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Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Ilya Spivak, Head Strategist, APAC

Major Currencies vs. US Dollar (% change)

26 Dec 11 – 30 Dec 11

Dollar_Faces_Tough_Week_Ahead_as_Focus_Turns_to_US_Economic_Data_body_Picture_5.png, Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Talking Points

  • Markets to Focus on US Data, Eurozone Debt Crisis in the Background
  • Signs of Improving US Outlook to Boost Risky Assets, Weigh on US Dollar

Tight correlations between most major currency pairs and the S&P 500 put broad-based market sentiment firmly in control of FX market price action (USDJPY remains an exception, with intervention fears insulating the pair from larger market themes). While the Eurozone debt crisis presents a lingering worry, the absence of scheduled event risk on this front until next week puts the spotlight on US economic data over the days ahead.

Economists’ consensus forecasts (as polled by Bloomberg) suggest GDP growth in the United States will accelerate to 2.1 percent in 2012, separating it from the other two leading engines of global output (the Eurozone and China) where performance is expected to deteriorate. This it will be up largely up to the North American behemoth to mitigate the severity of the worldwide slowdown now widely expected this year. With that in mind, the data docket appears broadly supportive: the ISM Manufacturing gauge is set to show factory-sector growth accelerated to the strongest in six months, Factory Orders are set to add the most since July, and the all-important Nonfarm Payrolls reading is forecast to reveal job creation continued to accelerate as the employment grew by 150,000.

On balance, this favors a cautious recovery in risk appetite and appears to bode ill for the safe-haven US Dollar against most of its counterparts. Needless to say, an unexpected headline reminding investors of the danger still posed by Eurozone sovereign solvency issues may upset this dynamic. Indeed, countries in the currency bloc will need to refinance a whopping €157 billion in maturing debt (likely at punitively high borrowing costs) just in the first three months of the year.

EURO

Dollar_Faces_Tough_Week_Ahead_as_Focus_Turns_to_US_Economic_Data_body_Picture_6.png, Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

04 JAN

9:00

Euro Zone PMI Composite (DEC F)

47.9

47.9

Medium

04 JAN

10:00

Euro Zone CPI Estimate (YoY) (DEC)

2.8%

3.0%

High

06 JAN

11:00

German Factory Orders (MoM) (NOV)

-1.8%

5.2%

Medium

06 JAN

11:00

German Factory Orders (YoY) (NOV)

-1.2%

5.4%

Medium

BRITISH POUND

Dollar_Faces_Tough_Week_Ahead_as_Focus_Turns_to_US_Economic_Data_body_Picture_7.png, Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

04 JAN

09:30

Mortgage Approvals (NOV)

52.5K

52.7K

Medium

05 JAN

09:30

PMI Services (DEC)

51.5

52.1

Medium

JAPANESE YEN

Dollar_Faces_Tough_Week_Ahead_as_Focus_Turns_to_US_Economic_Data_body_Picture_8.png, Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

05 JAN

5:00

Vehicle Sales (YoY) (DEC)

-

24.1%

Medium

CANADIAN DOLLAR

Dollar_Faces_Tough_Week_Ahead_as_Focus_Turns_to_US_Economic_Data_body_Picture_9.png, Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

05 JAN

15:00

Ivey Purchasing Managers Index (DEC)

54.8

59.9

Medium

06 JAN

12:00

Net Employment Change (DEC)

17.5K

-18.6K

High

06 JAN

12:00

Unemployment Rate (DEC)

7.4%

7.4%

High

AUSTRALIAN DOLLAR

Dollar_Faces_Tough_Week_Ahead_as_Focus_Turns_to_US_Economic_Data_body_Picture_10.png, Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

04 JAN

22:30

AiG Performance of Service Index (DEC)

-

47.7

Medium

05 JAN

00:30

Trade Balance (A$) (NOV)

1650M

1595M

Medium

NEW ZEALAND DOLLAR

Dollar_Faces_Tough_Week_Ahead_as_Focus_Turns_to_US_Economic_Data_body_Picture_11.png, Dollar Faces Tough Week Ahead as Focus Turns to US Economic Data

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

None

--- 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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