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FOREX: US Dollar Poised to Capitalize as Tensions Mount in the Middle East

FOREX: US Dollar Poised to Capitalize as Tensions Mount in the Middle East

2011-02-21 07:12:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • US Dollar Gains vs Euro, Pound on Safety Demand as Stocks Decline
  • New Zealand Dollar Outperforms on Rising Payouts for Dairy Farmers
  • UK House Prices Surge in February, Overall Trend Still Disappointing

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3574

1.3745

GBPUSD

1.6165

1.6328

The Euro and the British Pound declined, falling as much as 0.3 and 0.2 percent respectively against the US Dollar as stocks sold off in overnight trade, boosting safety-seeking demand for the benchmark currency. We remain short EURUSD.

Asia Session: What Happened

CCY

GMT

EVENT

ACT

EXP

PREV

JPY

15:00

Cabinet Office Monthly Economic Report

-

-

-

NZD

21:30

Performance Services Index (JAN)

50.8

-

52.1 (R-)

GBP

0:01

Rightmove House Prices (MoM) (FEB)

3.1%

-

0.3%

GBP

0:01

Rightmove House Prices (YoY) (FEB)

0.3%

-

0.4%

NZD

2:00

Credit Card Spending (MoM) (JAN)

3.8%

-

-1.7% (R-)

NZD

2:00

Credit Card Spending (YoY) (JAN)

5.6%

-

2.1% (R+)

JPY

4:30

All Industry Activity Index (MoM) (DEC)

-0.2%

-

-0.2% (R-)

The New Zealand Dollar outperformed in overnight trade, overlooking mixed economic data and a selloff across Asian stock exchanges, amid speculation that Fonterra Cooperative Group Ltd – the world’s largest dairy exporter – may raise its payout to farmers after milk powder prices hit a 31-month high. Higher payouts promise to boost hiring and spending in New Zealand’s top export industry, adding fuel to the sluggish economic recovery. The currency rose 0.5 percent on average against its major counterparts.

The New ZealandPerformance of Services Index slid to 50.8 in January, showing the non-manufacturing sector expanded at the slowest pace in 15 months. Meanwhile, Credit Card Spending soared 5.6 percent from the preceding year, showing the fastest annual growth rate since May 2008. The MSCI Asia Pacific regional benchmark index fell as downward pressure from last week’s Chinese RRR increase was compounded by spreading tensions in the Middle East, with uprisings spreading to Libya, Bahrain and Iran.

UK House Prices surged in February, rising 3.1 percent from the previous month according to report from Righmove Plc, an online listing of for-sale properties. The increase is the largest in four months. Looking past month-to-month volatility however, the trend in house prices remains troubling. Indeed, the same report showed prices added just 0.3 percent from a year before, putting the annualized growth rate at the slowest in 16 months.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

CHF

8:00

Money Supply M3 (YoY) (JAN)

-

6.6%

Low

EUR

8:00

French PMI Manufacturing (FEB P)

55.3

54.9

Low

EUR

8:00

French PMI Services (FEB P)

58.0

57.8

Low

EUR

8:30

German PMI Manufacturing (FEB A)

60.3

60.5

Medium

EUR

8:30

German PMI Services (FEB A)

60.2

60.3

Medium

EUR

9:00

German IFO - Business Climate (FEB)

110.3

110.3

Medium

EUR

9:00

German IFO - Current Assessment (FEB)

113

112.8

Medium

EUR

9:00

German IFO – Expectations (FEB)

107.5

107.8

Medium

EUR

9:00

Euro-Zone PMI Composite (FEB A)

56.9

57.0

Medium

EUR

9:00

Euro-Zone PMI Manufacturing (FEB A)

57.2

57.3

Medium

EUR

9:00

Euro-Zone PMI Services (FEB A)

55.9

55.9

Medium

Risk sentiment is likely to remain a key catalyst for currency markets in European hours as investors continue to fret about mounting tensions sweeping the Middle East and North Africa. Stock index futures ticked lower and stocks sold off in Asia after Saif al-Islam Qaddafi, the son of Libyan leader Muammar Qaddafi, spoke out on state-run television warning of an impending civil war as Tunisian- and Egyptian-style protests were met with a harsh response from security forces. Libya is the world’s 12th-largest oil exporter.

On the data front, Germany’s IFO Survey of business confidence is expected to show sentiment soured a bit, with the closely-watched “Expectations” index down to 107.5 in February having hit a record-high 107.8 in the previous month. Meanwhile, February’s preliminary Euro Zone Purchasing Manager Index figures are set to reveal region-wide economic activity decelerated for the first time since October, driven by a slowdown in manufacturing-sector growth.

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