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Major Currencies vs. US Dollar (% change)

06 Aug 2012 – 10 Aug 2012

Dollar_Top_Currencies_Set_Sights_on_US_and_European_Growth_Data_body_Picture_5.png, Dollar, Top Currencies Set Sights on US and European Growth Data

Talking Points

  • US Retail Sales and Survey Data, Eurozone 2Q GDP Report in Focus
  • Markets to Read Economic News Directly, Not via Prism of Stimulus
  • BOE Meeting Minutes Unlikely to Yield Fodder for Pound Volatility

Most major currency pairs continue to show strong correlations with the MSCI World Stock Index, reflecting an intimate sensitivity to sentiment trends. USDJPY is a lone exception, but a strong relationship with the yield on 10-year Treasury bonds still anchors the pair to risk appetite given the haven status of US debt. On balance, this keeps investors’ focus on familiar big-picture themes: the slowdown in global economic growth and the festering Eurozone debt crisis.

On the growth front, a busy docket is ahead. In the US, July’s Retail Sales report and Augusts’ preliminary University of Michigan Consumer Confidence reading will help establish the degree of follow-through on the stronger-than-expected jobs growth figures published earlier this month. The Empire and Philadelphia Fed manufacturing surveys will also kick off the August set of leading activity indicators, offering a timely read on momentum behind the world’s top economy heading deeper into the third quarter. In the Eurozone, all eyes will be on second-quarter GDP figures. While a negative print will not be surprising – indeed, a recession in the region is readily accepted as common knowledge at this point – the degree of downturn will be important to monitor and may prove market-moving after the ECB downgraded its outlook for the region last week.

In reading the economic calendar, the markets are likely to take releases at face value, interpreting them in terms of their implications for growth rather than stimulus expectations. With disappointing Fed and ECB monetary policy announcements just behind them, investors’ hopes for accommodation are unlikely to return until all eyes turn to the Jackson Hole central bankers’ summit later this month. In the meantime, soft economic data that points toward a global recovery struggling to maintain momentum is likely to yield a sentiment-negative impact on price action. That means soft readings on next week’s stock of event risk are likely to see the US Dollar and Japanese Yen rise against their top counterparts. Needless to say, supportive outcomes stand to produce the opposite result.

On the debt crisis side of the equation, the supply of established flash-points is limited to Italy’s release of June’s public finance statement. The document will help gauge the degree to which the third-largest economy in the currency bloc is in danger of following Spain down the road to acute sovereign stress. Headline sensitivity remains significant however as traders anxiously wait for details on the many moving parts of the current landscape still clouded in uncertainty, including the “non-standard” measures being hashed out at the ECB and a possible Spanish bailout request.

Elsewhere on the docket, minutes from Augusts’ Bank of England monetary policy meeting are unlikely to prove meaningfully market-moving. Investors have already had ample time to digest the quarterly inflation report that served as the basis for the sit-down so the minutes release is unlikely to offer anything materially new that has not been priced in already.

EURO

Dollar_Top_Currencies_Set_Sights_on_US_and_European_Growth_Data_body_Picture_6.png, Dollar, Top Currencies Set Sights on US and European Growth Data

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

14 AUG

06:00

German GDP s.a. (QoQ) (2Q P)

0.2%

0.5%

High

14 AUG

06:00

German GDP nsa (YoY) (2Q P)

0.9%

1.7%

High

14 AUG

09:00

Eurozone GDP sa (QoQ) (2Q A)

-0.2%

0.0%

High

14 AUG

09:00

Eurozone GDP sa (YoY) (2Q A)

-0.4%

-0.1%

High

14 AUG

09:00

German ZEW (Curr. Situation) (AUG)

17.5

21.1

Medium

14 AUG

09:00

German ZEW (Econ. Sentiment) (AUG)

-19.3

-19.6

Medium

16 AUG

09:00

Eurozone CPI (YoY) (JUL)

2.4%

2.4%

Medium

BRITISH POUND

Dollar_Top_Currencies_Set_Sights_on_US_and_European_Growth_Data_body_Picture_7.png, Dollar, Top Currencies Set Sights on US and European Growth Data

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

14 AUG

08:30

CPI (YoY) (JUL)

2.3%

2.4%

Medium

15 AUG

08:30

Bank of England Minutes

-

-

High

15 AUG

08:30

Jobless Claims Change (JUL)

6.0K

6.1K

High

15 AUG

08:30

Retail Sales ex Auto Fuel (MoM) (JUL)

-0.2%

0.3%

Medium

15 AUG

08:30

Retail Sales ex Auto Fuel (YoY) (JUL)

2.0%

2.2%

Medium

JAPANESE YEN

Dollar_Top_Currencies_Set_Sights_on_US_and_European_Growth_Data_body_Picture_8.png, Dollar, Top Currencies Set Sights on US and European Growth Data

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

13 AUG

23:50

Tertiary Industry Index (MoM) (JUN)

-0.3%

0.7%

Medium

13 AUG

23:50

BOJ July Meeting Minutes

-

-

Medium

CANADIAN DOLLAR

Dollar_Top_Currencies_Set_Sights_on_US_and_European_Growth_Data_body_Picture_9.png, Dollar, Top Currencies Set Sights on US and European Growth Data

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

17 AUG

12:30

CPI (YoY) (JUL)

1.5%

1.5%

Medium

AUSTRALIAN DOLLAR

Dollar_Top_Currencies_Set_Sights_on_US_and_European_Growth_Data_body_Picture_10.png, Dollar, Top Currencies Set Sights on US and European Growth Data

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

14 AUG

01:30

NAB Business Confidence (JUL)

-

-3

Medium

14 AUG

01:30

NAB Business Conditions (JUL)

-

-1

Medium

15 AUG

00:30

Westpac Consumer Confidence (AUG)

-

3.7%

Medium

NEW ZEALAND DOLLAR

Dollar_Top_Currencies_Set_Sights_on_US_and_European_Growth_Data_body_Picture_11.png, Dollar, Top Currencies Set Sights on US and European Growth Data

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

15 AUG

22:30

Business NZ PMI (JUL)

-

50.2

Medium

16 AUG

22:45

PPI - Outputs (QoQ) (2Q)

-0.2%

-0.1%

Medium

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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