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Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

2011-10-26 13:24:00
Ilya Spivak, Sr. Currency Strategist
Share:

Major Currencies vs. US Dollar (% change)

17 Oct 201121 Oct 2011

Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key_body_Picture_5.png, Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Talking Points

  • EUR: Euro May Decline Even if EU Delivers on Debt Crisis Measures
  • GBP: Pound Could Find Demand as Anti-Euro if EU Efforts Founder
  • JPY: Yen Crosses Reflect Risk Trends, USDJPY Shifts Focus to Yields
  • CAD, AUD, NZD: Comm Block Stil Anchored to Risk Sentiment Trends

Risk sentiment trends continue to dominate price action as most major currencies remain closely correlated with the S&P 500. Broadly speaking, sentiment trends remain driven by the twin themes of the Euro Zone debt crisis and theslowdown in the global economic recovery. On the former front, the spotlight is clearly pointed on the outcome of Wednesday’s EU leaders’ summit as policymakers make a final push toward a tangible near-term solution. On the latter, all eyes are on third-quarter US Gross Domestic Product report.

Turning first to Europe, officials have to achieve on three fronts. They must: dramatically reduce the Greek debt burden by cajoling banks to “voluntarily” accept losses on as much as 60 percent of their bond holdings;come up with the money to recapitalize those banks, cutting off contagion from Greece into the rest of the EU and preventing an evaporation of liquidity that saps the already fragile economy of the credit needed to do business;and craft a mechanism for debt-strapped countries to secure funding, thereby avoiding a replay of the Greek drama elsewhere.

A flurry of would-be proposals have made their way to the newswires over recent days, but looking past the minutiae it is clear that the goal of whatever emerges after all is said and done will be – once again – to only temporarily placate the financial markets. Indeed, the debt crisis was not born of the spending habits of Greece, Italy and company but of the inherent problem in lumping very different economies under one monetary umbrella while maintaining independent and widely divergent fiscal policies. This means that a lasting fix will call for cumbersome, time-consuming steps including augmenting the EU’s core treaties. The object of the game right now then is to squash fears of an immediate meltdown, buying time to haggle over the long-term solution in the years ahead, and any plan that is unveiled will be judged on those grounds.

As for the US GDP release, expectations call for output to rise 2.5 percent in the three months through September, marking the strongest performance in a year. The outcome would confirm that the US recovery is picking up steam after a woefully disappointing first half of the year, warding off fears of a double-recession. Importantly, it is unclear whether the outcome will prove supportive for risk appetite in terms of improving the outlook for global growth or detrimental in that stronger US performance undermines the case for additional quantitative easing (so-called “QE3”). To that end, monitoring the markets’ response to the outcome ought to prove telling as traders gauge the likely dynamics of price action in the weeks ahead.

EURO

Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key_body_Picture_6.png, Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

26 OCT

16:00

EU Leaders Meet for Debt Summit

-

-

High

27 OCT

-

German Consumer Price Index (YoY) (OCT P)

2.5%

2.6%

Medium

BRITISH POUND

Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key_body_Picture_7.png, Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

27 OCT

10:00

CBI Reported Sales (OCT)

-16

-15

Medium

27 OCT

23:01

GfK Consumer Confidence Survey (OCT)

-30

-30

Medium

JAPANESE YEN

Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key_body_Picture_8.png, Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Source: Bloomberg

Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key_body_Picture_9.png, Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

27 OCT

-

Bank of Japan Interest Rate Decision

0.10%

0.10%

High

27 OCT

23:30

Jobless Rate (SEP)

4.5%

4.3%

Medium

27 OCT

23:30

National Consumer Price Index (YoY) (SEP)

0.1%

0.2%

Medium

27 OCT

23:30

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

0.2%

0.2%

Medium

27 OCT

23:30

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

-0.4%

-0.5%

Medium

27 OCT

23:50

Industrial Production (YoY) (SEP P)

-2.3%

0.4%

Medium

CANADIAN DOLLAR

Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key_body_Picture_10.png, Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

26 OCT

14:30

Monetary Policy Report

-

-

High

AUSTRALIAN DOLLAR

Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key_body_Picture_11.png, Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EXP

PREV

IMPACT

None

NEW ZEALAND DOLLAR

Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key_body_Picture_12.png, Dollar at Turning Point vs Top Counterparts, EU Summit and US GDP Key

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

26 OCT

20:00

Reserve Bank of New Zealand Rate Decision

2.50%

2.50%

High

26 OCT

21:45

Trade Balance (NZ$) (SEP)

-440M

-641M

Medium

26 OCT

21:45

Trade Balance YTD (NZ$) (SEP)

1065M

1084M

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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