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Yen Gains as Risk Appetite Falters, Euro Eyes Italian Bond Sale

By , Currency Strategist
13 March 2013 08:49 GMT

The Japanese Yen is outperforming as risk aversion strikes financial markets, weighing on carry trades. The Euro looks to Italian bond auction results for direction.

Talking Points

  • Yen Gains as Aussie, NZ Dollars Fall as Risk Aversion Strikes Markets
  • Euro to Look Past Industrial Production Data, Eyeing Italian Bond Sale

The Japanese Yen is outperforming as European stocks follow Asian bourses lower in early trade, with risk aversion driving an unwinding of carry trades funded cheaply in the perennially low-yielding currency. Not surprisingly, the high-beta Australian and New Zealand Dollars are feeling the brunt of the selloff. While no singular catalyst behind souring risk appetite has emerged, the move may simply owe to profit-taking.

Indeed, the MSCI World Stock Index – a proxy for larger sentiment trends – closed at a five-year high last week. Looked at another way, speculators were the most net-long S&P 500 index futures in over three years as of last week (according to data from the CFTC). With many of the fundamental themes supporting risk appetite already in the market long enough to be significantly priced in, a period of correction seems reasonable.

Eurozone Industrial Production figures headline the data docket, with output expected to drop 0.1 percent in January compared with the prior month. While soft print argues for ECB stimulus to offset recession, the central bank seems unlikely to act while political instability in Italy undermines policy transmission. With that in mind, the data’s impact on the Euro is likely to be limited. An auction of 2015 and 2028 Italian bondsmay prove of greater interest. A jump in average yields or a significant drop in the bid-to-cover ratio, a measure of demand, will point to growing sovereign risk jitters and stand to weigh on the single currency.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Food Prices (MoM) (FEB)

-0.3%

-

1.9%

23:30

AUD

Westpac Consumer Confidence (MoM) (MAR)

2.0%

-

7.7%

23:30

AUD

Westpac Consumer Confidence Index (MAR)

110.5

-

108.3

0:30

AUD

Home Loans (MoM) (JAN)

-1.5%

0.5%

-2.1% (R-)

0:30

AUD

Investment Lending (JAN)

4.4%

-

-2.0% (R+)

0:30

AUD

Value of Loans (MoM) (JAN)

1.3%

-

-2.3% (R+)

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

6:30

EUR

French Non-Farm Payrolls (QoQ)

-0.3% (A)

-0.2%

Low

7:45

EUR

French CPI (MoM) (FEB)

0.3% (A)

-0.2%

Low

7:45

EUR

French CPI (YoY) (FEB)

1.0% (A)

1.2%

Low

7:45

EUR

French CPI – EU Harmonised (MoM) (FEB)

0.3% (A)

-0.6%

Low

7:45

EUR

French CPI – EU Harmonised (YoY) (FEB)

1.2% (A)

1.4%

Low

10:00

EUR

Euro-Zone Industrial Production (MoM)

-0.1%

0.7%

Medium

10:00

EUR

Euro-Zone Industrial Production (YoY)

-2.0%

-2.3%

Medium

10:00

EUR

Italy to Sell 2015-28 Bonds

-

-

Medium

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.2992

1.3075

GBPUSD

1.4850

1.5059

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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13 March 2013 08:49 GMT