZD

Business NZ PMI (SEP)

48.2

-

47.4 (R+)

21:45

NZD

Food Prices (MoM) (SEP)

-0.9%

-

0.1%

23:50

JPY

Machine Orders (MoM) (AUG)

-3.3%

-2.3%

4.6%

23:50

JPY

Machine Orders (YoY) (AUG)

-6.1%

-4.6%

1.7%

23:50

JPY

Bank Lending incl Trusts (YoY) (SEP)

1.0%

-

0.8% (R-)

23:50

JPY

Bank Lending Banks ex-Trust (SEP)

1.2%

-

1.1%

0:00

NZD

ANZ Consumer Confidence Index (OCT)

110.5

-

111.9

0:00

NZD

ANZ Consumer Confidence (MoM) (OCT)

-1.3%

-

-1.9%

0:00

AUD

Consumer Inflation Expectation (OCT)

2.6%

-

2.4%

0:30

AUD

Unemployment Rate (SEP)

5.4%

5.3%

5.1%

0:30

AUD

Employment Change (SEP)

14.5K

5.0K

-9.1K (R-)

0:30

AUD

Full Time Employment Change (SEP)

32.1K

-

0.8K (R+)

0:30

AUD

Part Time Employment Change (SEP)

-17.7K

-

-9.9K (R-)

0:30

AUD

Participation Rate (SEP)

65.2%

65.0%

65.0%

2:00

JPY

Tokyo Avg Office Vacancies (%) (SEP)

8.9

-

9.17

5:00

JPY

Consumer Confidence (SEP)

40.1

-

40.5

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

-

-

G7 Finance Ministers Meet in Tokyo

-

-

High

6:00

EUR

German CPI - EU Harmonised (MoM) (SEP F)

0.0%

0.0%

Low

6:00

EUR

German CPI - EU Harmonised (YoY) (SEP F)

2.1%

2.1%

Low

6:00

EUR

German CPI (MoM) (SEP F)

0.0%

0.0%

Medium

6:00

EUR

German CPI (YoY) (SEP F)

2.0%

2.0%

Medium

6:45

EUR

French CPI - EU Harmonised (MoM) (SEP)

0.0%

0.7%

Low

6:45

EUR

French CPI - EU Harmonised (YoY) (SEP)

2.4%

2.4%

Low

6:45

EUR

French CPI (MoM) (SEP)

-0.1%

0.7%

Medium

6:45

EUR

French CPI (YoY) (SEP)

2.2%

2.1%

Medium

6:45

EUR

French CPI Ex Tobacco Index (SEP) (SEP)

125.00

125.06

Low

8:00

EUR

ECB Publishes October Monthly Report

-

-

Medium

9:00

EUR

Italy to Sell 3-, 4- , 6- , and 13-Year Bonds

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2835

1.2914

GBPUSD

1.5977

1.6063

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya 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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11 October 2012 06:05 GMT