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Forex: US Dollar Looks to CPI Data to Power Continued Recovery

By , Currency Strategist
20 February 2014 11:29 GMT

Talking Points:

  • Yen Outperforms, Aussie Sinks on Pro-Taper Fed Cues and China PMI
  • Euro Sold as Soft Inflation Data Fuels Bets on ECB Stimulus Expansion
  • US Dollar Looks to January’s CPI Report to Power Continued Recovery

The Japanese Yen outperformed in overnight trade as Asian stocks followed Wall Street lower, boosting demand for the safe-haven currency. As we suspected yesterday, the broad-based erosion in risk appetite followed hawkish cues from the Federal Reserve, with a round-up of pro-taper commentary from officials including Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams followed by a firm tone in minutes from January’s FOMC meeting.

The Australian Dollar bore the brunt of selling pressure as the generally dour mood was compounded by disappointing Chinese Manufacturing PMI data from HSBC. The report showed factory-sector activity contracted at the fastest pace in seven months. China is Australia’s largest trading partner and slowing performance there bodes ill for demand prospects in the latter country’s pivotal mining sector, eroding investors’ RBA policy expectations.

The Euro likewise traded lower following disappointing German PPI and French CPI data. The former metric showed wholesale prices fell 1.1 percent year-on-year in January, marking the worst reading in at least three years. The latter put the headline inflation rate at 0.7 percent in the Eurozone’s second-largest economy. Economists were penciling in a print at 0.8 percent before the release.

The markets’ response to the subsequent publication of February’s flash Eurozone PMI readings was relatively muted, reflecting the primacy of news-flow guiding ECB policy bets in the minds of investors. Indeed, the narrow mandate guiding the Eurozone monetary authority’s actions means anemic price growth data speaks far more directly to the possibility that Mario Draghi and company will expand stimulus efforts than do broader indicators of economic activity at large.

Looking ahead, the spotlight falls on January’s US CPI print. Expectations suggest the year-on-year inflation rate accelerated to 1.6 percent, the highest in six months. As we discussed in detail earlier in the week, the outcome may bolster bets on QE “tapering” continuity and thereby help support a recovery in the US Dollar. A firm print in the context of increasingly disappointing G10 economic news-flow since late-January may likewise fuel global growth fears and sink risk appetite, weighing on sentiment-geared currencies like the New Zealand Dollar.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

ANZ Job Advertisements (MoM) (JAN)

2.8%

-

-0.7%

21:45

NZD

Producer Prices - Outputs (QoQ) (4Q)

-0.4%

-

2.4%

21:45

NZD

Producer Prices - Inputs (QoQ) (4Q)

-0.7%

-

2.2%

23:50

JPY

Merchandise Trade Balance Total (¥) (JAN)

-2790.0B

-2487.0B

-1304.2B

23:50

JPY

Adjusted Merchandise Trade Balance (¥) (JAN)

-1818.8B

-1510.0B

-1258.8B

23:50

JPY

Merchandise Trade Exports (YoY) (JAN)

9.5%

12.7%

15.3%

23:50

JPY

Merchandise Trade Imports (YoY) (JAN)

25.0%

22.7%

24.7%

0:00

NZD

ANZ Consumer Confidence Index (FEB)

133.0

-

135.8

0:00

NZD

ANZ Consumer Confidence (MoM) (FEB)

-2.1%

-

4.9%

0:46

AUD

RBA FX Transactions - Total (A$) (JAN)

362M

-

884M

0:46

AUD

RBA FX Transactions - Gov't (A$) (JAN)

-361M

-

-906M

0:46

AUD

RBA FX Transactions - Other (A$) (JAN)

18M

-

31M

1:45

CNY

HSBC/Markit Flash Mfg PMI (FEB)

48.3

49.5

49.5

5:00

JPY

Supermarket Sales (YoY) (JAN)

-0.2%

-

-0.8%

European Session

GMT

CCY

EVENT

ACT

EXP

PREV

7:00

CHF

Trade Balance (CHF) (JAN)

2.59B

-

0.52B

7:00

CHF

Exports (MoM) (JAN)

2.5%

-

1.1%

7:00

CHF

Imports (MoM) (JAN)

-2.3%

-

1.5%

7:00

JPY

Convenience Store Sales (YoY) (JAN)

-0.1%

-

-0.3%

7:00

EUR

German Producer Prices (MoM) (JAN)

-0.1%

0.2%

0.1%

7:00

EUR

German Producer Prices (YoY) (JAN)

-1.1%

-0.8%

-0.5%

7:45

EUR

French CPI (MoM) (JAN)

-0.6%

-0.4%

0.3%

7:45

EUR

French CPI (YoY) (JAN)

0.7%

0.8%

0.7%

7:45

EUR

French CPI – EU Harmonized (MoM) (JAN)

-0.6%

-0.5%

0.4%

7:45

EUR

French CPI – EU Harmonized (YoY) (JAN)

0.8%

0.9%

0.8%

8:00

EUR

French PMI Manufacturing (FEB P)

48.5

49.5

49.3

8:00

EUR

French PMI Services (FEB P)

46.9

49.4

48.9

8:30

EUR

German PMI Manufacturing (FEB A)

54.7

56.3

56.5

8:30

EUR

German PMI Services (FEB A)

55.4

53.4

53.1

9:00

EUR

Euro-Zone PMI Manufacturing (FEB A)

53.0

54.0

54

9:00

EUR

Euro-Zone PMI Services (FEB A)

51.7

51.9

51.6

9:00

EUR

Euro-Zone PMI Composite (FEB A)

52.7

53.1

52.9

11:00

GBP

CBI Trends Total Orders (FEB)

3

6

-2

11:00

GBP

CBI Trends Selling Prices (FEB)

17

17

20

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.3648

1.3696

1.3714

1.3744

1.3762

1.3792

1.3840

GBP/USD

1.6490

1.6587

1.6633

1.6684

1.6730

1.6781

1.6878

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

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20 February 2014 11:29 GMT