Euro May Fall vs. US Dollar as Data Renews Disparate Policy Bets

2016-02-12 06:32:00

Talking Points:

Euro may fall as soft GDP data fuels ECB stimulus bets, boosts risk appetite
US Dollar to see outsized gains if Retail Sales, UofM data tops expectations
NZ Dollar drops, Yen gains as risk-off Wall St. mood carries into Asia trade

Eurozone GDP figures are in focus in European trading hours. The region-wide reading is expected to show the year-on-year growth rate slowed to 1.5 percent in the fourth quarter after hitting a four-year high at 1.6 percent in the three months through September.

News-flow from the currency bloc has increasingly disappointed relative to consensus forecasts since the beginning of the year. This has been accompanied by a sharp dovish swing in priced-in ECB monetary policy expectations (as reflected in overnight index swaps).

Underperformance on the data front hints that analysts’ models are overstating the economy’s vigor, opening the door for a downside surprise on the GDP front. If previous patterns hold, such an outcome is likely to amplify bets on ECB stimulus expansion when officials convene for a policy meeting in March.

A soft result may help bring monetary policy divergence trends back to the forefront in the minds of investors, punishing the Euro against its major counterparts. The prospect of a top-up to global accommodation efforts might also boost overall sentiment, compounding pressure on the anti-risk single currency.

Later in the day, the spotlight turns to US economic news. January’s Retail Sales report is expected to show receipts grew at a rate of 2 percent year-on-year, marking a slight downtick from the 2.2 percent print recorded in the prior month. Meanwhile, February’s University of Michigan consumer confidence index is forecast to register unchanged from January.

US data flow has deteriorated relative to expectations since mid-November 2015. On the other hand, leading survey data from Markit Economics shows the consumer goods sector to have outperformed since the beginning of the year, hinting at the possibility of better-than-expected results.

On balance, soft readings seem unlikely to trigger a significant response from the US Dollar considering traders have already priced out further Fed rate hikes out of their 2016 outlook. Alternatively, upbeat results that clash with the priced-in baseline outlook may trigger portfolio readjustment and push the greenback upward.

The New Zealand Dollar underperformed in overnight trade as risk aversion carried over from Wall Street and onto Asian bourses, weighing on the sentiment-linked currency. The Japanese Yen continued to edge higher amid unwinding of carry trades financed in terms of the go-to funding unit.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
21:45	NZD	Food Prices (MoM) (JAN)	2.0%	-	-0.8%
22:30	AUD	RBA’s Stevens Testifies to Parliament Committee	-	-	-
00:30	AUD	Home Loans (MoM) (DEC)	2.6%	3.0%	1.9%
00:30	AUD	Investment Lending (DEC)	0.6%	-	1.0%
00:30	AUD	Owner-Occupier Loan Value (MoM) (DEC)	0.9%	-	2.2%
00:30	AUD	Credit Card Balances (A$) (DEC)	52.1B	-	51.3B
00:30	AUD	Credit Card Purchases (A$) (DEC)	27.6B	-	25.6B

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
07:00	EUR	German CPI (MoM) (JAN F)	-0.8%	-0.8%	Medium
07:00	EUR	German CPI (YoY) (JAN F)	0.5%	0.5%	Medium
07:00	EUR	German GDP s.a. (QoQ) (4Q P)	0.3%	0.3%	High
07:00	EUR	German GDP w.d.a (YoY) (4Q P)	1.4%	1.7%	High
07:00	EUR	German GDP n.s.a (YoY) (4Q P)	1.7%	1.8%	High
09:00	EUR	Italian GDP w.d.a (QoQ) (4Q P)	0.3%	0.2%	Medium
09:00	EUR	Italian GDP w.d.a (YoY) (4Q P)	1.2%	0.8%	Medium
09:30	GBP	Construction Output s.a. (MoM) (DEC)	2.0%	-0.5%	Low
09:30	GBP	Construction Output s.a. (YoY) (DEC)	0.8%	-1.1%	Low
10:00	EUR	Eurozone Industrial Production (MoM) (DEC)	0.3%	-0.7%	Low
10:00	EUR	Eurozone Industrial Production (YoY) (DEC)	0.7%	1.1%	Low
10:00	EUR	Eurozone GDP SA (QoQ) (4Q A)	0.3%	0.3%	High
10:00	EUR	Eurozone GDP SA (YoY) (4Q A)	1.5%	1.6%	High