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US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

2011-10-19 05:15:00
Ilya Spivak, Sr. Currency Strategist
Share:

Major Currencies vs. US Dollar (% change)

09 Oct 201114 Oct 2011

US_Dollar_Major_Currencies_Held_Hostage_by_Indecisive_Risk_Appetite_body_Picture_5.png, US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

Talking Points

  • EUR: Choppy Volatility Likely to Persist Before Key EU Summit
  • GBP: BoE Meeting Minutes in Focus as Traders Gauge QE Outlook
  • JPY: Yen Crosses Reflect Risk Trends, USDJPY Still Range-Bound
  • CAD, AUD, NZD: Prices Remain Anchored to Stock Performance

Risk sentiment trends continue to dominate price action as most major currencies remain closely correlated with the S&P 500. The Japanese Yen continues to be somewhat of an exception, with USDJPY stuck in a narrow range amid lingering intervention fears while the currency’s other pairings continue to see it play a safe-haven role.

Broadly speaking, sentiment trends remain driven by the twin themes of the slowdown in the global economic recovery and the Euro Zone debt crisis. On the former front, the outlook has brightened a bit as US economic data continues to show signs of improvement. Indeed, a Citigroup index tracking US data surprises has hit the highest level in nearly six months.

Importantly, this has not dismissed the reality that global expansion as a whole is likely to slow, with economists (as polled by Bloomberg) slashing expectations for Euro area performance this and next year while China’s growth rate hit the lowest in two years in the third quarter. On balance, this means that only one of the three leading engines of worldwide economic growth is on a path to improvement, reinforcing our expectation that the pace of global recovery will moderate but a double-dip recession is unlikely.

Looking ahead, the Federal Reserve Beige Book survey of regional economic conditions as well as an updated reading on business confidence from the central bank’s Philadelphia branch will be important in shaping the evolution of the growth outlook. The third-quarter round of corporate earnings releases is likewise an important component to of fundamental data flow over the near term, with 70 S&P 500 companies still on tap to report results.

Turning to Europe, the way forward is convoluted as jittery traders cling to often conflicting headlines ahead of the upcoming October 23 meeting of EU policymakers. The sit-down was set as the deadline for the emergence of a comprehensive plan to contain sovereign stress at last weekend’s G20 finance ministers’ summit, which sparked elation among investors until Germany quickly dismissed the possibility of crafting something complete on such a tight time frame as a “dream”. Another rumor of an agreement along the Franco-German axis to expand the EFSF bailout fund to 2 trillion euro has now surfaced, but nothing says that whatever optimism this produces will not be promptly overturned as news-flow shifts gears again.

In sum, while the possibility that a truly game-changing agreement that defuses the time-bomb that is the EU debt fiasco seems unlikely, the markets appear to be hoping against hope for such an outcome to materialize. This has translated into a willingness to completely overturn sentiment trends at a moment’s notice, making it difficult to map out a trajectory of the majors for the remainder of the week.

Scanning one-off event risk, minutes from October’sBank of Englandpolicy meeting are of note. Bank Governor Mervyn King and company rebooted the quantitative easing program earlier this month, and the markets will be keen to learn the voting pattern on the rate-setting MPC committee that produced the unforeseen outcome with an eye on what can be expected down the road.

EURO

US_Dollar_Major_Currencies_Held_Hostage_by_Indecisive_Risk_Appetite_body_Picture_6.png, US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

20 OCT

14:00

Euro Zone Consumer Confidence (OCT A)

-20.1

-19.1

Medium

20 OCT

8:30

Spain to Sell 2017-2021 Bonds

-

-

High

21 OCT

8:00

German IFO – Business Climate (OCT)

106.2

107.5

Medium

21 OCT

8:00

German IFO – Current Assessment (OCT)

116.4

117.9

Medium

21 OCT

8:00

German IFO – Expectations (OCT)

97.0

98.0

High

BRITISH POUND

US_Dollar_Major_Currencies_Held_Hostage_by_Indecisive_Risk_Appetite_body_Picture_7.png, US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

19 OCT

8:30

Bank of England Minutes

-

-

High

20 OCT

8:30

Retail Sales ex Auto Fuel (MoM) (SEP)

0.2%

-0.1%

Medium

20 OCT

8:30

Retail Sales ex Auto Fuel (YoY) (SEP)

0.6%

-0.1%

Medium

JAPANESE YEN

US_Dollar_Major_Currencies_Held_Hostage_by_Indecisive_Risk_Appetite_body_Picture_8.png, US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

Source: Bloomberg

US_Dollar_Major_Currencies_Held_Hostage_by_Indecisive_Risk_Appetite_body_Picture_9.png, US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

None

CANADIAN DOLLAR

US_Dollar_Major_Currencies_Held_Hostage_by_Indecisive_Risk_Appetite_body_Picture_10.png, US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

19 OCT

12:30

Leading Indicators (MoM) (SEP)

0.1%

0.0%

Medium

21 OCT

11:00

Consumer Price Index (MoM) (SEP)

0.2%

0.3%

Medium

21 OCT

11:00

Consumer Price Index (YoY) (SEP)

3.1%

3.1%

High

21 OCT

11:00

Bank of Canada CPI – Core (MoM) (SEP)

0.2%

0.4%

Medium

21 OCT

11:00

Bank of Canada CPI – Core (YoY) (SEP)

2.0%

1.9%

High

AUSTRALIAN DOLLAR

US_Dollar_Major_Currencies_Held_Hostage_by_Indecisive_Risk_Appetite_body_Picture_11.png, US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EXP

PREV

IMPACT

None

NEW ZEALAND DOLLAR

US_Dollar_Major_Currencies_Held_Hostage_by_Indecisive_Risk_Appetite_body_Picture_12.png, US Dollar, Major Currencies Held Hostage by Indecisive Risk Appetite

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

21 OCT

2:00

Credit Card Spending SA (MoM) (SEP)

-

-1.0%

Medium

21 OCT

2:00

Credit Card Spending (YoY) (SEP)

-

4.7%

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

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