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Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Ilya Spivak, Head Strategist, APAC

Major Currencies vs. US Dollar (% change)

13 Aug 2012 – 17 Aug 2012

Euro_Crisis_Jitters_Fed_Stimulus_Hopes_in_Focus_for_Currency_Markets_body_Picture_5.png, Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Talking Points

  • Eurozone PMIs, FOMC Minutes in Focus as Markets Shape Global Growth Outlook
  • Greek PM Samaras Meets with Merkel, Hollande and Junker on Easing Bailout Terms
  • Spanish Cabinet Meeting, Press Conference Eyed for Clues on Formal Aid Request
  • RBA’s Stevens Testimony May Stoke Volatility After Controversial Treasury Report
  • Bank of Canada Rate Hike Timing Cues Sought in Remarks from Governor Carney

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 established safe-haven status of US debt. This puts familiar big-picture themes – the global economic slowdown and the Eurozone debt crisis – at the forefront once again the drivers of price action.

On the growth side of the equation, the preliminary set of Augusts’ Eurozone manufacturing- and service-sector PMI figures will offer guidance on the severity of headwinds facing the global recovery from the world’s most sickly major output hub. Meanwhile, minutes from this month’s FOMC meeting will be picked apart for clues about the possibility of a QE3 stimulus program to be unveiled in the coming weeks, either at the Jackson Hole symposium on August 31 or policymakers’ next sit-down in mid-September. A pickup on the PMI front and/or a dovish lean from Fed officials will likely be supportive of risk appetite at the expense of the US Dollar, and vice versa. The HSBC measure of Chinese Manufacturing PMI is also on tap.

Turning to the Euro area, GreekPrime Minister Antonis Samaras is in the spotlight as he holds a series of meetings with EU big-wigs in a bid for concessions on the country’s bailout conditionality, including two-year extension on the deadline to complete the required budget adjustments. Eurogroup head Jean-Claude Junker travels to Athens on Tuesday; Samaras himself will travel to Berlin and Paris for meetings with Angela Merkel and Francois Hollande on Friday and Saturday. A Spanish cabinet meeting and press conference may also prove significant as traders evaluate the likelihood of a formal bailout request in the near term. Prime Minister Mariano Rajoy has said that he will not ask for help until the ECB unveils the details of its “nonstandard” bond market support scheme, but that has not scattered speculation of a rescue effort sooner.

Separately, RBA Governor Glenn Stevens’ testimony to the House Economics Committee will be monitored closer than usual after a Treasury report published last week sank the Australian Dollar amid intervention fears. The document argued against an SNB-style effort but suggested a tightening of fiscal policy or additional RBA cuts are preferable. While this is no indication of imminent intervention, it does hint that policymakers are seriously exploring options for a future effort, and traders will now look for follow-though. BOC Governor Mark Carney is also scheduled to speak, with investors looking for additional guidance after the central bank chief alluded to forthcoming rate hikes two weeks ago.

EURO

Euro_Crisis_Jitters_Fed_Stimulus_Hopes_in_Focus_for_Currency_Markets_body_Picture_6.png, Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

23 AUG

7:30

German PMI Manufacturing (AUG A)

43.4

43.0

High

23 AUG

7:30

German PMI Services (AUG A)

50.1

50.3

High

23 AUG

8:00

Eurozone PMI Composite (AUG A)

46.5

46.5

High

23 AUG

8:00

Eurozone PMI Manufacturing (AUG A)

44.2

44.0

High

23 AUG

8:00

Eurozone PMI Services (AUG A)

47.7

47.9

High

24 AUG

8:00

Spain Cabinet Meeting, News Conference

-

-

Medium

24 AUG

9:45

Greek, German PMs Meet in Berlin

-

-

Medium

BRITISH POUND

Euro_Crisis_Jitters_Fed_Stimulus_Hopes_in_Focus_for_Currency_Markets_body_Picture_7.png, Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

24 AUG

8:30

GDP (QoQ) (2Q P)

-0.5%

-0.7%

High

24 AUG

8:30

GDP (YoY) (2Q P)

-0.6%

-0.8%

High

JAPANESE YEN

Euro_Crisis_Jitters_Fed_Stimulus_Hopes_in_Focus_for_Currency_Markets_body_Picture_8.png, Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

24 AUG

7:45

BOJ Governor Shirakawa Holds Press Conference

-

-

-

CANADIAN DOLLAR

Euro_Crisis_Jitters_Fed_Stimulus_Hopes_in_Focus_for_Currency_Markets_body_Picture_9.png, Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

22 AUG

12:30

Retail Sales (MoM) (JUN)

0.1%

0.3%

Medium

22 AUG

12:30

Retail Sales Less Autos (MoM) (JUN)

0.2%

0.5%

Medium

22 AUG

14:45

BOC Governor Mark Carney to Speak

-

High

AUSTRALIAN DOLLAR

Euro_Crisis_Jitters_Fed_Stimulus_Hopes_in_Focus_for_Currency_Markets_body_Picture_10.png, Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

22 AUG

0:30

Westpac Leading Index (MoM) (JUN)

-

-0.8%

Medium

23 AUG

23:30

Stevens Testifies to House Econ. Committee

-

-

High

NEW ZEALAND DOLLAR

Euro_Crisis_Jitters_Fed_Stimulus_Hopes_in_Focus_for_Currency_Markets_body_Picture_11.png, Euro Crisis Jitters, Fed Stimulus Hopes in Focus for Currency Markets

Source: Bloomberg

Key Event Risk

DAY

GMT

EVENT

EXP

PREV

IMPACT

23 AUG

22:45

Trade Balance (NZ$) (JUL)

30M

331M

Medium

23 AUG

22:45

Exports (NZ$) (JUL)

3.78B

4.20B

Low

23 AUG

22:45

Imports (NZ$) (JUL)

3.76B

3.87B

Low

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

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