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US Dollar, Major Currencies Anchored to S&P 500 Performance

US Dollar, Major Currencies Anchored to S&P 500 Performance

2011-10-11 10:14:00
Ilya Spivak, Sr. Currency Strategist
Share:

Major Currencies vs. US Dollar (% change)

03 Oct 201107 Oct 2011

US_Dollar_Major_Currencies_Anchored_to_SP_500_Performance_body_Picture_5.png, US Dollar, Major Currencies Anchored to S&P 500 Performance

Talking Points

  • EUR: Rebound May Be Cut Short as Spotlight Turns on Slovakia
  • GBP: Risk Appetite Trends Tightening Grip Over British Pound
  • JPY: Yen Flat vs US Dollar, Crosses Reflecting Sentiment Trends
  • CAD, AUD, NZD: Stock Market Still Key Driver for Comm Bloc

Most major currencies continue to show a strong relationship with the S&P 500. Following a now familiar dynamic, this puts the spotlight once again on the evolution of the Euro Zone debt crisis as well as the US economic dataand earnings calendars as sovereign risk and growth slowdown fears continue to guide sentiment across the financial markets. The Japanese Yen remains a conflicted participant in this environment, with USDJPY still locked in place by intervention fears but the currency’s other pairings reflecting its lingering allure as a safe haven (as illustrated by the firming inverse correlation between a broad Yen index and the S&P 500 shown below).

In Europe, the focus is on Slovakia.The country is the last Euro Zone member state to vote on the ratification of the expanded powers granted to the EFSF bailout fund on July 21, with newswires reporting that the four parties that make up the ruling coalition did not reach agreement on passing the measures as of yesterday. The reforms require unanimous approval by all 17 members of the currency bloc, meaning just one “no” vote would throw the process off-track and renew downward pressure on the Euro as well as risk appetite at large.

Turning to the US, the Federal Reserve will release minutes from September’s FOMC meeting. Traders will be keen to gain insight into the central bank’s decision process to gauge whether another round of asset purchases remains a near-term policy option or if that has been largely abandoned for the foreseeable future.Last week’s congressional testimony from Fed Chairman Ben Bernanke suggests the latter scenario, but – as noted above – any insights into just how close the central bank came to opting for QE3 and what triggers could be set off to warrant it ought to prove telling nonetheless.

Meanwhile on the data docket, Retail Sales figures as well as University of Michigan Consumer Confidence gauge are set to cross the wires. The former report is expected to show receipts grew 0.7 percent, marking the largest increase in six months, while the latter sees confidence improve for the second consecutive month. The outcomes would fit within the cautiously improving trend in the pulse of US economic releases over the past four months (as tracked by a Citigroup index of US data surprises), reinforcing the likelihood that global growth faces a slowdown rather than double-dip recession.

While mildly supportive for risk appetite and therefore negative for the US Dollar, the releases also hint the Fed is unlikely to boost stimulus efforts, which seems hardly encouraging for sentiment as policymakers leave the private sector to muddle through the current soft patch with minimal additional support. This seems likely to weigh on the outlook for corporate earnings, hurting share prices and underpinning the greenback. Needless to say, the third-quarter earnings reporting season is also critical on this front, with nine S&P 500 companies including growth bellwether Alcoa Inc and banking giant JPMorgan Chase due to release results.

EURO

US_Dollar_Major_Currencies_Anchored_to_SP_500_Performance_body_Picture_6.png, US Dollar, Major Currencies Anchored to S&P 500 Performance

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

11 OCT

11:00

Slovakia Begins EFSF Ratification Vote

-

-

High

13 OCT

6:00

Germany Consumer Price Index (YoY) (SEP F)

2.6%

2.4%

Medium

13 OCT

9:00

Italy to Auction 2016-2025 Bonds

-

-

Medium

14 OCT

9:00

Euro Zone Consumer Price Index (YoY) (SEP)

3.0%

2.5%

Medium

BRITISH POUND

US_Dollar_Major_Currencies_Anchored_to_SP_500_Performance_body_Picture_7.png, US Dollar, Major Currencies Anchored to S&P 500 Performance

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

12 OCT

8:30

Jobless Claims Change (SEP)

24K

20.3K

High

12 OCT

8:30

Claimant Count (SEP)

5.0%

4.9%

Medium

12 OCT

8:30

ILO Unemployment Rate (3M) (AUG)

8.0%

7.9%

Medium

JAPANESE YEN

US_Dollar_Major_Currencies_Anchored_to_SP_500_Performance_body_Picture_8.png, US Dollar, Major Currencies Anchored to S&P 500 Performance

Source: Bloomberg

US_Dollar_Major_Currencies_Anchored_to_SP_500_Performance_body_Picture_9.png, US Dollar, Major Currencies Anchored to S&P 500 Performance

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

11 OCT

23:50

Machine Orders (MoM) (AUG)

3.9%

-8.2%

Medium

11 OCT

23:50

Machine Orders (YoY) (AUG)

-3.6%

4.0%

Medium

12 OCT

23:50

Tertiary Industry Index (MoM) (AUG)

-0.3%

-0.1%

Medium

13 OCT

23:50

Domestic CGPI (YoY) (SEP)

2.5%

2.6%

Medium

CANADIAN DOLLAR

US_Dollar_Major_Currencies_Anchored_to_SP_500_Performance_body_Picture_10.png, US Dollar, Major Currencies Anchored to S&P 500 Performance

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

11 OCT

12:15

Housing Starts (SEP)

189.5K

184.6K

Medium

13 OCT

12:30

Int’l Merchandise Trade (SEP)

-1.0B

-0.75B

Medium

AUSTRALIAN DOLLAR

US_Dollar_Major_Currencies_Anchored_to_SP_500_Performance_body_Picture_11.png, US Dollar, Major Currencies Anchored to S&P 500 Performance

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EXP

PREV

IMPACT

13 OCT

0:30

Employment Change (SEP)

10K

-9.7K

High

13 OCT

0:30

Unemployment Rate (SEP)

5.3%

5.3%

High

13 OCT

0:30

Full-Time Employment Change (SEP)

-

-12.6K

Medium

13 OCT

0:30

Part-Time Employment Change (SEP)

-

2.9K

Medium

NEW ZEALAND DOLLAR

US_Dollar_Major_Currencies_Anchored_to_SP_500_Performance_body_Picture_12.png, US Dollar, Major Currencies Anchored to S&P 500 Performance

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

12 OCT

21:30

Business NZ PMI (SEP)

-

52.9

Medium

12 OCT

21:45

Food Prices (MoM) (SEP)

-

1.3%

Medium

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me 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

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

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