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US Dollar, Major Currencies Still Mostly Guided by Stock Markets

US Dollar, Major Currencies Still Mostly Guided by Stock Markets

2011-09-26 11:48:00
Ilya Spivak, Sr. Currency Strategist
Share:

Major Currencies vs. US Dollar (% change)

19 Sep 201123 Sep 2011

US_Dollar_Major_Currencies_Still_Mostly_Guided_by_Stock_Markets_body_Picture_5.png, US Dollar, Major Currencies Still Mostly Guided by Stock Markets

Talking Points

  • EUR: All Eyes on Finland as Parliament Votes on New EFSF Powers
  • GBP: BoE Speeches Headline Calendar, Anti-Euro Role Taking Shape
  • JPY: Yen Intervention Risk on the Rise as Safe Haven Flows Return
  • CAD, AUD, NZD: Comm Dollars Look to Stocks for Direction Cues

Most major currencies continue to show a strong relationship with the S&P 500. Mirroring the familiar dynamic established over recent weeks, this puts the spotlight once again on the evolution of the Euro Zone debt crisis as well as US economic data as sovereign risk and economic growth fears continue to guide sentiment across the financial markets.

In Europe, the focus will be on Finland as the Parliament of the poster-child for anti-bailout EU member states votes on the fate of the expanded powers given EFSF bailout fund in late July. Most importantly, the fund’s ability to funnel money directly into ailing banks could be used to cut off contagion from a sovereign default and lay the foundation for an orderly restructuring in Greece. This would demonstrate to skeptical markets that EU policymakers are prepared to move beyond half-measures and empty rhetoric to meaningfully deal with the crisis at hand, an undeniably Euro-supportive outcome that could help engineer a near-term bounce in the single currency.

Meanwhile on the US economic calendar, a plethora of growth-sensitive data is on the docket to guide investors’ perceptions of the degree of slowdown facing the world’s top economy and by extension the globe at large. The September set of leading Manufacturing Surveys from the Dallas, Richmond and Kansas City Federal Reserve branches as well as the Chicago PMI reading are the most timely items on the docket and so are likely to prove most telling. Consumer Confidence, Durable Goods Orders, Personal Income and Spending, as well as revised second-quarter Gross Domestic Product figures are also on tap. As if this were not enough, a long list of Federal Reserve officials including stimulus dissenters Narayana Kocherlakota (Mon), Richard Fisher (Tues), and Charles Plosser (Thurs) as well as Chairman Bernanke himself (Weds) are due to hit the wires.

The Japanese Yen and British Pound once again stand out as the currencies that don’t quite fit into the sentiment-driven patterns prevalent elsewhere. For the former currency, the threat of intervention seems to be on the rise as safety-seeking capital flows attempt to push it higher in defiance of policymakers’ wishes. The last time authorities stepped in was early August, just as the S&P 500 conveniently found a near-term bottom. The subsequent period of consolidation allowed for an uneasy truce, but that balance now looks set to break down with S&P 500 positioning arguing for deepening risk aversion in the week ahead that threatens to re-intensify the tug of war between the markets and the government.

Meanwhile, the latter currency appears to be clinging closer to risk trends but the relationship is clouded as traders look to a series of speeches from Bank of England policy officials including newcomer Ben Broadbent for reading on the emerging dovish lean on the MPC rate-setting committee as murmurs of additional quantitative easing (QE) begin to circulate. Furthermore, early price actions seems to suggest the Pound is taking over from the Swiss Franc as the anti-Euro, which may see the currency trade the safe-haven camp if risk aversion is being driven by turmoil in the currency bloc.

EUR/USD

US_Dollar_Major_Currencies_Still_Mostly_Guided_by_Stock_Markets_body_Picture_6.png, US Dollar, Major Currencies Still Mostly Guided by Stock Markets

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

28 SEP

-

German Consumer Price Index (YoY) (SEP P)

2.4%

2.4%

High

28 SEP

11:00

Finnish Parliament Votes on EFSF Expansion

-

-

High

29 SEP

7:55

German Unemployment Change (SEP)

-8K

-8K

High

29 SEP

7:55

German Unemployment Rate (SEP)

7.0%

7.0%

Medium

30 SEP

9:00

Euro-Zone CPI Estimate (YoY) (SEP)

2.5%

2.5%

Medium

30 SEP

9:00

Euro-Zone Unemployment Rate (AUG)

10.0%

10.0%

Medium

GBP/USD

US_Dollar_Major_Currencies_Still_Mostly_Guided_by_Stock_Markets_body_Picture_7.png, US Dollar, Major Currencies Still Mostly Guided by Stock Markets

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

26 SEP

8:30

BoE’s Ben Broadbent Speaks in London

-

-

Medium

27 SEP

7:30

BoE’s Adam Posen Speaks in Berlin

-

-

Medium

29 SEP

7:00

BoE’s David Miles Speaks in Luxembourg

-

-

Medium

USD/JPY

US_Dollar_Major_Currencies_Still_Mostly_Guided_by_Stock_Markets_body_Picture_8.png, US Dollar, Major Currencies Still Mostly Guided by Stock Markets

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

28 SEP

23:50

Retail Trade (YoY) (AUG)

-0.8%

0.6%

Medium

29 SEP

23:30

Jobless Rate (AUG)

4.7%

4.7%

Medium

29 SEP

23:30

Job-to-Applicant Ratio (AUG)

0.65

0.64

Medium

29 SEP

23:30

National Consumer Price Index (YoY) (AUG)

0.1%

0.2%

Medium

29 SEP

23:30

National CPI Ex-Fresh Food (YoY) (AUG)

0.1%

0.1%

Medium

29 SEP

23:30

National CPI Ex Food, Energy (YoY) (AUG)

-0.6%

-0.5%

Medium

29 SEP

23:50

Industrial Production (YoY) (AUG P)

1.1%

-3.0%

Medium

29 SEP

23:50

Industrial Production (MoM) (AUG P)

1.5%

0.4%

Medium

USD/CAD

US_Dollar_Major_Currencies_Still_Mostly_Guided_by_Stock_Markets_body_Picture_9.png, US Dollar, Major Currencies Still Mostly Guided by Stock Markets

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

30 SEP

12:30

Gross Domestic Product (MoM) (JUL)

0.3%

0.2%

High

30 SEP

12:30

Gross Domestic Product (YoY) (JUL)

2.3%

2.0%

Medium

AUD/USD

US_Dollar_Major_Currencies_Still_Mostly_Guided_by_Stock_Markets_body_Picture_10.png, US Dollar, Major Currencies Still Mostly Guided by Stock Markets

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EXP

PREV

IMPACT

30 SEP

1:30

Private Sector Credit (MoM) (AUG)

0.2%

0.2%

Medium

30 SEP

1:30

Private Sector Credit (YoY) (AUG)

2.8%

2.7%

Medium

NZD/USD

US_Dollar_Major_Currencies_Still_Mostly_Guided_by_Stock_Markets_body_Picture_11.png, US Dollar, Major Currencies Still Mostly Guided by Stock Markets

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

29 SEP

21:45

Building Permits (MoM) (AUG)

-1.5%

13.0%

Medium

30 SEP

22:45

NBNZ Business Confidence (SEP)

-

43.3

Medium

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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