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FOREX: Dollar May Advance with Stocks on Rising Treasury Yields

FOREX: Dollar May Advance with Stocks on Rising Treasury Yields

2011-02-25 08:10:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • NZ Dollar Outperforms Despite Traders’ Certainty of RBNZ Rate Cut
  • Yen Slumps as Oil Prices Fail to Hold Highs, Stoking Risk Appetite

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3739

1.3873

GBPUSD

1.6074

1.6229

The Euro edged higher in overnight trade, adding 0.2 percent against the US Dollar as risk sentiment recovered in Asian trade (see below) to weigh on the safety-linked currency. The British Pound was little changed, tracking sideways below 1.6150 to the greenback.

Asia Session: What Happened

CCY

GMT

EVENT

ACT

EXP

PREV

JPY

23:30

Tokyo Consumer Price Index (YoY) (FEB)

-1.0%

-0.2%

0.0% (R+)

JPY

23:30

Tokyo CPI Ex-Fresh Food (YoY) (FEB)

-0.4%

-0.3%

-0.2%

JPY

23:30

Tokyo CPI Ex Food, Energy (YoY) (FEB)

-0.3%

-0.3%

-0.3%

JPY

23:30

National Consumer Price Index (YoY) (JAN)

0.0%

-0.1%

0.0%

JPY

23:30

National CPI Ex-Fresh Food (YoY) (JAN)

-0.2%

-0.3%

-0.4%

JPY

23:30

National CPI Ex Food, Energy (YoY) (JAN)

-0.6%

-0.6%

-0.7%

GBP

0:01

GfK Consumer Confidence Survey (FEB)

-28

-27

-29

CNY

1:35

MNI Business Condition Survey (FEB)

58.21

-

61.11

The New Zealand Dollar outperformed in an otherwise quiet overnight session, with the risk-linked currency finding demand amid a recovery in risk appetite across Asian exchanges despite growing expectations of an RBNZ rate cut in March. Indeed, a Credit Suisse gauge of traders’ priced-in outlook shows markets now see a 100% chance of a cut at the upcoming policy meeting.

The MSCI Asia Pacific regional benchmark index rose 1 percent, with the rebound in sentiment linked to a pullback in oil prices stoked after the benchmark WTI crude oil contract failed to hold above $100/barrel having spiking to a three year high of $103.41 in New York trade. Prices retreated after Saudi Arabia pledged to lift output in a bid to offset supply disruptions amid lingering turmoil in Libya and US President Barack Obama said the world’s top oil-consuming country has enough reserves to ride out current tensions. The recovery in risk appetite proved detrimental for the Japanese Yen, with the stand-by funding currency sliding against all of its top counterparts.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

EUR

-

German Consumer Price Index (MoM) (FEB P)

0.5%

-0.4%

Medium

EUR

-

German Consumer Price Index (YoY) (FEB P)

2.1%

2.0%

Medium

EUR

7:45

French Consumer Spending (MoM) (JAN)

-0.7%

0.6%

Low

EUR

7:45

French Consumer Spending (YoY) (JAN)

2.6%

0.4%

Low

EUR

9:00

Euro-Zone M3 s.a. (3M) (JAN)

2.0%

1.6%

Low

EUR

9:00

Euro-Zone M3 s.a. (YoY) (JAN)

2.1%

1.7%

Low

GBP

9:30

Gross Domestic Product (QoQ) (4Q P)

-0.5%

-0.5%

High

GBP

9:30

Gross Domestic Product (YoY) (4Q P)

1.7%

1.7%

Medium

GBP

9:30

Private Consumption (4Q P)

-0.2%

0.3%

Low

GBP

9:30

Government Spending (4Q P)

-0.4%

-0.4%

Low

GBP

9:30

Gross Fixed Capital Formation (4Q P)

-0.2%

3.4%

Low

GBP

9:30

Imports (4Q P)

1.8%

1.7%

Low

GBP

9:30

Exports (4Q P)

1.5%

1.5%

Low

GBP

9:30

Index of Services (MoM) (4Q P)

-1.1%

0.0%

Low

GBP

9:30

Index of Services (3Mo3M) (4Q P)

-0.4%

0.5%

Low

GBP

9:30

Total Business Investment (QoQ) (4Q P)

-0.4%

3.1%

Low

GBP

9:30

Total Business Investment (YoY) (4Q P)

12.6%

8.9%

Low

CHF

10:30

KOF Swiss Leading Indicator (FEB)

2.06

2.1

Medium

Risky assets are poised to stage a relief rally into the end of the trading week, with stock index futures hinting Europe will follow Asian exchanges higher. While not intuitive, the recovery may boost the US Dollar as an exodus of capital from the safety of US Treasuries and back into higher-yielding investment vehicles pushes yields higher, driving demand for the benchmark currency.

On the data front, the focus will be on German Consumer Price Indexfigures, with the headline inflation rate expected to print at a 28-month high of 2.1 percent in February. The outcome promises to feed already growing European Central Bank rate hike expectations to compound upward pressure on the Euro against its top counterparts after the single currency touched a three-week high in overnight trade.

The outcome of the general election in Ireland ought to pass by with little fanfare considering a widely-expected victory by the EU-friendly Gine Gael party is unlikely to derail standing bailout agreements, although a failure to win power outright may weigh on sentiment depending on which third party – Labour or Sinn Fein – is tipped to be included in the ruling coalition (the latter being the relatively more Euro-bearish outcome).

Meanwhile, a detailed breakdown of fourth-quarter UK Gross Domestic Product figures is set to reveal broad-based weakness across the major components of economic growth, which may trim Bank of Englandrate increase expectations in the wake of this week’s hawkish MPC meeting minutes release and weigh on the Pound. Finally, KOF Swiss Leading Indicator is expected to tick a bit lower in February, which could see the Franc trim its standout rally this week on the back of geopolitically-driven safety demand.

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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