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FOREX: Dollar Outperforms on Safety Demand, Kiwi Slumps on Earthquake

FOREX: Dollar Outperforms on Safety Demand, Kiwi Slumps on Earthquake

2011-02-22 06:46:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3417

1.3678

GBPUSD

1.6054

1.6225

The Euro and the British Pound plunged against the US Dollar in overnight trade, down as much as 1.1 and 0.6 percent respectively, as the greenback staged a broad-based rally versus the majors (see below). We remain short EURUSD.

Asia Session: What Happened

CCY

GMT

EVENT

ACT

EXP

PREV

NZD

2:00

RBNZ 2-Year Inflation Expectation (1Q)

2.6%

-

2.6%

The US Dollar soared in overnight trade, adding as much as 0.8 percent on average against the major currencies as Asian stock exchanges witnessed their largest daily selloff in eight months, feeding safe-haven demand for the greenback. The MSCI Asia Pacific regional benchmark stock index swooned to the tune of 2 percent amid fears that the spike in oil prices on the back of spreading turmoil in the Middle East may hamper the global economic recovery. Such worries are not without reason: among the current regional flashpoints, Libya and Iran are major crude exporters while Yemen is an important shipping point and Bahrain a key regional financial hub.

The New Zealand Dollar underperformed amid the broader selloff, losing a hefty 1.6 percent against its top counterparts after a 6.3 magnitude earthquake in the city of Christchurch, weighing on RBNZ rate hike expectations. Indeed, a Credit Suisse gauge of priced-in tightening expectations slid 27 basis points to the lowest level since May 2009.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

EUR

7:00

German GfK Consumer Confidence Survey (MAR)

5.8

5.7

Medium

CHF

7:00

Trade Balance (CHF) (JAN)

-

1.26B

Low

CHF

7:00

Exports (MoM) (JAN)

-

4.2%

Low

CHF

7:00

Imports (MoM) (JAN)

-

-4.1%

Low

CHF

7:00

UBS Consumption Indicator (JAN)

-

1.841

Low

EUR

9:00

Italian Consumer Confidence Index s.a. (FEB)

106

105.9

Low

GBP

9:30

Public Finances (PSNCR) (£) (JAN)

-6.0B

25.5B

Low

GBP

9:30

Public Sector Net Borrowing (£) (JAN)

-0.3B

15.3B

Low

GBP

9:30

Public Sector Net Borrowing Excl Interv (JAN)

-0.1B

16.8B

Low

Risk trends remain firmly in focus, with stock index futures tracking major European exchanges pointing sharply lower ahead of the opening bell to hint the safety-linked US Dollar will continue to outperform against its major counterparts. On the data front, a lackluster set of European releases is likely to see traders looking ahead to US Consumer Confidence figures and Richmond Fed manufacturing activity gauge due late into the session. Expectations call for the former reading to post the first decline in five months while the latter stalls in February having snapped a three-month winning streak in January. Signs of an uneven economic recovery in the US – long seen as a proxy for the global rebound at large – are likely to reinforce the risk-averse dynamic already in play, acting as a further catalyst for US Dollar gains.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

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

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