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FOREX: All Eyes on US Inflation Data as Fed Outlook Remains in Focus

FOREX: All Eyes on US Inflation Data as Fed Outlook Remains in Focus

2011-02-17 07:49:00
Ilya Spivak, Sr. Currency Strategist
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Key Overnight Developments

  • Currency Markets Consolidate in Quiet Overnight Trade
  • NZ Dollar Supported Despite Disappointing Economic Data

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3490

1.3638

GBPUSD

1.5998

1.6196

The Euro and the British Pound traded sideways in overnight trade, mirroring a broad-based lull across major currency pairs (see below). The single currency oscillated below the 1.36 figure to the US Dollar while the Sterling held within a narrow band near 1.61 to the greenback. We have entered short EURUSD.

Asia Session Highlights

CCY

GMT

EVENT

ACT

EXP

PREV

NZD

21:30

Business NZ Perf of Manufacturing Index (JAN)

53.7

-

53.2 (R+)

NZD

21:45

Producer Prices - Inputs (QoQ) (4Q)

0.9%

-

0.7%

NZD

21:45

Producer Prices - Outputs (QoQ) (4Q)

0.2%

-

1.2%

NZD

2:00

ANZ Consumer Confidence Index (FEB)

108.1

-

117.1

NZD

2:00

ANZ Consumer Confidence (MoM) (FEB)

-7.7%

-

3.4%

CNY

2:00

Actual Foreign Direct Investment (YoY) (JAN)

23.4%

17.2%

15.6%

JPY

5:00

Leading Index (DEC F)

101.4

-

101.4

JPY

5:00

Coincident Index (DEC F)

103.5

-

103.1

Major currencies kept to narrow ranges in overnight trade as a light economic docket of second- and third-tier releases keeping things quiet heading into European hours. New Zealand Producer Prices added 0.2 percent in the fourth quarter, revealing the smallest increase in wholesale inflation since the three months through December 2009. Meanwhile, a measure of Consumer Confidence from ANZ Bank dropped to the lowest in 19 months. Taken together, the figures reinforced expectations that the Reserve Bank of New Zealand is in no hurry to tighten monetary policy, with a Credit Suisse gauge of traders’ priced-in rate hike expectations for the coming year dropping to the lowest in a month. The New Zealand Dollar largely ignored the disappointing news however, with the risk-linked currency rising along with a modest pickup across Asian stock exchanges.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

EUR

9:00

Euro-Zone Current Account n.s.a. (euros) (DEC)

-

-6.0B

Medium

EUR

9:00

Euro-Zone Current Account s.a. (euros) (DEC)

-

-11.2B

Medium

EUR

10:00

Euro-Zone Construction Output s.a. (MoM) (DEC)

-

-0.9%

Low

EUR

10:00

Euro-Zone Construction Output w.d.a. (YoY) (DEC)

-

-6.8%

Low

CHF

10:00

ZEW Survey (Expectations) (FEB)

-

-18.4

Low

GBP

11:00

CBI Trends Total Orders (FEB)

-9

-16

Low

With little of note on the economic calendar, the outlook for US monetary policy is likely to remain in focus after yesterday’s publication of minutes from the January Federal Reserve meeting yielded mixed results. While the rate-setting FOMC upgraded its outlook for growth and inflation, policymakers remained concerned about the lackluster pace of improvement in the labor market. On balance, this seems to suggest that a hawkish turn is in the works, but the Fed still intends to complete the current round of quantitative easing and doesn’t intend to work against its own bond-buying program by fueling tightening expectations.

With this in mind, the spotlight will turn to January’s Consumer Price Index figures which are expected to show that the annual inflation rate ticked up to 1.6 percent, the highest in eight months. Congressional testimony from Federal Reserve Chairman Ben Bernanke may also prove of note, although the central bank chief is scheduled to speak on the implementation of the Dodd-Frank financial reform bill and not on monetary policy. Weekly Jobless Claims figures and the Philadelphia Fed Business Confidence gauge are also on tap.

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To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

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